Action Through Innovation: Private Sector Solutions to Recouping Stolen Pandemic Funds
Summary
The printed record of a September 27, 2023 House Committee on Small Business hearing on private-sector approaches to recouping pandemic loan funds lost to fraud, published as Small Business Committee Document Number 118-027, with Chairman Roger Williams presiding. Williams's opening statement cites an OIG estimate that $200 billion went to bad actors, almost 20 percent of all pandemic lending. Ranking Member Nydia Velazquez says approximately $1.2 trillion was disbursed through SBA pandemic relief programs and objects to a House bill cutting the Inspector General's fiscal year 2024 budget from 47.7 million to 32 million. Witnesses were the chairman of Breeden Capital Management, LLC, a fraud investigations director at ID.me, a managing director of Alliantgroup and a former deputy executive director of the PRAC.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
ACTION THROUGH INNOVATION: PRIVATE SECTOR
SOLUTIONS TO RECOUPING STOLEN PANDEMIC
LOAN FUNDS
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
SEPTEMBER 27, 2023
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-027
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-334 WASHINGTON : 2024
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HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MORGAN MCGARVEY, Kentucky
MARIE GLUESENKAMP PEREZ, Washington
HILLARY SCHOLTEN, Michigan
SHRI THANEDAR, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jun
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Roger Williams.............................................. 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Mr. Richard C. Breeden, Chairman, Breeden Capital Management,
LLC, Lantana, FL............................................... 5
Mr. JT Taylor, Senior Director of Fraud Investigations and
Operations, ID.me, Mclean, VA.................................. 6
Mr. Dean Zerbe, National Managing Director, Alliantgroup,
Washington, DC................................................. 8
Ms. Linda Miller, Former Deputy Executive Director, PRAC,
Currently Chief Executive Officer of Audient Group, LLC,
Washington, DC................................................. 10
APPENDIX
Prepared Statements:
Mr. Richard C. Breeden, Chairman, Breeden Capital Management,
LLC, Lantana, FL........................................... 33
Mr. JT Taylor, Senior Director of Fraud Investigations and
Operations, ID.me, Mclean, VA.............................. 46
Mr. Dean Zerbe, National Managing Director, Alliantgroup,
Washington, DC............................................. 68
Ms. Linda Miller, Former Deputy Executive Director, PRAC,
Currently Chief Executive Officer of Audient Group, LLC,
Washington, D.............................................. 82
Questions and Answers for the Record:
Questions from Hon. Velazquez to Ms. Linda Miller and Answers
from Ms. Linda Miller...................................... 86
Additional Material for the Record:
Discussion Draft............................................. 88
ACTION THROUGH INNOVATION: PRIVATE SECTOR SOLUTIONS TO RECOUPING STOLEN
PANDEMIC FUNDS
----------
WEDNESDAY, SEPTEMBER 27, 2023
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 9:58 a.m., in Room
2360, Rayburn House Office Building, Hon. Roger Williams
[chairman of the Committee] presiding.
Present: Representatives Williams, Stauber, Meuser,
Salazar, Molinaro, Alford, Bean, LaLota, Velazquez, Phillips,
McGarvey, Gluesenkamp Perez, Scholten, Chu, and Davids.
.
Chairman WILLIAMS. Good morning. Before we get started I
want to recognize our colleague from the great state of
Missouri for the prayer and the pledge.
Would you please stand?
Mr. ALFORD. Let's go to God in prayer.
God, we are just so thankful to be here today on this Small
Business Committee. We ask a blessing on our Chair and our
Ranking Member that they will guide us and direct us as we
question the witnesses today and give us discernment and
wisdom, God, that you will help us with our votes to lead this
great nation to greater prosperity through small business, the
fabric of America, God. Through Jesus Christ I pray. Amen.
I pledge allegiance to the flag of the United States of
America. And to the Republic for which it stands, one nation
under God, indivisible, with liberty and justice for all.
Chairman WILLIAMS. Good morning, everyone. And I now call
the Committee on Small Business to order.
Without objection, the Chair is authorized to declare a
recess of the Committee at any time.
I now recognize myself for my opening statement.
Welcome to today's hearing where we will be looking at the
unacceptable amount of fraud that occurred during the COVID-19
pandemic and what could be done to recoup those stolen taxpayer
dollars.
During the pandemic, the SBA took an outsized role in
helping America's economy. The PPP and the EIDL loan programs
were incredibly important for our nation's entrepreneurs and
allowed many businesses to keep their doors open throughout all
the uncertainty.
However, the after action reports show that these programs
were extremely susceptible to fraud. The OIG estimates that
$200 billion dollars in taxpayers' money were given out to bad
actors which accounts for almost 20 percent of all pandemic
lending. This is completely unacceptable and we must find ways
to rectify these issues.
If we keep doing business as normal, the OIG says that they
will have more than 100 years of casework to go through in
order to properly investigate all the loans that have been
tagged as fraudulent. In the private sector, if there was an
accounting hole of this magnitude, the business owners would do
all they could to get his receivable back into the bank
account. This Commitmtee is working to find creative solutions
to do just that and recoup the stolen pandemic funds for the
taxpayers.
I am proud that in our last two markups, this Committee
passed four COVID fraud bills that must be done to recover
those stolen dollars. We cannot allow the American taxpayer to
be on the hook for 200 billion, and we must do a better job to
maintain public trust that this level of fraud was an isolated
event.
I look forward to discussing with our witnesses' innovative
ideas on how to catch fraud early and ensure hard-earned
taxpayer dollars are being used for their intended purpose.
This could mean greater use of data matching tools and proving
interagency collaboration or mandating more strict standards
for identity verification in any program that gives out
taxpayer dollars.
Additionally, we must find a better way to recover stolen
funds on the back end. There will always be fraudsters and
criminals looking to take advantage of any government program
that is giving our money but we must have the ability to catch
these bad actors and bring them to justice so they will not be
able to continue defrauding the American people. Regardless of
what solutions are brought to the table, it is clear we cannot
continue with business as usual.
Too many times in government we hear that something can't
be done or that isn't how it was done in the past. Well, the
private sector does not think like this. They encounter a
problem; they immediately go to work and then they fix it.
I am excited to hear from our witnesses today on new ways
we can work to prevent and detect fraud moving forward. I thank
all our witnesses for being here, and I look forward to this
discussion.
With that I will now yield to the distinguished Ranking
Member from New York, Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
We are here today to discuss the SBA's efforts in
recovering fraudulent loans and preventing future fraud. Over
the past 3 years, this Committee has played an integral role in
examining the pandemic relief programs which helped millions of
small businesses stay afloat in unprecedented times.
Approximately $1.2 trillion of economic aid was dispersed
through SBA's pandemic relief programs over the course of the
pandemic, with much of that originating in the first 9 months
of the pandemic under the Trump administration.
While there may be disagreement on the actual estimates of
fraud, it is clear we need to work together to protect the
integrity of SBA programs from bad actors. The SBA under the
leadership of Administrator Guzman has taken strong steps to
root out fraud in the pandemic relief programs and put strong
controls in place to prevent future fraud.
Earlier this year we heard testimony from Administrator
Guzman that SBA is doing just that. In 2022, SBA established a
Fraud Risk Management Board aligning its practices with GAO's
oversight policies. A new role was also created-the SBA's
Special Counsel for Enterprise Risk to advise the Administrator
on fraud and risk management activities. The agency continues
to work collaboratively with the SBA Inspector General, the
interagency COVID-19 Fraud Enforcement Task Force, and the
Department of Justice to recover stolen funds.
With that said, we must be clear. The SBA is not an
investigative agency, and it does not have a team of auditors,
investigators and attorneys, or state-of-the-art data analytics
technology to root out and prosecute fraud. That is the role of
the Inspector General. It is important that we understand the
difference between the missions of the SBA and the Office of
the Inspector General if we are going to effectively develop
policies to prevent and recover fraud.
To that end, the single, most important action we can take
to combat fraud is to fully fund the Inspector General's budget
request. Unfortunately, their budget for fiscal year 2024 was
slashed from 47.7 million to 32 million in the House Financial
Services and General Government Appropriations Bill. We are
just days away from a government shutdown which will limit the
OIG's and law enforcement efforts to recover fraudulent funds.
Put simply, this is unacceptable. We must take our
responsibilities seriously.
In the last Congress, I joined with Representative
Luetkemeyer to sponsor legislation to extend the statute of
limitations for fraud in PPP and EIDL to 10 years. These two
bills which became law sent a strong message that unscrupulous
behavior would not be tolerated and that those who commit fraud
will be held accountable in the years to come--but it is all
for not if we do not give the Inspector General the resources
it needs.
I look forward to hearing from our witnesses today, and I
am certainly open to new, creative ideas provided we are
committed to fully funding the Office of the Inspector General
and the law enforcement community.
Thank you, Mr. Chairman. I yield back.
Chairman WILLIAMS. Thank you very much.
And I will now introduce our witnesses.
The first witness here with us today is Mr. Richard
Breeden. Mr. Breeden is the Chairman of Breeden Capital
Management, LLC, located in Greenwich, Connecticut. Mr. Breeden
founded Breeden Capital Management in 2005 focused on taking
concentrated investment stakes in mid-cap companies and
supporting staffs to improve shareholder value. In addition to
serving as the Chairman of Breeden Capital Management, he also
serves as Chairman of the Nominating and Governance Committee
of the Board of Steris PLC and is a trustee of the George H. W.
Bush Presidential Library. Prior to starting his company, Mr.
Breeden served as the 24th Chairman of the U.S. Securities and
Exchange Commission, as well as several positions under
Presidents Reagan, Bush, and Clinton. Mr. Breeden attended
Stanford University where he received his B.A. and went on to
attend Harvard Law School where he earned his J.D.
Mr. Breeden, thank you for being with us today, and we look
forward to the conversation that is ahead with you.
Our next witness with us today is Mr. JT Taylor. Mr. Taylor
is a senior director of Fraud Investigations and Operations at
ID.me located in McLean, Virginia. ID.me allow individuals to
securely verify their identity online, helping to prevent fraud
and abuse. Prior to his time at ID.me, Mr. Taylor worked for
the U.S. Secret Service as a special agent, as a supervisory
intelligence operations officer for the Office of the Director
of National Intelligence, and as an intelligence officer for
the U.S. Navy. Mr. Taylor went to West Virginia. They play TCU
this Saturday. I did not know if you knew that or not. Where he
earned his bachelor of science in management information
systems, as well as Norwich University where he earned his
master of science, and Louisiana State University where he
earned his master of business administration.
Mr. Taylor, thank you for joining us today, and we look
forward to our conversation.
The next witness with us today is Mr. Dean Zerbe. Mr. Zerbe
is the national managing director of Alliantgroup located in
Houston, Texas. At Alliantgroup, Mr. Zerbe is responsible for
monitoring tax-related legislative activities here in
Washington to keep clients and staff informed and help direct
Alliantgroup service offerings to ensure client needs are met.
Prior to his time at Alliantgroup, Mr. Zerbe was senior counsel
and tax counsel to the Senate Committee on Finance where he
worked with the Chairman of the Finance Committee, Senator
Grassley on tax legislation. During this time on the Finance
Committee, he was involved with almost every piece of tax
legislation signed into law including the 2001 and 2003 tax
reconciliation bills among others. Mr. Zerbe holds an LLM in
taxation from NYU and J.D. from George Mason University.
Mr. Zerbe, thank you for joining us today. We look forward
to our conversation that is ahead.
And I now recognize the Ranking Member from New York, Ms.
Velazquez, to briefly introduce our last witness appearing
before us today.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Linda Miller served as the Deputy Director of the Pandemic
Response Recovery Committee. She is one of our country's
foremost experts on preventing and detecting fraud. Prior to
launching her own consulting business, she was a Principal at
Graham Thornton where she led the firm's fraud and financial
crimes practice. She was also the Assistant Director in the
forensic audits and investigative service group at the
Government Accountability Office. She has a wealth of
experience and has dedicated her career to helping
organizations identify and manage fraud.
Welcome, Ms. Miller, and I look forward to your testimony.
Thank you.
Chairman WILLIAMS. Thank you. And again, I appreciate all
of you being here today.
Real quickly, just as a reminder, before recognizing the
witnesses I would like to remind them that their oral testimony
is restricted to 5 minutes in length. And if you see the light
turn red in front of you it means your 5 minutes has concluded
and you should wrap up your testimony. If you go too long I
will give it a little of this (gavel tapping). You will hear
that. Okay?
I now recognize Mr. Breeden for your 5 minute opening
remarks.
STATEMENTS OF RICHARD BREEDEN, CHAIRMAN, BREEDEN CAPITAL
MANAGEMENT, LLC; JT TAYLOR, SENIOR DIRECTOR OF FRAUD
INVESTIGATIONS AND OPERATIONS, ID.ME; DEAN ZERBE, NATIONAL
MANAGEMENT DIRECTOR, ALLIANTGROUP; LINDA MILLER, CEO, AUDIENT
GROUP, LLC
STATEMENT OF RICHARD C. BREEDEN
Mr. BREEDEN. Thank you very much, Chairman Williams,
Ranking Member Velazquez, Members of the Committee. I am
honored to be here and appreciate your invitation.
For about 35 years, perhaps a little more, about half my
life, I have been involved in efforts to combat fraud, to help
victims of fraud overcome the ravages of the crimes committed
against them, and in many cases to try and recover money that
has been stolen from the public.
I have done that in a variety of settings in both the
public sector and the private sector. I worked in the White
House under Presidents Reagan and George H. W. Bush, 41, and
during the time working in the White House for 41 I was very
actively involved. One of the principal draftsmen of the
legislation known as FARIA that helped solve the savings and
loan crisis, which has involved a great deal of fraud and the
legislation contained quite a few provisions intended to help
recover the monies that had been involved in fraudulent loans.
I was Chairman of the SEC for just under 4 years, and every
single day involved fighting fraud. That is what the SEC does
among other things but it is a never ending struggle and in any
marketplace there are people who will abuse the market. And the
SEC, for every day I was there, we were involved in antifraud
efforts.
And for the last 20 years I have administered a series of
funds for victims of fraudulent activity. The last few years I
have served as head of the Madoff Victim Fund on behalf of the
Justice Department, and my firm works for both the Department
of Justice and the SEC in administering funds for victims. A
big part of that work is making sure to help make sure that the
money in these funds makes it to the intended victims is to
make sure that we identify and block false claims.
So your topic today is very important. It is near and dear
to my heart but it is important to taxpayers, to the SBA and
its work and to faith in our institutions. So it could not be
more important.
About 11.4 million loans were made in the pandemic
programs. In our work over the last 35 years, I have never seen
a program with fraud incidents lower than roughly 30 percent.
If government puts up a billboard that says, ``free money,
apply here,'' lots of people will come. And unfortunately, not
all of them are entitled to participate.
So I think the estimates, we will never know the total
amount of fraud but the estimates even at the high end of 200
billion could be conservative. That is just the world we live
in. And I think it is important as was mentioned to remember
the time pressure that we were under and the great, great good
that these programs accomplished. And nothing in the later
efforts should take away from that.
The amount of fraud, the SBA has estimated 25 billion; GAO,
200 billion. It could be 400 billion. We will never know. There
was an ocean of fraud and now the question is how much of the
improper funds can we get back?
There are a lot of ideas. My written testimony lays out a
number of ideas as do the other witnesses. But I think overall
the 100 years of fraud and 100 years' worth of investigations
that I certainly have no problem. When I was at the SEC, we
were always trying to make sure we had enough resources. And
making sure that OIG has enough resources is an important
question.
But we do not have 100 years. And if we give them more
resources, and it takes 3 to 5 years to train somebody to know
what they are looking for, our time, and even on an extended
statute of limitations will run out. So the goal to me should
not be let's figure out how to get 100 years to 93 years or 86
or 72l; it is how do we accomplish the most we can possibly
accomplish over the next 5 years.
To do that I would say we have to supplement the resources
that exist, whether at current levels or enhance levels, but
find ways to break up the caseload, bring other people onto the
playing field, and use the private sector to go after some of
the bad actors.
I suggest in my testimony forming small groups, private
sector contractors. Medicare and Medicaid do something similar.
The SEC does it. The DOJ does it. Other agencies do it so I am
not certainly having something totally innovative but in this
area I think it could pay great dividends.
Most importantly is to have a mentality of an outrageous
sense of urgency here to get after this problem and get as much
done as possible. Thank you, sir.
Chairman WILLIAMS. Thank you.
And I now recognize Mr. Taylor for his opening remarks.
STATEMENT OF JT TAYLOR
Mr. TAYLOR. Thank you, Mr. Chairman.
Chairman Williams, Ranking Member Velazquez, and Members of
the Small Business Committee, I am honored to be here today.
My name is JT Taylor, and I serve as the senior director of
fraud at ID.me.
Before this role I dedicated a significant portion of my
professional career to the U.S. intelligence community and the
U.S. military, serving in both as an intelligence operations
officer. Later, I served as a special agent with the United
States Secret Service, where I led a series of pivotal domestic
and international fraud and cybercrime investigations.
My tenure in intelligence operations and my investigative
endeavors have granted me a comprehensive and nuanced
perspective on the challenges inherent to digital fraud and
cyberthreats.
When the pandemic gripped our world, governmental bodies
like the Small Business Administration and the Department of
Labor stood on the frontlines swiftly allocating relief funds.
However, haste led to vulnerabilities in security and identify
verification. The SBA's Office of Inspector General identified
worry signs. Numerous IP anomalies pointed towards foreign
intrusions and coordinated fraud attempts. The misuse of
employer identification number was rampant with multiple PPP
loans under single EINs.
Furthermore, there was a starting discovery of businesses
declaring post-deadline establishment dates and recurring use
of identical contact details across different applications.
The funding system supporting these initiatives are
intrinsically linked with the broader business ecosystem.
Conventional practices involve businesses contributing to
benefit funds calibrated on their workforce size.
But the massive, unexpected unemployment claims threaten
this balance. State debts have increased and there is now an
impending risk of businesses, particularly smaller ones, facing
escalating per employee taxes. This is a multi-dimensional
problem with repercussions for the entire U.S. economy.
The pandemic served as a double-edge sword. On one side is
unveiled resilience and adaptability of our institutions. On
the other it exposed areas where we were woefully unprepared,
chiefly in the arena of cybersecurity and fraud detection.
In these challenging times, states sought robust, scalable
solutions. Twenty-seven states turned to ID.me which is not
just another tech company but a leading credential service
provider. Independently certified against rigorous standards
set by the National Institute of Standards of Technology, ID.me
embodies the pinnacle of digital identify verification.
Supporting a user base exceeding 113 million, the impact of
ID.me on fraud prevention has been profound. Partner states
witnessed transformative results. Fraud rates drastically
diminished. Authentic claims experienced seamless processing
and financial savings were substantial.
Beyond the monetary gains, the rejuvenation of public trust
in an era when faith in public institutions is fragile is
invaluable. In this digital era, standards like this curated by
NIST are not optional but foundational. Overlooking these
guidelines as seen sporadically during the pandemic leads to
compromising security.
In today's digital world, data has emerged as a prime
commodity. Amid this landscape, data brokers who amass, refine,
and frequently monetize user information have risen in
prominence. Although they often work within current legal
constraints, their vast data repositories offer a Goldeneye for
malicious entities.
The financial drain due to digital fraud during the
pandemic serves as a testament to the perils posed by easily
accessible data. There is an urgent need for our defense
mechanisms to adapt considering this threat landscape. A
comprehensive strategy that merges the strengths of both the
private and public sectors is imperative.
The Macomb School of Business from the University of Texas
at Austin revealed that a concerning 11 percent of PPP loans
exhibited suspicious traits. Notably, the top 12 lenders with
the highest rates of suspicious loans are all Fintech lenders.
Given the disparity between the statute of limitations for bank
fraud and wire fraud, it is imperative that Congress takes
action to address the inconsistency, particularly in the
context of the PPP loans.
In addressing the multifaceted nature of fraud, a dual
pronged approach is essential. First, we bolstered the
collaboration of data sharing across agencies. By harnessing
the capabilities of the Pandemic Analytic Center of Excellence
and fostering deeper ties within the private sector, we can
integrate data matching earlier in the benefit payment cycle.
Simultaneously, it is crucial to democratize data
validation tools. The Social Security Administration's
electronic consent based Social Security Number verification
tool, currently exclusive to financial institutions, should be
extended to approve credential service providers. Such an
expansion would ensure equitable access benefitting a broader
demographic and further strengthening our antifraud measures.
Agencies should adopt digital identity solutions such as
those perfected at ID.me with strict adherence to the NIST 800-
63-3 guidelines. This ensures robust identity proofing
minimizing fraudulent access and upholding the integrity of
public portals.
In our collective journey--and the challenges of the
pandemic, it is imperative that we absorb its lessons. Our
trials and triumphs underscore the essence of teamwork,
innovation, and unwavering commitment to establish identity
verification protocols. Whether it is the commendable work by
organizations like ID.me or the diligent oversight by entities
like SBA OIG, we have seen the potency of dedicated efforts. We
are urged to build on this momentum, reinforce our defenses,
honing our strategies and equipping ourselves better. The
American people deserve benefit programs that prevent, detect,
and recoup fraudulent payments.
I thank the Committee for this platform, and I am happy to
answer any questions you may have.
Chairman WILLIAMS. Thank you very much.
And let me just say this. You are going to see people
coming and going. They are not leaving. We have got other
hearings. They will come, they will leave, and so forth, so if
that is something you were wondering about that will happen.
Next, I want to recognize Mr. Zerbe for his 5 minute
opening remarks.
STATEMENT OF DEAN ZERBE
Mr. ZERBE. Thank you, Mr. Chairman. Thank you, Ranking
Member, for having me today at this important hearing about how
to recover funds that were put forward in the SBA COVID Relief
Program.
I am coming forward today to talk about a specific
bipartisan solution that has had bipartisan results over the
years recovering billions of dollars in other government agency
programs, namely basically rewarding and incentivizing
whistleblowers to come forward and lay out the details of fraud
that they are seeing.
Just as a quick background on me, Mr. Chairman. You laid it
but specific to this you said I worked for Chairman Grassley on
the Senate Finance Committee. I wrote the IRS whistleblower law
that then served as the model for the SEC whistleblower law and
the CFTC and other government programs. And I now also practice
as an attorney in this area representing whistleblowers.
I would just say that the benefits of a whistleblower
program are pretty straightforward. First of all, you have to
understand in fraud, fraud is purposely being hidden. It is
hidden in the nature of it. If you want to get it, you have got
to get insiders with informed, knowledgeable detailed
information. That is how you uncover fraud, and study after
study has shown that. And we have seen that, for instance, in
the IRS programs. They did not know beans about what was going
on with offshore accounts until a whistleblower came in and
blew it all out for them. The whistleblowers give you the keys
to the kingdom in terms of what is going on. So they are a
proven way to do it.
I think in particular that it is useful for the SBA to
consider this because of the resource limitations and where
they are going. The idea of the whistleblower is that they are
going to help the government agency, whichever it is, better
target and package and go after the bad actors. In other words,
when I am filing a whistleblower complaint, I can assure you it
is with a bow on it and on a T-ball in terms of what I am
trying to do because I want to provide a narrative of what is
going on. I want to provide all the documents. I want to
provide everything from teeth to tail of what is happening.
Why? Because I want to get the agency to move so that my client
can get paid. So you are doing a lot of the lift for the agency
in terms of assisting them in terms of the work. You are also
doing a better job for the agency of helping them target the
bad actors. Even the best government agency has a difficult
time identifying, okay, who is really here? You have the
whistleblower coming in. They know who the bad actor is. They
have got the goods on them and they are much better at
identifying, which actually is the positive of leaving the
honest folks out there alone. So you are better targeting
resources as well, too, with that. So I think with the SBA that
is good.
I think another thing that is helpful here is in reading
the SBA IG's reports, they clearly have a culture of embracing
whistleblowers and that is terrific. Clearly, they are bringing
folks in. They are taking that. One of their biggest cases that
they mentioned in the white paper was hundreds of millions of
dollars from one whistleblower. And what you are trying to do
is build that out and encourage more whistleblowers to come
forth, particularly well placed, knowledgeable, informed
insider whistleblowers that are coming forward. So I think you
are benefitting from the fact that the SBA already has got a
welcome mat forward and you are trying to expand beyond that in
terms of it.
One thing I think will be music to ears--since the time
from being a staffer on the Senate side is CBO should score
this. They should score this as a revenue raiser. They have
scored other money. I am sorry, other whistleblower programs.
The AML bill that just passed scored $4 million. I think all
these scores are low by the way. For instance, my program, they
scored it out at I think a few hundred million dollars joint
tax. It has brought in billions of dollars since it came in.
But they will score it and your staff will work with them and I
am sure get that there.
The other thing I want to mention is the deterrent ability
of whistleblowers. Look, when you are out there as a fraudster
and all you are thinking is, well, I have just got to get it by
those folks over at the agency, that is one calculation. If you
have got a whistleblower program they have got to say, okay,
well, now I have got to trust everybody else in this room. I
have got to trust my banker, my secretary. Any of them can dime
me out. And so it changes dramatically the way the equations go
of can I get away with it? It also affects their behavior. What
we find in tax is that they are constricting who is involved.
They try to limit what it is so it has an impact on their
behavior. It has a deterrent impact as well, too.
The last thing I would just note just on a highlight, my
written goes into it more, I think four hallmarks for a good
whistleblower program, one having a mandatory award program,
not discretionary. Have a floor and a ceiling based on the
amount recovered broadly defined. You want a dedicated payment
so that the funds are there. You are not having to go run to
the approp boys to get dollars for it. And these are standard
by the way. What I am laying out is what we have in all the
whistleblower award programs. Have an established office within
OIG that wakes up thinking about the whistleblowers and is
putting out the welcome mat for them. And then you have
independent review.
The whistleblower, look, when you are getting very good
whistleblowers I am getting not just, you know, Billy in the
dark room. I am getting the vice president of Tax coming
forward. They are putting their life at risk in terms of doing
this. They need to have confidence. It does not mean they are
going to be guaranteed a payment but if their provided
information is used and it ends up collecting money, they are
going to get a fair shake and that somebody independently is
going to look at that. It is not just to the whim.
So I thank you, Mr. Chairman, having me here today. I
appreciate it very much.
Chairman WILLIAMS. Thank you very much.
And now we recognize Ms. Miller for her 5 minute opening
remarks.
STATEMENT OF LINDA MILLER
Ms. MILLER. Thank you, Chairman Williams, and Ranking
Member, Ms. Velazquez, and Members of the Committee.
I sit here today as a former Olympic athlete, a former
government executive, a former partner at a large accounting
firm, and a small business owner. And I am bringing all of
those perspectives to my comments today.
I spent my career working to help the government fight
fraud. I led the development of the GAO framework for managing
fraud risks in federal programs, and worked with Congress to
draft the Fraud Reduction and Data Analytics Act of 2016.
When I was the partner at Grant Thornton, my team led the
development of the Treasury Antifraud Playbook. I sat on the
task force that developed the COSO Fraud Risk Management Guide
which governs the private sector. I serve on the Advisory Panel
of U.K. Public Sector Fraud Authority. And I sit as a Member of
the Identity Theft Resource Centers Biometric Working Group.
As soon as PPP and COVID EIDL programs were unveiled, those
of us in the fraud world saw this as a field day for fraud
actors. We did not have to think about it to see how much fraud
was going to happen in these programs.
An example, the COVID EIDL grant program was essentially
money that was known to not need to be repaid back. Anybody
that applied for that money got it without having to provide
any eligibility information. And you know, at that point the
only thing keeping somebody from stealing that money was their
own moral compass. And that is not exactly a good fraud
control.
At that time, the fear and desperation of America's small
business was such that the decision to get this money out with
few, if any controls to verify the eligibility of the
information provided by borrowers was widely accepted. Speed
was the goal.
From celebrities stealing PPP loans and buying luxury cars
to adversarial nation state actors executing coordinated and
elaborate schemes, there were staggering levels of fraud in
these programs.
The finger of blame can be pointed in several different
directions and it has been over the last 3 years. SBA had not
seriously considered fraud risks prior to the pandemic and it
was unprepared for the breadth and the sophistication of the
adversary.
Congress created program rules and time pressure that made
it nearly impossible for the SBA to verify the eligibility of
applicants. And unscrupulous lenders looked for ways to game
the system and pocket outrageous profits and fees.
Today, the work of clawing back the stolen pandemic loan
funds is left to the SBA OIG and its law enforcement partners.
As the deputy executive director of the PRAC, I worked closely
with Mike Ware, SBA's Inspector General. IG Ware and his team
have worked tirelessly to investigate and prepare for
prosecution thousands of fraud cases and the work has only
begun.
Thanks to this Committee, Congress has recently extended
the statute of limitations on pandemic fraud to 10 years. And
given the caseload, the IG is going to need at least that long
to bring fraud actors to justice.
For the past 3 years, the SBA Inspector General's work has
yielded a 200 percent return on investment. But its backlog is
enormous and the office is stretched thin. This is not the time
to cut the Inspector General's budget. Funding the IG at his
requested levels will ensure this exceptionally productive work
can continue.
But the backlog is not just with investigators. Bringing
fraud actors to justice requires prosecutors to try those
cases. The U.S. attorneys are also stretched thin, and there is
no shortage of high quality cases to prosecute. Innovation in
recouping pandemic loan fraud must require more than simply
putting good cases on the U.S. attorneys' desks.
Today's hearing is also exploring the role of identity
theft in pandemic loan programs, so it is important to note
that identity theft plays a role in loan fraud, but it was not
the largest driver of fraud in PPP or COVID EIDL. Front end
identity verification technology, including remote biometrics,
is but one tool in SBA's toolset and it is by no means a
panacea.
Fraud actors created shell companies, often using stolen
information to apply for loans. But this type of identity theft
base fraud is uncovered through conducting due diligence on the
information in those applications and SBA has done quite a bit
more of this due diligence to date. They now require tax
transcripts of loan applicants. They use vendor information to
verify a bank account. And they flag certain EIN prefixes, none
of which was done at the start of the pandemic.
Despite these improvements, SBA does have more work to do.
They have to continue to mature their preventative antifraud
capabilities. They must adopt a culture that is conducive to
fraud risk management and they have to collaborate with the OIG
to ensure that lessons learned are incorporated into their
antifraud controls.
I was a rower in the 2000 Olympics, and as such I know a
thing about teamwork. My career has straddled the public and
private sectors for a reason. Because I believe that the
government and the private sector make a powerful team. The
government relies on the private sector innovation, and the
private sector requires services like main street saving loan
programs that only the government can provide.
I look forward to discussing the productive ways the
private sector can assist the government in recovering loans
and preventing fraud going forward. Thank you.
Chairman WILLIAMS. Thank you very much. And good job on the
5-minute rule. It is great.
I will now recognize myself for 5 minutes.
When I first heard about the 200 billion dollars in
potential fraud in the SBA pandemic lending programs, it made
me think about how a business owner would act in this
situation. They would have to decide whether they do all they
can to collect the $200 billion that is on their books as a
receivable, or to write it off as a loss. No private entity has
the luxury of writing off such a massive number, so I think it
is our duty to be good stewards of the taxpayers and find ways
to give this money back which we have already begun to talk
about.
The SBA's Inspector General told us that they currently
have over 100 years of casework if they are going to
investigate all the loans that have been flagged for fraud.
This is obviously an impossible task and there must be a better
way to help them get this money back.
So Mr. Zebre, during your time as senior counsel to the
Senate Finance Committee, you crafted legislation under Senator
Grassley to overhaul the IRS whistleblower program as you said
and my team and I are exploring the idea of creating a similar,
self-sustaining program which will allow any citizen to collect
a commission if they report COVID fraud that results in money
returned to the Treasury.
So the question is, do you think it would be possible to
create this type of program that would empower every day
Americans to report fraud? And what are some of the things we
should be aware of as we look to create this program?
Mr. ZERBE. I think that is an excellent question, Mr.
Chairman.
I have seen it. A number of government agencies have
created these whistleblower award programs. And so I think very
much SBA is a good possibility in terms of also looking at
creating a whistleblower award program. You already have the
Qui Tam False Claims Act where they are bringing a few cases in
right now from attorneys from whistleblowers and that has had
some success. But I think having in parallel with that an in-
house whistleblower award program will very much be a way to,
as you say, commission to bring in the energy of the
whistleblowers that are attorneys, that are advisors, to help
the SBA move forward. So yes, I think it is a very good
candidate for the SBA to look at doing. Absolutely.
Chairman WILLIAMS. Great. Thank you.
Mr. Breeden, you are currently working as special master
for the victims of Bernie Madoff's Ponzi scheme. This requires
you and your team to go through massive data sets to find out
what claims are legitimate and which ones are fraudulent.
So the question is, can you speak on how massive financial
recovery is possible when there is such a large quantity of
data to go through?
Mr. BREEDEN. Yes, sir. It is definitely a challenge. In the
Madoff Victim Trust which I administer we have had about 70,000
claims covering $80 billion in claimed losses. We have approved
about 10 billion of that. So there is always a significant
difference. And some of it is legitimate, and some not between
what gets originally claimed and what you end up approving
after you have reviewed it very carefully.
We have had data documents, brokerage statements and so on
from victims going back 20 years. Millions of pages of
documents covering hundreds of thousands of transactions. And I
love technological systems. Our company, our victim trust, we
use systems to scan things all the time. But the most effective
tool is an experienced person sitting looking at the analytics
and deciding that there is a problem that needs greater follow
up. So big data can do a lot of things but it is not going to
haul crooks in to identify and have someone go after them. So
it is a mix of systems and trained people.
And one of the problems we have today is starting now to
bulk up investigative resources in the SBA, for example, that
is great but it takes 3 to 5 years to mint somebody that really
knows what they are looking at. And so you have got to lag
ineffectiveness. I think it is still possible. We have done the
Madoff work and identified thousands and thousands of improper
loans, and some that were referred for prosecution and that
have generated recoveries but that is not our principal role,
with a relatively small group of people. And that is why I
think the combination of mini-SWAT teams that are focused on
recovering money and focused on reading the, you know, out of
12 million loan files. All right. Suppose you took the 100,000
largest loans and have people who know what they are looking at
read the files and look at where are the cases that are best
cases to prosecute?
Chairman WILLIAMS. Thank you. My time is up and I now
recognize the Ranking Member for 5 minutes of questions.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Ms. Miller, we have established that the Inspector General
and law enforcement are the lead organizations to investigate
and recover fraudulent monies. What is the most important
action that we can take to help recover stolen funds?
Ms. MILLER. Well, if we want to recover stolen funds, the
action needs to be focused at the IG because the IG and the law
enforcement partners of the IG are the only entities who have
the authority to do investigations and prepare cases for
prosecution.
Ms. VELAZQUEZ. In your opening statement, you mentioned the
fact that we passed the law to extend to 10 years to go after
the bad actors. Through the legislation we gave them, OIG, more
time but now they need the resources. If the OIG is not fully
funded we will not be able to capitalize on these two new laws;
correct?
Ms. MILLER. Correct.
Ms. VELAZQUEZ. Mr. Zerbe, IG Ware testified before our
Committee that their HUD line produced 90,000 actionable leads
that will take more than 100 years to examine. The law
enforcement community has said they need more resources to
investigate, prosecute, and recover fraudulent monies.
How does your proposal meet the needs of the law
enforcement community and improve prosecutorial outcomes?
Mr. ZERBE. Thank you for that.
Just one quick note. When you are talking about Mr. Madoff,
I cannot help but note that it was a whistleblower, Mr.
Markopolos, that revealed Mr. Madoff. Just as an aside.
I think that is an excellent question. I think it is
twofold. When you are incentivizing whistleblowers, it is one
thing to get a tip that they may get at SBA that is of some use
but these tips kind of tend to be, hey, I saw a guy at a bar
and he had a fancy car. I mean, they are not that useful a lot
of them. And when you are incentivizing a whistleblower and
encouraging, they are going to come in with a full package.
They are going to come with a lot more detail, much more robust
assistance in terms of what is going on. So really helping the
agency do its work. So helping them expand their work.
But to your point, too, and one thing to consider, maybe
this is a way to split the baby is that a number of the
whistleblower award programs do allow for a partial recovery of
the funds for the IG shop itself. In other words, HHS IG with
the Qui Tam program. They basically get reimbursement for their
investigations. CFTC similarly with their whistleblower
program, they get to reimburse their costs for their expenses
for these whistleblower programs. So it kind of aligns
everyone's behavior. So something maybe for the Committee to
think about of a way to finesse the issue. But that would be
now it is. Primarily, it is allowing the agency to work more
expeditiously, ma'am.
Ms. VELAZQUEZ. Thank you.
Ms. Miller, in your view, would this proposal be a more
cost-effective way to recover fraudulent funds as opposed to
fully funding the Office of Inspector General and the law
enforcement community?
Ms. MILLER. I mean, I would not say that we should do that
instead of fully funding the Office of Inspector General. I
could not speak to how much that is going to improve
prosecutorial outcomes but it is possible. It will cost money.
You will have to create an office, and you will have to pay
those people salaries. And so the scoring could come back.
Ms. VELAZQUEZ. Here we are at the brink of a government
shutdown over the budget; right?
Ms. MILLER. Right. Exactly.
Ms. VELAZQUEZ. Okay. Mr. Taylor, privacy advocates have
concerns about the large amount of data ID.me collects to
verify users' identities--data like Social Security numbers,
military records, bank and credit card records, biometric data,
and government documents. Does your company share this data
with third parties?
Mr. TAYLOR. Thank you for the question, Ranking Member
Velazquez. I appreciate it.
Our privacy policy is one of the most robust in the
industry. I would counter that our privacy policy is actually
even more stronger than the average grocery store that you
visit on a daily basis. We do not do any type of selling or
trading of personal data. Additionally, from a standpoint----
Ms. VELAZQUEZ. To be clear, you do not sell or share this
data with third parties?
Mr. TAYLOR. That is correct, ma'am.
Ms. VELAZQUEZ. Okay.
Mr. TAYLOR. No selling or trading----
Ms. VELAZQUEZ. Does ID.me benefit monetarily from the data
provided by American citizens?
Mr. TAYLOR. ID.me makes money via the actual identity
verification itself and successful transactions, meaning
successful identity verifications versus transaction based.
Ms. VELAZQUEZ. Thank you.
Mr. Breeden, based on your experience overseeing the Madoff
Victim Fund, could you please share any lessons learned from
your experience that could help law enforcement recover from
pandemic fraud?
Mr. BREEDEN. Well, thank you.
In addition to Madoff I did WorldCom and Enron and British
Petroleum and a couple of JPMorgan cases. And so I have
actually reviewed, my staff and I, about 150 people all told
over 20 years. Have reviewed over 4 million claims to these
victim funds.
Chairman WILLIAMS. Time is up.
Ms. VELAZQUEZ. Thank you.
Chairman WILLIAMS. Time is up and we can put that in
writing if need be. Okay.
I now recognize Representative Alford from Missouri for 5
minutes.
Mr. ALFORD. Thank you, Mr. Chairman and Ranking Member, for
holding this important, very important hearing today. And thank
you for our witnesses, all of you, for being here.
We are here for one reason and one reason only. In the
words of Jerry Maguire, ``Show me the money.'' This is taxpayer
money we are talking about here. Congress knew that this money
had to get out the door fast. We had an economic crisis from
the pandemic. So the House and the Senate came together to do
just that. Some fraud was expected but not $400 billion worth
of fraud on the American taxpayers.
I am still disgusted that Administrator Guzman would not
bother to come down here and talk to us about her lower
projects of fraud and what she is doing about it to get that
money back for the American people.
That is why we introduced 3 weeks ago the CAB Act. We
cannot get inside the Small Business Administration to go visit
Ms. Guzman. We want to change that. The Congressional Access to
Bureaucratic Officers. According to the Inspector General's
report, 33 percent of all EIDL loans were estimated to be
fraudulent. These loans were administrated solely through the
Small Business Administration. And I know that Administrator
Guzman released a report contradicting that but let's stick to
the fraud, abuse, and misuse expert, the IG.
This is in stark contrast to the PPP loans which are only 8
percent estimated to be fraudulent. These were loans
administrated through lending partners, private businesses who
could get it done right.
The first step in solving any problem is recognizing that
there is one and addressing the issues. Clearly, there are
problems. We are here today to find answers.
Mr. Breeden, I want to start with you. You talked about in
your testimony a couple of quotes. Remember the good in this
program at the time that we had it, up to $400 billion as we
are now recognizing. You call it an ocean of fraud which I
think is very apt. Does the good outweigh the bad in this
program?
Mr. BREEDEN. I do not know that I am qualified to answer
that. I think we were faced with a crisis the likes of which in
my lifetime I have never seen. It would have been nice to be
tighter in how we handled it. We did not. That is water over
the dam from my perspective. The question is how do we go after
the money that was taken improperly?
I have spent 20 years doing that for the SEC, for the
Justice Department, and you do not do it by writing reports.
You do it by taking the largest transactions, going through
them, putting knowledgeable people reviewing it, and where you
find problems, refer it, get teams and prosecutors to go after
it. And we have to remember that iceberg of stolen money a few
years from now will be an ice cube. Time is of the essence.
Mr. ALFORD. Well, clearly we do not have the resources to
do this right now with the Inspector General's office. You are
proposing the private sector fill in the gaps. Could this work
with the whistleblower program? Put everyone on commission and
lets get this $400 billion back.
Mr. BREEDEN. Yes, sir. I think you could. That is what I am
suggesting that other agencies supplement their internal
sources with people on the outside. I have for the last 10
years worked for the Department of Justice. I am not a
government employee but under contract we work for them. Every
day we try and find fraud and refer it to prosecutors.
Mr. ALFORD. Are there any prosecutorial risks once we get
to court with these when the private sector is involved versus
someone with the government?
Mr. BREEDEN. None whatsoever.
Mr. ALFORD. There you go.
What do we learn from this now? Really quickly, can you
give me one thing that we can improve on next time, God forbid
we have another emergency like this?
Mr. BREEDEN. A little slower. A better pace. Systems
knowing ahead of time you are going to have a lot of fraud and
that you have to go through the data as you make each and every
loan. It is way better for the taxpayers to stop the fraud
before it happens then to go after it later.
Mr. ALFORD. Thank you, sir.
Ms. Miller, quick question. You said you worked with the
Inspector General on this. Have you met with the Inspector
General?
Ms. MILLER. Yes. Many times.
Mr. ALFORD. Have you met with Administrator Guzman on this
topic?
Ms. MILLER. No.
Mr. ALFORD. Why not?
Ms. MILLER. I worked for the Pandemic Response
Accountability Commitmtee, so Mike Ware, the IG is a Member of
that Committee. So I worked closely with him. I did not have a
reason to meet with----
Mr. ALFORD. If you happen to talk to her would you tell her
we would really like for her to come down here and explain the
differences between her number and the number of the IG and
what we are going to do to get this back? Would you do that for
me? Thank you very much.
Ms. MILLER. Yeah, I have some ideas about the differences,
too, I could share.
Mr. ALFORD. Well, thank you very much. I yield back.
Chairman WILLIAMS. Thank you. I now recognize
Representative Davids from the great state of Kansas for 5
minutes.
Ms. DAVIDS. Thank you, Chairman. And thank you to you and
to the Ranking Member for holding this hearing today.
As several of our witnesses have already pointed out,
combatting waste, fraud, and abuse of government dollars should
be something that we are all interested in. The Small Business
Administration's COVID-19 relief programs, like the Paycheck
Protection Program and the Economic Injury Disaster Loans
certain saved countless small businesses from closing. But
unfortunately, American taxpayers and many other small
businesses were victimized by fraudulent actors that stole
those desperately needed funds, a total of which is estimated
to be over $200 billion. And to date the SBA and Office of
Inspector General have successfully recovered about $30 billion
in fraudulent COVID-19 funds.
But certainly, there is more work to be done. Given the
unprecedent scope of these pandemic programs, we have a lot
ahead of us. But I know we are currently responding to
pandemic-related fraud. But we also need to be prepared to
properly mitigate widespread fraud during future emergencies.
And that means ensuring that our government oversight resources
are prepared in utilizing the best practices that we have
learned during the COVID-19 pandemic. I do think that everyone
here today shares a common goal of protecting American taxpayer
dollars and ensuring that we are being fiscally responsible
while doing that.
So before I dive into my question I do want to thank all of
our witnesses for sharing your perspectives, for your service,
and making sure that we have a better stewards of the
taxpayers' dollars.
So the first question, Ms. Miller, I would like to ask you.
Given the SBA OIG has shared this concept of 100 years' worth
of pandemic-related casework to properly review, review the
cases, I am curious how you--maybe you can share some of the
insights you have about how we can better prevent the fraud,
waste, and abuse going forward as we look at--not if, but when
we face future emergencies.
Ms. MILLER. Yes. And I think that is a really important
point because we are talking about recovering pandemic stolen
funds today, but it is water over the dam. And it is really
important to prepare agencies for the future. SBA had not
implemented many, if any, of the practices of the GAO framework
for managing fraud risk in federal programs which GAO issued in
2015. The comptroller general has made comments publicly in
several hearings about his disappointment that agencies did not
take that document more seriously and follow those practices.
And so going forward, SBA has begun to take some steps.
They have established a Fraud Risk Management Board, which is a
good, centralized entity that shows some commitment. But they
need to continue to build, and all agencies, especially SBA and
anybody that is administering a lot of direct funding to the
public, preventative antifraud controls that use data. And that
is really important. SBA has begun that work but there is much
more work for SBA to do in the future if they want to make sure
that they can be prepared for the next.
And I want to make a point about recovering funds. A lot of
the funds that were stolen were identity theft funds. Those
were nation state actors. We are not going to get those back
from whistleblowers or anybody else. They are gone. We are not
going to get that money back, unfortunately.
Ms. DAVIDS. So one of the things that I did want to ask you
about as well as the suggestion of incentivizing
whistleblowers. I am curious in your view with the SBA OIG in
their current capacity housing some sort of whistleblower
management office what, really quickly, if you could tell me
what your thoughts are on that.
Ms. MILLER. Yeah. I mean, they are going to have to add
staff to fund that office. And so, you know, given that the IG
is already stretched, you know, it could be. I am really not
qualified to weigh in on the cost benefit of it but it would
definitely add resources, and the SBA OIG has mentioned that he
needs more resources than he already has now. So that has to be
considered.
Ms. DAVIDS. I am low on time.
Mr. ZERBE. If I could add to the conversation.
Ms. DAVIDS. Oh, yeah.
Mr. ZERBE. The only thing I would just say to that is I do
not know the details either but I would say it may be minimal
because they are already dealing with folks coming in with tips
and resources in the thousands. So I do not know if it is going
to need a big expansion. I am sorry.
Ms. DAVIDS. No, I appreciate that.
In the limited time I have left, I might follow up with all
of you with some of the additional questions I have but I do
want to highlight a couple of things, particular from the
voices from the private sector. One of the things that I have
noticed is that some of our systems of data management and
vetting probably need to be updated and upgraded. And that
might also be something that the private sector could be
helpful with SBA on. From this Committee's perspective I might
follow up questions on that as well. Thank you.
Chairman WILLIAMS. I now recognize Representative Bean from
the great state of Florida for 5 minutes.
Mr. BEAN. A very good morning to you, Mr. Chairman. And
good morning, Small Business Committee. I have been cheering
over the weekend so my voice is here but I got just enough to
get through 5 minutes of questions. Panelists, it is very good
to see you this morning.
Here is the biggest thing. We do not agree on much but we
do agree that there is fraud. We all agree that there is fraud.
Here is the numbers. Here is the discrepancy of disagreement.
Secretary Guzman says there is only 36 billion in fraud; yet,
Inspector Ware says maybe there is 200 to 600 billion. Which is
it?
Ms. Miller, do you want to start us off?
Ms. MILLER. Yeah, well, I think that it really depends on
how you define it. So the SBA believes that certain EIDL loans
and certain PPP loans should not be considered fraudulent
because, for example, if an EIDL loan is in repayment the SBA
believes that a loan that is in repayment, it is illogical to
consider that that loan would be fraudulent. The SBA IG does
not agree. So they do not agree on the terms.
Mr. BEAN. Gotcha. But that number is bigger than 36 billion
you think?
Ms. MILLER. We do not know. I mean, I do think it is bigger
than 36 billion.
Mr. BEAN. Let me go to Mr. Breeden. You say that number is
bigger than 36 billion?
Mr. BREEDEN. Massively bigger.
Mr. BEAN. It is. I think that is the correct answer that it
is bigger than 36 billion.
Mr. BREEDEN. In 35 years I have never seen a program with
less than 30 percent roughly false claims. So that puts you at
a much, much higher number.
Mr. BEAN. They come out. One of the hardest things that I
have had to deal with, I guess, and maybe you are familiar with
it. And it deals with Barbie. I do not know if you are familiar
with Barbie. You know about Malibu Barbie or Presidential
Barbie, but we now have Swindler Barbie. And I want to show you
some of the actual logins that our vendors accepted as real
people. And you can see behind me right now.
Mr. Taylor, are you familiar with this? Are you familiar
with the scam that was run?
Mr. TAYLOR. I am, sir. What you are looking at is a mess
that made it through Fintech platforms.
Mr. BEAN. I gotcha. Now, what can we do in the future so
that Barbie or Ken--he got in on this action, too, by the way--
what can we do to prevent Barbie and Ken from getting in on the
fraud?
Mr. TAYLOR. At ID.me, we deal with Ness 1:00:43xx quite
regularly. We stop them in their tracks through something
called Presentation Attack Detection, sir. PAD.
Mr. BEAN. So there is software that we just did not employ
or did not use?
Mr. TAYLOR. That is correct, sir. Whenever we get somebody
on camera we ensure that they are a live person.
Mr. BEAN. Very good. Would it shock any of you, I just read
an article this morning that Tencent, a big Chinese company
that is a major investor in Womply, which is one of our
vendors, we paid them $2 billion to administer this fraud.
Would that shock anybody that we paid Beijing to make sure that
this fraud happens?
Mr. Breeden, does that shock you?
Mr. BREEDEN. No, sir.
Mr. BEAN. Yeah. We call this Crazy Town for a reason a
little bit.
Here is just a toss up question I have. The frustrating
thing is there was talk of just letting smaller loan frauds go.
Just saying, you know what? We will just let that go. But I say
no. I say no, and I think everybody up here says no. I filed
the ``We Want Our Money Back Act,'' which says we want our
money back and we are not going to let it go. And so I have
that bill. There are other bills that say lets extend the
statute of limitations to go after it. There is another bill
that says anybody that is suspected of fraud shall be
prohibited from any government program until it is worked out.
I think that is a great bill, too.
What else do we need to do? What else do we need to do to
get our money back?
Ms. Miller, jump in.
Ms. MILLER. Yeah, well, one thought is that you can offer
amnesty to those people who pay back the money. Amnesty from
prosecution for those individuals that are willing to
voluntarily give the money back. I suspect there are a number
of people who have the money and they know that they got it
erroneously. They got it fraudulently. And if they thought they
were protected from prosecution they might give it back.
Mr. ZERBE. Can I--I am sorry. Go ahead.
Mr. BEAN. No, go ahead. Go.
Mr. ZERBE. I would add that the IRS is facing the same
level of fraud in the Employee Retention Credit Program. And
the amnesty is something that they are basically putting out
there to say why don't you come in and meet Jesus and get
right. So that may be something to consider as well.
Mr. BEAN. Ten-four. Thoughts, Mr. Breeden?
Mr. BREEDEN. Wanted dead or alive posters probably have a
long history in reward programs, whether you call them
whistleblowers or something else are certainly part of the
solution. But I go back to if you have got a problem that you
think you might have had 3 or 4 million bad loans, you cannot
wait 100 years. So put together teams of people, parcel those
out, and start looking.
Mr. BEAN. Thank you very much.
Mr. Chairman, I have run out of voice and I have run out of
time. I yield back.
Chairman WILLIAMS. Thank you very much.
I now recognize Representative Scholten from the great
state of Michigan for 5 minutes.
Ms. SCHOLTEN. Thank you so much, Mr. Chair. And thank you
to the witnesses for coming here to testify today about this
truly important topic.
I want to start by saying that the 1.2 trillion in aid that
the SBA has distributed over the course of the pandemic was
truly essential, a lifeline to so many businesses in keeping
their doors open. And in the context of this important
discussion today I do not want to lose sight of that. You know,
I think that there is a lot of agreement here today about the
frustration over the inability to pinpoint how much fraud there
was because a lot of our constituents, many of our constituents
were struggling to make ends meet during the pandemic, and
their hard-earned tax dollars were going to fund these
programs.
Ms. Miller, in your testimony you state that the truth most
likely lies somewhere in the middle. I am a future-oriented,
problem-solving individual. You recommend that Congress
establish a well-funded--more taxpayer dollars--centralized
antifraud office. Can you elaborate on how this would allow the
federal government to prepare for the next emergency and how we
might be able to avoid this type of situation in the future?
Ms. MILLER. Sure. Yeah, cross governmental,
intergovernmental agency issues are notoriously difficult to
solve because every individual agency is focused on its mission
and its budget. And so getting them to coordinate their
activities is always very difficult. We knew this when I was at
GAO. We talked about this a lot.
This is an intergovernmental problem. It crosses all of
government, both federal, state, and local. You need a
centralized entity within the federal government that is not
the Inspector General. The IG's job is to get the money back
after it has been fraudulently obtained. The agencies, like the
SBA, are the ones that are responsible for preventing the fraud
to begin with. But each individual agency, if working together,
can do things like sharing data.
Like, for example, it may not be known that the ``Do not
pay,'' the Treasury ``Do not pay'' portal currently today does
not have access to the Social Security Death Master File as we
speak, 3-1/2 years after the pandemic. I mean, that is a
problem of data sharing and collaboration and creating data use
agreements. The Pandemic Analytic Center of Excellence has
created over 95 data use agreements between agencies. That is a
model for what the government should do but not in the IG
community; in the management side of the House.
Ms. SCHOLTEN. And as these recovered funds are coming back
in to the Treasury, how does the government track these funds?
Are there any transparency measures in place so that the public
can watch and know the efficacy of recovering these funds and
where they go?
Ms. MILLER. Yeah. The Treasury has an Office of Recovery
Program and they also have an Office of Payment Integrity. And
both of those offices coordinate the systems that provide that
information to the public. So really it is the Department of
Treasury that tracks that information.
Ms. SCHOLTEN. And how is that released to the public? Can
we find that online? On the Treasury's Twitter account?
Ms. MILLER. Yeah.
Ms. SCHOLTEN. Is it a report?
Ms. MILLER. I think the Department of Treasury is actually
really working right now in its Office of Payment Integrity to
improve that transparency in the public-facing websites. And
those are happening as we speak. I think that in the next year
to 2 years we are going to see a lot of improvement in the
information that is shared to the public. The PRAC also has a
pretty great website that provides a lot of that transparency.
Ms. SCHOLTEN. Okay. I know I speak for many constituents
that proactive communication about this and connecting that
information to the public so that they can have confidence in
this would be, you know, would be key.
Ms. MILLER. Agreed.
Ms. SCHOLTEN. Additionally, you know, in my last minute, I
wonder if you might be able to pinpoint any steps that we might
be able to take not only in preventing fraud or cracking down
on it once it occurred but even putting steps in place to close
the gaps to keep it from happening in the first place, are
there more point to point contacts that we can ensure that the
money is getting directly where it needs to go? You know,
disseminating to local governments or nonprofit organizations
first. Any and all of the above. Or if you have any insights as
well.
Ms. MILLER. Yeah. I think that maintaining integrity of the
funding that is going to citizens, whether that is through
federally funded state administered programs, like SNAP or, you
know, some of these benefit programs that go through the states
or directly to the citizens from a federal agency. The
importance is to identify quickly before the payment is made,
and we have talked about this a bit today, whether or not the
individual who is applying for that benefit is who they say
they are and they are entitled to it. And that is going to
require data. Data sharing. Data analytics. Advanced analytics
that can use artificial intelligence and other tools and it is
very vital that agencies get those tools to be able to prevent
fraud, waste, abuse in the future.
Ms. SCHOLTEN. Thank you. I yield back.
Chairman WILLIAMS. The gentlelady yields back.
I now recognize Representative Meuser from the great state
of Pennsylvania for 5 minutes.
Mr. MEUSER. Thank you very much, Mr. Chairman. Certainly,
thank you to all of our witnesses here today.
A very important subject. Very troubling subject. I do not
think the American people or taxpayers really have an
understanding of the level of fraud that has just come out of a
relatively small agency like the SBA. It certainly makes you
think what levels of fraud occur elsewhere. You know, CMS. You
name it.
So we have a big problem with this $5 trillion company of
ours known as the United States federal government and the $6
trillion of spending that takes place. So your ideas, your
backgrounds, experiences are very helpful to us.
So we had the EIDL, the PPP, and the ERTC. EIDL had a
wildly unacceptable level of fraud, almost insane what occurred
there. So the investigations need to take place. PPP was a lot
less, particularly on a percentage basis. PPP needed to be
rushed. EIDL needed to be rushed. So it is not necessarily
about assigning blame or which administration but a lot of
times you have got to focus on where the problem occurred in
order to fix it.
ERTC, I do not have the data in front of me on what type of
fraud existed there. I do not think the Employee Retention Tax
Credit, which is pretty important and it is still going out in
important ways. And I agree with my colleagues on both sides of
the aisle that these were very important. I mean, we could have
gone into a depression if we shut down businesses and did not
fund them to keep their employees. I mean, we would have had
serious problems. But on the same note, the level of fraud.
So you know, they say that an acceptable level of
fraudulent activity could be 2 to 3, even 4 percent. You know,
in my business, and I probably had no business being in charge
of our credit department, but we had AR at any given time at
about $50, $60 million and we did not write off bad debt. It
was never higher than 1 percent. And we were not all that
sophisticated. So the idea that this occurs is crazy. So I
think crazy.
Now, on the same note we have the IG coming in telling us
that there is, what was it? I forget his numbers right now,
$240 billion in fraud? And then the SBA administrator tells us
it is, no, it is $50 billion. I mean, well, that is a pretty
wide spread of discrepancy. So that is also highly troubling.
So back to Ms. Miller, your idea of the centralized
antifraud. Look, the credit card companies, the banks do it.
Why can't the SBA do it?
Mr. Breeden, I will start with you and just go right down
the line. What should we be doing? Can we put you in charge
perhaps?
Mr. BREEDEN. I am not sure I would.
Mr. MEUSER. It is worth the money by the way; right? With
the type of billions and billions that we are talking about.
Mr. BREEDEN. Certainly having someone in charge of going
after it, going after the monies that have been stolen is a
great idea. I do not know that it ought to be any one person as
opposed to a lot of people's job. It is a task too big for any
one person. I am not sure creating a new bureaucracy in
government is really going to solve the problem. The ones that
we have already have not solved it. So we have to understand
that if you are going to have free markets, if you are going to
have a capitalist economy there is going to be fraud. If you
have a socialist economy there will be fraud, too. So we have
to build antifraud protections into everything we do and be
aware that there have to be limits on how many businesses we
shut down, how fast we want to help people, things like that if
we do not want the fraud to get out of control. But right now
we have a problem of getting after the people before the money
is all gone.
Mr. MEUSER. All right. So collections enforcement.
And what about prevention, Mr. Taylor?
Mr. TAYLOR. Thank you, Congressman.
It is about identify verification at the front end before
these types of benefit programs go out. Implementing the IAL2
standard issued out by NIST is the first step. And being the
fact that that is a government solution that should be a
nonpartisan issue.
Mr. MEUSER. Absolutely.
Down the line? Thank you.
Mr. ZERBE. Congressman, I want to reemphasize something
that has kind of been lost. Let me make sure you all understand
a couple of facts about fraud.
The IRS does root canal audits on people. When they do root
canal audits they only find offshore accounts in 7 percent--
legal offshore accounts in 7 percent of those audits. The
number one way the IRS finds fraud in offshore accounts is
whistleblowers. Study after study shows the number one way that
you find fraud is whistleblowers. And with all due respect to
just say, well, we are going to depend on the SBA folks, they
are doing good work, but if you want to find fraud, the way the
private sector finds fraud is they have whistleblowers. The way
the government is finding fraud is through whistleblowers.
Mr. MEUSER. I yield back, Mr. Chairman.
Chairman WILLIAMS. The gentleman's time is up.
I now recognize Representative Gluesenkamp Perez from the
great state of Washington for 5 minutes.
Ms. GLUESENKAMP PEREZ. Thank you, Mr. Chair.
Mr. Zerbe, I appreciate those sentiments.
You know, I think that people want to build a government.
You cannot legislate good behavior. Good behavior comes from
the heart. You can penalize bad behavior. You can incentivize
good behavior. And I think we have really in the Committee
hearing today sort of beat to death this thing of we need to go
after the bad guys. And it is costing us to not do that.
But I really appreciated in your testimony, Congressman
Breeder that--Breeden, excuse me--that normal people, small
business owners not having the time and the capacity to
understand the bureaucracy of a government that is no longer
operating at a human scale. So you just walk into this pit and
fall through a problem and then there goes your livelihood. And
so I really appreciated your pointing out putting things in
plain English. What are the eligibility criteria? Can you read
this if you have a reading disability? Or you know, and who is
doing that work?
So I wondered if you could speak to how that was built in.
Yes, sir. Thank you.
Ms. BREEDEN. Thank you, Congressman.
I think that is terribly important. One of the things that
we focus on as part of antifraud protections in every victim
trust we do is to make sure that the communication of
eligibility standards is as clear as you can make it. All
Madoff Victim Trust. The plan was not written by a bunch of
lawyers and a bunch of boilerplate. It is in frequently asked
questions plain English because there are a lot of people who
might file a mistaken application or one that they are not
eligible for but they do not understand that. So take that part
of it off the equation.
Ms. GLUESENKAMP PEREZ. Right. And it is who is at the table
when these rules are being written. You do not have normal
people. You have a Congress built out of a bunch of frankly
lawyers and people who have grown up in it and not the people
who might be applying for these programs. And I think that is a
real flaw.
Mr. BREEDEN. Yes. But the laws can be complicated. But when
you have a program that is going to make loans that has
eligibility standards that is where either an agency itself or
in cases we do, the private sector, you spend a lot of time
trying to write very clearly so people understand what is
required and what is not allowed. It does not mean people will
not go ahead and violate it.
Ms. GLUESENKAMP PEREZ. Sure.
Mr. BREEDEN. There will be some.
Ms. GLUESENKAMP PEREZ. But we need to make it as easy as
possible for people to do the right thing.
Mr. BREEDEN. I completely agree.
Ms. GLUESENKAMP PEREZ. So thank you for that.
And you know, Ms. Miller, I also likewise appreciated your
testimony. We had Inspector General Ware come in and testify a
few months ago about the incredible work his office is doing to
investigate these cases of potential fraud and recoup the
stolen money. At the same time he shared that his office had
identified 90,000 actionable leads and that his office needs
more resources to investigate these leads and the DOJ needs
more funding for attorneys to prosecute these fraudsters.
Ninety thousand sure feels like a lot to me. It feels like he
has got a lot on his plate. And I am wondering, you know, we
are staring down the face of a shutdown here, so how is that
going to affect the oversight in law enforcement communities'
ability to crack down on fraud? And is the government losing
out on money that we could be recouping would you say?
Ms. MILLER. I mean, for sure. In short, he is going to lose
the time of all the people who could be doing those
investigations when the government shuts down.
Ms. GLUESENKAMP PEREZ. Yeah. Yeah.
Thank you so much to all of our witnesses for being here.
And thank you, Mr. Chair. I yield back.
Chairman WILLIAMS. All right. Next, I want to now recognize
Representative Stauber from the great state of Minnesota for
his 5 minutes.
Mr. STAUBER. Thank you very much and to all the witnesses,
thanks for being here.
Ms. Miller, congratulations on being a Member of our
Olympic team. I was an aspiring Olympic athlete. I was not good
enough to make the Olympic hockey team but I gave it my best
shot. I always wanted to be an Olympic athlete. That was a goal
of mine.
I will say this, Mr. Taylor, Mr. Meuser just asked you what
is the biggest thing to stop fraud and your answer was identity
verification; correct?
Mr. TAYLOR. That is correct, Congressman.
Mr. STAUBER. Just changing gears here and then I am going
to get back to our subject. Would that be considered in the
same light for our national elections?
Mr. TAYLOR. Identify verification could go for any type of
program, Congressman.
Mr. STAUBER. Thank you.
Ms. Miller, with your experience, what do you think is the
monetary amount of fraud that someone should go to prison for?
Ms. MILLER. I do not have experience to make that decision.
Mr. STAUBER. Any idea? Any guess?
Ms. MILLER. No.
Mr. STAUBER. Would it be 50,000, 100,000?
The reason I am asking this is, this fraud was put on the
American people. And there are people that did not get EIDL
loans that should have got it. And there are people that
struggled to get PPP loans in a faster timeframe and did not.
And it was taxpayer money that went out.
Does anybody have an idea? Any of the other three witnesses
to my question to Ms. Miller? What should be the amount
somebody should go to prison for, for stealing the taxpayers'
money? What is it? Mr. Breeden?
Mr. BREEDEN. Sir, I think the threshold of what can be
prosecuted should be fairly low. The theory of broken windows
in law enforcement that just because somebody only broke one
window, if that happens across an entire city it can have a
very bad effect. So the level ought to be low. Then you have to
have prosecutorial discretion where prosecutors have to look at
it and say is this an egregious fraud or is it not?
Mr. STAUBER. The broken windows theory as a former police
officer I subscribe to that theory. Absolutely.
You know, in Minnesota we had Feeding our Future. It was a
nonprofit meant to feed people. There were over $250 million of
COVID-19 federal funds that were stolen. And these fraudsters
bought luxury cars, real estate, and other unlawful futures.
The Small Business Administration, I think, and our government,
and our Inspector General, we need to hold these people to
task. If we are talking about millions and millions of dollars,
and Ms. Miller mentioned earlier in her testimony that some of
these identify theft folks, we are not going to get the money
back. To me, I understand, I mean, the broad spectrum of the
fraud. But we need to make a statement as a country. This is
taxpayer money. And I guess a certain percentage is expected
but we have to go after it. We have to go after it to make the
statement. Nobody should steal the U.S. taxpayers' money. And
they did it during a pandemic when our nation was brought to
her knees. That is just simply wrong. And so the experience
that you all have shared with us, there is so much knowledge
here.
Mr. Breeden, I think that you being in the private sector,
you had mentioned a couple minutes ago that you are not a
government employee and you are doing really good work. I do
not necessarily subscribe to another government group or
another Committee. The private sector here has shown the way.
We just have to listen and give you the authority and the
ability and the staff to do what you do best. Obviously, the
SBA has failed here. There is no question about it.
I want to thank you for your testimony and just your years
of experience. We need more of this. And this is a bipartisan
issue that we need to work on.
Mr. Chair, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative LaLota from New York, the
great state of New York, for 5 minutes.
Mr. LALOTA. Thank you, Mr. Chairman. The great state of New
York, sir.
Chairman WILLIAMS. Got it.
Mr. LALOTA. Two hundred billion dollars. Two hundred
billion dollars. Lets put that in perspective.
If Congress had that $200 billion back we could give the
average taxpayer a $2,000 tax cut. Or we could defer conflict
with China by buying four new aircraft carriers, eight new
submarines, and 27 new Navy destroyers. Or we could fully fund
the state and local tax deduction which a lot of my
constituents would like. Two hundred billion dollars.
Approximately one in five COVID loans were potentially
fraudulent. Thank you, Chairman, for hosting this important
meeting and shining a spotlight on this important issue that my
constituents care a heck of a lot about. And for our witnesses
for being here to help inform our Committee on this issue.
Despite the widespread fraud, the SBA has downplayed the
fraud stolen from our fellow taxpayers and has given a free
pass to anyone who has stolen less than $100,000 by refusing to
investigate those smaller loans. The SBA's disregard for this
issue is exemplified by the administrator's failure to testify
before this Committee's July hearing with the Inspector
General. It is our job on this Committee to fight waste, fraud,
and abuse in the Small Business Administration, and that job is
made much more difficult when the SBA administrator does not
show up.
That leads me to my first question. Mr. Taylor, sir, in an
effort to expedite funds, the SBA did not check the ``do not
pay'' lists before sending money out. Is that a normal
procedure?
Mr. TAYLOR. The self-certification allowed by SBA at the
beginning of the pandemic was totally uncalled for and
unprecedented.
Mr. LALOTA. And what is the effect on not doing that
diligence?
Mr. TAYLOR. The massive fraud that we are seeing today.
Mr. LALOTA. Mr. Breeden, you have quite the impressive
resume, sir. I looked it up. Harvard Law, Chairman of the SEC,
and you are a native Long Islander most importantly. So that
well qualifies you to be on this panel.
My question, sir, is what effect does the SBA's decision to
not investigate those smaller loans have on future behavior?
Mr. BREEDEN. I think it is very deleterious, sir. It sends
a message that, okay, you can play around the edges and people
just will not bother. And I think the principle that if you
steal from your neighbors, you steal from your fellow citizens,
that will always be a matter worthy of government's attention
is the right message to send.
Mr. LALOTA. It is a behavioral thing, right, that if folks
know there are consequences to their negative behavior they are
less likely to conduct that negative behavior; no?
Mr. BREEDEN. Yes, sir.
Mr. LALOTA. Mr. Taylor, back to you, sir. I know that we
talked a little bit about Barbie before. We are going to do it
just shortly once again.
How can the private sector help to identify, to do identify
verification better to help prevent fraud?
Mr. TAYLOR. Thank you, Congressman.
Getting back to the Presentation Attack Detection that I
was mentioning to the previous congressman about, that would
have stopped those types of attacks on those Fintech platforms.
The fraud that was experienced specifically around the PPP,
the top 12 lenders around that were all Fintech platforms. They
would have allowed something like that to go through.
Currently, identity verification, whenever you implement
liveness detection at the IAL2 that is approved by NIST, it
stops that in its tracks. Additionally, SBA OIG, specifically
IG Ware talked about it the last time that he was here, talked
about the overlapping of IP addresses and suspicious IP address
activity, if this was 5 years ago that is an effective way to
go about doing an investigation. It no longer holds that value
at the IP address level. You have a to get into the big data
that is associated with that IP address as well as the device
intelligence associated with it.
Mr. LALOTA. So doing things like that obviously come at a
cost; right? That it takes more to invest in better technology,
better process. That comes at a cost. Would you assess that as
positive ROI, is the return on that investment positive for the
taxpayers? If we go through that diligence, raise the bar, do
better identify verification, do we have less fraud? And is the
less fraud worth * does it give us extra money to pay for those
costs, sir?
Mr. TAYLOR. Yes, sir. As a matter of fact, everywhere that
ID.me has been implement across 27 states during the pandemic,
fraud rates went down. The pass rates went up. So it is a
matter of inclusivity in these programs. It is a matter of
stopping the fraud in its tracks. And also, the false positives
associated with misidentifying an individual, which you can do
if you are just targeting an IP address.
We are not allowed, at ID.me, we have a policy. We keep the
false positive rates very low. Well below 1 percent. The fraud
rates, the same thing. The fact that we are talking about
programs that have 18-21 percent in the fraud rate is unheard
of in the private sector.
So with that being said, I would be very cautious that any
type of program that is concentrated only on the IP address.
Additionally, in Puerto Rico, we took the pass rates from 23
percent up to 78 percent at a cheaper cost.
Mr. LALOTA. Thank you very much. My time is expired. Thank
you, Chairman.
Chairman WILLIAMS. The gentleman yields.
I now recognize Representative Salazar from the great state
of Florida for her 5 minutes.
Ms. SALAZAR. Thank you, Mr. Chairman. The great state of
Florida indeed. And thank you for coming to explain to us your
knowledge and everything, all the steps that you have taken.
Mr. Taylor, I hear that in the state of Florida you are
able to establish a very good technique that we could replicate
in the rest of the country. Could you please explain for my
constituents what did we do right in Florida versus other
states?
Mr. TAYLOR. Thank you, Congressman.
The relationship with Florida has been an absolutely
fantastic one.
Ms. SALAZAR. Okay.
Mr. TAYLOR. We have implemented the IAL2 policy there that
I spoke about previously. So the fact that when you have
identify verification gating a lot of the public benefit
programs there----
Ms. SALAZAR. And how does that work in particular so I can
understand. I do not have a criminal mind so I am not sure what
people think. Shat do you need to do in order to defraud the
government? So why the facial identification is important?
Mr. TAYLOR. Less about the facial recognition side and more
about the actual Liveness detection. The fact that a person is
a real individual. The mask that made it through and the Barbie
Swindler. Those do not make it through ID.me in the State of
Florida. Because we have that Liveness detection built into the
platform.
Additionally, we have unsupervised sites. So if a person
cannot get through, let's say that there is a language barrier,
we support over 200 languages on that side. So the person can
come through, talk to a trusted referee. And we are talking
about wait times that are less than 5 minutes to get onto those
platforms.
Lastly, I would turn your attention to Hurricane Ian last
year. The devasting impacts with that, obviously in the
billions dollars and loss. We have a thread intelligent cell
that lives out on the Dark Web that looks for fraudsters going
after these types of benefit programs. We actively go out and
look for the bad guys going after these public benefits, and we
did that in the state of Florida. So much so that whenever
Hurricane Ian occurred, we had the in-person terminals that the
IME has, and the people were able to verify their identity, get
their FEMA funds right there in the spot instead of having to
wait in line to go to a state office or something like that.
Ms. SALAZAR. So the facial identification could be the
answer for the federal government to stop future fraud across
the board or across the nation. Would you consider----
Mr. TAYLOR. It is one part of an entire fraud suite of
tools that we would recommend.
Ms. SALAZAR. Explain to my constituents why after the
pandemic we had so much fraud. I would imagine that people were
claiming that they could not find work or that they did not
have a job. Explain to me the scenario after COVID.
Mr. TAYLOR. During the first 9 months of the pandemic you
had self-certification of these benefit programs. Combine that
with the speed at which they were decimated, you are talking
about an unprecedented amount of capital that went out into the
economy. That incentivized a lot of nation state actors, as
well as your traditional domestic fraudster to go after these
benefit programs.
Ms. SALAZAR. Okay.
Mr. TAYLOR. Your constituents have not only suffered from
the standpoint of losing your identity, possibly for tax
purposes or filing for unemployment but also they may have
inadvertently had their identity used in a credit scheme that
would target a small business.
Ms. SALAZAR. Okay. So we know that the SBA, there is a
dispute of the amount of money that went to the wrong hands
through the PPP program. Do we have a figure of how much money
went to the wrong hands? Or how many millions of dollars were
lost after the pandemic for claims from people that did not
deserve or were not the right beneficiaries of these monies for
unemployment benefits?
Mr. TAYLOR. Thank you, Congressman. I would agree with IG
Ware that the likely fraud is somewhere in that realm of $650
billion. The fraud number right now that he is planning on
going and prosecuting at 200 billion.
Ms. SALAZAR. Two hundred billion dollars. And this money
that we are talking about is included in that figure of 200
billion?
Mr. TAYLOR. That is correct, Congressman.
Ms. SALAZAR. Okay. Thank you. I yield back.
Chairman WILLIAMS. Next, I now recognize Representative
Phillips from the great state of Minnesota for 5 minutes.
Mr. PHILLIPS. Thank you, Mr. Chairman. Thank you for
holding this hearing, and to all of you for being with us.
Let me just start by saying I share every one of my
colleagues' disgust by the scale of fraud that took place
during the pandemic, and we have got to do everything we can to
investigate and most importantly recoup billions of dollars
that were literally stolen from American taxpayers. Stolen
during what I consider a tragic moment in our history.
The good news in my estimation is that we have got a clear
roadmap, and that is to give the SBA Inspector General the
resources that his office needs to go after these fraudsters.
I come from a business background myself, like the
Chairman, where return on investment is the name of the game.
The IG's office has requested $47 million in discretionary
funding for its operations in fiscal year 2024. Unfortunately,
the House Appropriations Committee underfunded that request by
about $15 million. Yet, over the past 2 years, OIG's efforts
have yielded over $9 billion in financial accomplishments,
recoveries, fines, and forfeitures. Considering these numbers,
an extra $15 million in my estimation seems like a heck of a
good return on investment to me. Inspector General Hannibal
Ware has proven that his office delivers results for taxpayers
and Congress simply needs to give him the tools to do his job.
So I would welcome suggestions from our witnesses today.
And we ought to consider them fairly, but we cannot lose sight
of the fact that the number one thing we can do to recoup fraud
is to fund the Inspector General's office fully.
Let me just start with you, Mr. Zerbe. I really appreciate
the bipartisan tone in your testimony. I think you are right,
that eliminating fraud, waste, and abuse of the SBA is a
bipartisan exercise. Must be bipartisan. In the same way that
small business relief was. I am intrigued by your proposal to
establish a whistleblower program at the SBA. It has proven
successful at other agencies, of course. But one of my concerns
is that the IG currently lacks resources to actually
investigate what I think are about 90,000 actionable leads that
it has already identified.
So what do you make of this concern?
Mr. ZERBE. Thank you for that, Congressman.
I think a couple of thoughts for you. One is that I agree
they have got kind of a fire hydrant drinking moment right here
but I still think that the whistleblowers will be able to: (a)
better target the most important fraud cases, and also just so
you understand, when you are submitting, particularly when you
have an award program, it is not just a tip and things like
that. The whistleblower and his attorney, they are providing a
whole package for the agency. I mean, we are putting in the
documents, the material, a view of the law, a narrative. We
want it on a T-ball for them to be able to just do it. So it is
making the agency much more time efficient and effective in
terms of what they are doing.
One thing, too, to consider and you might think about as
you are looking at legislation in this area, it is not uncommon
for the whistleblower award programs and the Qui Tam programs
in other agencies to allow for a reimbursement of the costs the
agency has with their investigation as well, too. In other
words, yes, we recovered these funds, and yes, you know, we are
going to reward the whistleblower. But we are also going to
reimburse the SBA for its costs as well, too. So it may be
something to consider to address the concern you have got about
limited agency resources to say, great, we are going to in a
sense incentivize not only the private sector to come forward
and assist the SBA through the whistleblowers but we are also
going to incentivize the SBA to embrace those whistleblowers
and work with them because then they will basically be able to
have their costs met. So that may be a way to address your
concerns, Congressman.
Mr. PHILLIPS. And based on that absurdly high number,
90,000 leads, are there alternatives concerning the resources,
levers, tools we have available to us? In your estimation, are
there other mechanisms we should be considering to reduce that
workload and ensure that every one of those leads is
investigated?
Mr. ZERBE. Well, I think that is where it is going to help
not to repeat. But I think having seen a lot of these kind of
tips, particularly more from my IRS work, a lot of them tend to
be pretty thread bare. I mean, just, well, you know, Jimmy has
got a fancy car and you guys should go look at him. I think,
you know, when you are getting the whistleblower you are
getting an insider informed and you are getting the big fish.
So the SBA----
Mr. PHILLIPS. Okay. So quality, not quantity?
Mr. ZERBE. Yeah. And the IG white paper highlighted one.
They had one whistleblower who came forward and it was over
$600 million that they had identified thanks to this one
whistleblower. So you are right. It is able to get the big fish
and the worst actors, if you will, and target them better on
that. Yes, Congressman.
Mr. PHILLIPS. Okay. I appreciate it. I have only got about
20 seconds left.
I just want to refer to a letter that I plan to send to
both the House and Senate Appropriations Committees requesting
that they fulfill the OIG's full request of $47 million in
discretionary funding because holding these bad actors
accountable should be bipartisan goals, and I surely invite my
colleagues on both sides of the aisle to join me in that
endeavor.
With that, Mr. Chair, I yield back with exactly 1 second
left.
Chairman WILLIAMS. Great job.
I would like to thank our witnesses today for their
testimony and for appearing before us.
Without objection, Members have 5 legislative days to
submit additional materials and written questions for the
witnesses to the Chair which will be forwarded to the
witnesses.
I ask the witnesses to please respond promptly.
So if there is no further business, without objection the
Committee is adjourned.
Thank you all very much.
[Whereupon, at 11:35 a.m., the committee was adjourned.]
A P P E N D I X
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