Review Of SBA's Top Management And Performance Challenges In Fiscal Year 2022 And SBA OIG's Semiannual Report To Congress
Summary
The printed record of a House Committee on Small Business hearing on January 12, 2022, Small Business Committee Document Number 117-042, reviewing the SBA's top management and performance challenges for fiscal year 2022 and the SBA OIG's semiannual report. Chairwoman Nydia Velazquez presided, and the witness was Hannibal "Mike" Ware, Inspector General of the SBA. Ranking Member Blaine Luetkemeyer cites IG figures of approximately $4.6 billion in possible fraud in PPP and roughly $84 billion in potentially fraudulent EIDL activity. Ware testifies that his office has issued 18 reports on the pandemic response and that its investigations have led to 366 indictments, 294 arrests and 142 convictions related to EIDL or PPP. The appendix holds his prepared statement, answers to questions from five members, and NAFCU material.
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
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[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
REVIEW OF SBA'S TOP MANAGEMENT AND
PERFORMANCE CHALLENGES IN FISCAL YEAR
2022 AND SBA OIG'S SEMIANNUAL REPORT
TO CONGRESS
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JANUARY 12, 2022
__________
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-042
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-712 WASHINGTON : 2022
-----------------------------------------------------------------------------------
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
TROY CARTER, Louisiana
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
Melissa Jung, Majority Staff Director
Ellen Harrington, Majority Deputy Staff Director
David Planning, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nydia Velazquez............................................. 1
Hon. Blaine Luetkemeyer.......................................... 2
WITNESS
Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the
Inspector General, United States Small Business Administration,
Washington, DC................................................. 4
APPENDIX
Prepared Statement:
Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the
Inspector General, United States Small Business
Administration, Washington, DC............................. 35
Questions and Answers for the Record:
Questions from Hon. Velazquez and Answers from Mr. Ware...... 46
Questions from Hon. Chu and Answers from Mr. Ware............ 50
Questions from Hon. Luetkemeyer and Answers from Mr. Ware.... 51
Questions from Hon. Hagedorn and Answers from Mr. Ware....... 61
Questions from Hon. Van Duyne and Answers from Mr. Ware...... 65
Additional Material for the Record:
NAFCU - National Association of Federally-Insured Credit
Unions..................................................... 68
REVIEW OF SBA'S TOP MANAGEMENT AND PERFORMANCE CHALLENGES IN FISCAL
YEAR 2022 AND SBA OIG'S SEMIANNUAL
REPORT TO CONGRESS
----------
WEDNESDAY, JANUARY 12, 2022
House of Representatives,
Committee on Small Business,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in Room
2360, Rayburn House Office Building and via Zoom, Hon. Nydia
Velazquez [chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Golden, Davids, Mfume,
Phillips, Newman, Bourdeaux, Carter, Chu, Evans, Delgado,
Houlahan, Mr. Kim, Craig, Luetkemeyer, Williams, Stauber,
Meuser, Tenney, Garbarino, Mrs. Young Kim, Van Duyne, Donalds,
and Fitzgerald.
Chairwoman VELAZQUEZ. Good morning. I call this hearing to
order.
Without objection, the Chair is authorized to declare a
recess at any time.
I would like to begin by noting some important
requirements. Let me begin by saying that standing House and
Committee rules and practice will continue to apply during
hybrid proceedings. All Members are reminded that they are
expected to adhere to these standing rules including decorum.
House regulations require Members to be visible through a
video connection throughout the proceeding, so please keep your
cameras on. Also, remember to remain muted until you are
recognized to minimize background noise.
In the event a Member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available Member of the same party and I
will recognize that Member at the next appropriate time slot
provided they have returned to the proceeding.
For those Members and staff physically present in the
Committee room today, in accordance with the attending
physician's most recent guidance, all Members and staff who
attend this hybrid hearing in person will be required to wear
masks in the hearing room.
Now I will move to my opening statement.
First, I would like to welcome Inspector General Ware.
Thank you for being here today. Your work has been
indispensable throughout the COVID crisis, and you should be
proud of your efforts to improve programs critical to small
businesses. The IG's office is tasked with reporting on the top
management and performance challenges facing the Small Business
Administration every year. While this year's report covers many
longstanding issues, it also calls attention to the biggest
challenge facing the agency, the pandemic relief programs.
Since 2020, the SBA has distributed nearly $1 trillion in
economic relief to small firms. This figure surpasses the
amount of money distributed in all other years of SBA's
existence combined. This is an enormous achievement and helped
keep millions of small businesses afloat during the pandemic.
However, with any emergency effort of this magnitude, problems
will inevitably occur. According to investigations, the COVID-
EIDL and Paycheck Protection Programs have been vulnerable to
fraud. Much of this potential fraud can be traced back to the
early days of the pandemic when programs were new, loan volume
was high, and the need to get the loans out quickly was the
priority.
Your report also notes that in 2020, the previous
administration ``relaxed internal controls,'' adding
significant stress to the system and creating an environment
ripe for fraud.
This Committee has worked diligently to conduct oversight
and institute legislative fixes to address these problems. We
have conducted hearings, written letters, held briefings, and
passed bills, ensuring money is going to small businesses that
need it most and not the bad actors. Since taking office in
January, the Biden administration has also demonstrated its
commitment to rooting out fraud and abuse.
Administrator Guzman inherited many open recommendations
from the OIG. Under her leadership, the SBA has closed out 70
OIG recommendations this year alone. SBA took steps to shore up
fraud protections in critical pandemic programs. This includes
implementing a master review plan for loan and forgiveness
applications in the PPP program and allowing the agency to hold
funds at any time in the EIDL process.
The agency now also ensures that all borrowers are not on
the Treasury Department's ``Do Not Pay'' list. These are just a
few of the actions that help reduce fraud. I look forward to
continuing our work with the administration on this front.
At the same time, the IG's reports cover other critical
issues unrelated to pandemic relief. These include challenges
in small business contracting, IT security, access to capital,
and disaster assistance.
Addressing these problems will require sustained work on a
bipartisan basis from this committee. I hope that today's
hearing allows us to take a close look at all of these issues
and discuss bipartisan solutions to fix them.
I would now like to yield to the Ranking Member, Mr.
Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Madam Chair. And thank you for
calling today's hearing with Inspector Ware. Welcome,
Inspector. Always good to have you before us to explain what is
going on.
Before I begin, I also want to thank the Chairman for the
announced changes in the order in which Members will question
the witnesses. This is an important announcement. I am thankful
for your action. Likewise, I know Members will appreciate going
back to regular order and the methods that were voted on within
the rules package.
Additionally, I would like to take this time to recognize
and congratulate the Committee's chief counsel, Jan Oliver, on
her upcoming retirement. Jan has been a stalworth for small
businesses for years and has worked in public service for
decades. From her time with now-Senator Portman to working at
the White House and to her time and her services committee, her
steady guidance and counsel for the past 31 years has always
been welcomed by the several Chairmen and many Committee
Members that she has served. Jan, thank you for the thoughtful
insight, analysis on all issues, including and especially those
pertaining to regulations and its impact on small businesses.
Thank you very much.
Now, as we start the second session of the 117th Congress,
it is critically important that we begin with a discussion on
oversight. With roughly $1 trillion in assistance provided to
the nation's smallest firms through the Small Business
Administration, we must exercise our oversight responsibilities
wisely and often. It is not just dollars flowing to small
businesses. There are new programs at the SBA that also require
our attention. That is why I am thankful we have today's
conversation with Inspector General Ware.
Congress moved quickly in the spring of 2020 to support the
nation's economy with hundreds of billions of dollars for small
businesses. Some of these programs, like the Paycheck
Protection Program, which was driven by private sector lenders,
focused heavily on the nation's workers. Other programs that
were administered directly through the SBA moved slower and
were overall less successful. Fraud took place and taxpayer
dollars were and continue to be wasted. This is unacceptable.
The numbers presented by the inspector are significant.
While the IG reports approximately $4.6 billion in possible
fraudulent activity within the Paycheck Protection Program, the
Economic Injury Disaster Loan Program, also known as EIDL, is
enmeshed in roughly $84 billion in potentially fraudulent
activity. The PPP was administered by private sector financial
institutions. The EIDL program was not. The SBA acted as the
sole and only gatekeeper to the EIDL program. That any theft or
businesses and individuals illegally entered the program is a
major problem for the EIDL program.
Differences on how these programs were run cannot be
overstated and they should serve as case studies for future
public policy debates on how the SBA should run its programs.
Asking SBA to expand or enhance their direct lending ability
would be counter to the facts that we have on the ground.
Beyond the COVID relief programs, we know that the SBA has
struggled with identifying risks within their access to capital
programs, overseeing their contracting programs, and updating
and keeping pace with their information technology needs for
years.
The COVID emergency period has compounded all these
programs and challenges for SBA. I always say that when you put
something under stress, that is when you find out where your
real problems are. And obviously with this COVID situation and
the SBA taking on a tremendously increased workload, we now
know where a lot of problems are.
Due to PPP and EIDL, more businesses know about the
services and functions of SBA than ever. Therefore, the SBA
must be ready to serve and assist small businesses, all the
while protecting taxpayer dollars and preserving the integrity
of the existing programs.
Small business owners do not have time to waste. They are
facing significant price increases and they are having trouble
finding workers. Unfortunately, it does not end there. Supply
chain issues continue to thwart their planning and uncertainty
surrounding a vaccine mandate is ever present. Now more than
ever, the federal government programs cannot be duplicative,
wasteful, or counterproductive.
I look forward to hearing more from Inspector Ware on where
fraud stands today with the COVID relief programs, an update on
all recommendations, and what programs his office will be
examining next. With such a significant amount of potential
fraud clogging the process for small businesses, I know the
discussion will not end here. This will require ongoing efforts
for years to come.
With that, Madam Chair, I look forward to working with you
this year, and I look forward to continuing to work with the
Inspector General. To that end, I want to give you this letter
which is a list. And we can give that to your staff. This
letter which is a list of some of the witnesses and topics that
I think would be impactful for and helpful to us in our
legislative and oversight work.
With that, Madam Chair, I yield back and look forward to
working with you this coming year.
Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer. The
gentleman yields back.
With that, I will now introduce our distinguished witness,
the Honorable Hannibal ``Mike'' Ware, Inspector General of the
SBA. Mr. Ware was sworn in as the inspector general in May 2018
and has been an effective leader in his role and an asset to
this Committee. He has nearly 30 years of experience in the IG
community rooting out fraud, waste, and abuse in federal
programs.
Welcome, Mr. Ware. You are recognized for 5 minutes.
STATEMENT OF HANNIBAL ``MIKE'' WARE, INSPECTOR GENERAL, OFFICE
OF THE INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS
ADMINISTRATION
Mr. WARE. Thank you, and good morning. Good morning,
Chairwoman Velazquez, Ranking Member Luetkemeyer, and
distinguished Members of the Committee. Thank you as always for
inviting me to speak with you today and for your continued
support of my office.
It was my hope that my next appearance before this
Committee would occur with the pandemic in our rearview
mirrors. However, the pandemic has been lasting with
everchanging challenges.
SBA has played a pivotal and unprecedented role in
stabilizing the U.S. economy. In doing so, the men and women of
SBA who have been on the frontlines and who have directly met
the needs of millions of small businesses, they have sacrificed
their time and worked long hours to implement these programs on
an unprecedented scale. Not only do we as taxpayers thank them
for their hard work, but there are countless whistleblowers who
have come forward to my office to shine the light of
transparency on matters that they believe were of concern to
stewarding the taxpayers' dollars. We thank them not only for
their hard work but for their courage and sense of duty to the
nation.
The men and women of my office equally have been working
diligently to provide oversight of SBA's pandemic response. We
have never lost sight of the struggles of the small business
owners and their employees who toil not only with financial
hardship but in many cases personal loss as a result of the
pandemic. We are keenly aware that nothing short of the
public's trust is at stake in our oversight efforts.
We have already issued 18 reports addressing SBA's pandemic
efforts with dozens of recommendations for corrective action.
Our investigative work to date has resulted in 366 indictments,
294 arrests, and 142 convictions related to EIDL or PPP. The
monetary recoveries and savings from our oversight
investigations pandemic response efforts in fiscal year 2021
alone were $4.2 billion, with Congress investing just $50
million in supplemental funds to facilitate our oversight
efforts.
And the work has really just begun. A significant portion
of our supplemental funding will be exhausted by the end of
fiscal year 2024 which will coincide with hundreds of billions
of dollars in EIDL loans coming due for payment. We anticipate
this will be a key moment for realizing the true scope of fraud
in the program which already is expensive.
We believe our annual resource levels will need to be right
sized to match this fraud landscape and to provide necessary
oversight of SBA's management challenges in the years beyond
the pandemic response.
Notwithstanding the challenge, OIG has sought opportunity
to more effectively and efficiently carry out our mission. We
have provided oversight in real time, producing reports in
under 2 months. In doing so, the IG community took note and
used our oversight model to develop an agile products toolkit
for OIGs across government. The result of our innovation is
that we proudly kept the Congress, the administrator, our
stakeholders, and the public currently and fully informed of
SBA's pandemic response efforts.
I am also happy to report that OIG has taken significant
strides in leveraging data analytics to oversee these vast loan
portfolios. We are moving from a reactive data analytics
posture to leveraging artificial intelligence and machine
learning to get in front of fraud and expand the reach of our
oversight.
In OIG's dealing with SBA's leaders throughout the
pandemic, I have never had a reason to doubt their commitment
to providing assistance to the nation's small businesses. In
terms of characterization of SBA's response to our findings
related to their pandemic response, it is my perspective that
there were missed opportunities to recalibrate internal
controls and implement corrective action in a timely manner at
the outset of SBA's pandemic response efforts. This has since
changed significantly as we work more closely to implement
proper internal controls from the onset of new program
startups. We are committed to providing independent and
objective oversight of SBA's programs and operations. And in
doing so, we will continue to shine the light of transparency
and work diligently to keep everyone informed.
Thank you for the opportunity to speak to you today. I am
happy to answer any questions you may have of me.
Chairwoman VELAZQUEZ. Thank you, Mr. Ware.
I now recognize myself for 5 minutes for questions.
Mr. Ware, Administrator Guzman indicated that this
administration is sincere in implementing the IG's
recommendations and that SBA has made great strides in
satisfying most recommendations. Is this administration
cooperating with ongoing audits and investigations, and can you
expand on your relationship with the administrator in resolving
the IG's recommendations?
Mr. WARE. Yes. Thank you for the question.
I could say unequivocally that this, well, the leadership
team at SBA currently is definitely taking recommendations
seriously and moving quite quickly to resolve them.
Chairwoman VELAZQUEZ. Thank you.
In your July briefing with the Committee, you indicated
that 50 recommendations made by the OIG related to PPP and
COVID-EIDL remained open. At this time, how many remain open?
Mr. WARE. At this time, I believe that number is, it could
be 20. I could get back to you on the exact number. What I do
know is that half of the number that remain open have not quite
come due yet to be closed. And the date for another set of them
passed just December 31st and we may have the information on it
but we have not reconciled that information yet to give an
update as to which ones can be closed.
Chairwoman VELAZQUEZ. Thank you. Speed was imperative at
the beginning of the pandemic leading to fraud controls being
removed. The current administration put guardrails back in
place to prevent further fraud and abuse. Has your office
evaluated whether any of the new safeguards are achieving their
intended goals since most of the audits and investigation have
focused on the performance of the PPP and COVID-EIDL programs
under the previous administration?
Mr. WARE. So there are a few ways to look at that. To
answer the question directly, we are in the process of
reviewing those. And as a matter of fact, two reports should be
out addressing those questions more directly within the next 30
days I believe. I hope; right? That is what we are looking at.
But I could tell you this, what was done differently in terms
of this leadership team was an upfront focus on the internal
control environment that included an actual sit-down to
determine what was best to be put in place prior to setting
anything else up.
Chairwoman VELAZQUEZ. Thank you. Mr. Ware, Congress created
the COVID-EIDL program to provide quick working capital to
small businesses suffering economic injury due to the COVID-19
pandemic. In creating this program, Congress acknowledged that
the private sector will struggle to deliver relief funds to
small dollar borrowers quickly. Given the COVID-EIDL emphasis
on the fast delivery of funds and the approach the private
sector took to focus on larger businesses and existing clients
with PPP, do you believe it is fair and appropriate to compare
COVID-EIDL to the 7(a loan program?
Mr. WARE. Being that they are two totally completely
different animals, it is difficult, based on the evidence that
we have, to make a comparison of the two in terms of how
delivery is. Certainly, the body of work definitely says that
the direct lending programs have had issues in terms of a fraud
environment, but so has the 7(a) program as well. We have our
own issues with them. To make up a comparison of the two when
speaking about direct lending, I do not believe that we have a
body of work that can make that because there are so many
different aspects that have to be considered. And we have
focused primarily based on fraud risk.
Chairwoman VELAZQUEZ. Okay. So is it fair to compare new
direct lending programs to the COVID-EIDL given the stark
differences and goals in the two programs?
Mr. WARE. I believe that a whole lot of angles have to be
considered if you are going to do a comparison. From an
Inspector General perspective, from my perspective, either way
there is the control environment that will tell the tale.
Chairwoman VELAZQUEZ. Thank you.
Mr. WARE. A proper control environment could----
Chairwoman VELAZQUEZ. My time has expired.
Mr. WARE.--a lot of issues that we have seen.
Chairwoman VELAZQUEZ. Thank you.
Mr. WARE. Thank you.
Chairwoman VELAZQUEZ. Now I recognize the Ranking Member,
Mr. Luetkemeyer, for 5 minutes.
Mr. LUETKEMEYER. Thank you, Madam Chair. And again,
welcome, Inspector. Good to see you again.
I would like to start today by discussing some of the
numbers that your reports identified when it comes to fraud. In
total it looks like there is approximately $80 billion in
potentially fraudulent EIDL activity and another $4.6 billion
potentially fraudulent activity within the PPP. These two
programs have different mechanics as you have just described
but I think contrary to the point of the Chairman, that there
is some similarities here in that they are direct lending
programs, money going out the door, but they were done in a
different fashion from the standpoint that the PPP had the
private sector, the banks, credit unions and some fintech folks
delivering those funds versus SBA and their folks delivering
that. And so I think the difference there, correct me if I am
wrong here, but this is my question. It would appear to me that
the rules, regulations, processes, procedures, controls were
not followed by the SBA folks when it comes to the EIDL program
and some of the other direct programs, 7(a) programs that they
implement versus the banks and credit unions who have `` know
your customer'' rules in place, laws in place that minimized.
When you look at $4.6 billion in PPP, that is roughly 5 percent
fraud rate. Eighty billion is over 30 percent fraud rate in the
EIDL program. That is a significant difference between the two
and I think there is a significant difference in the way that
they were adjudicated by the SBA. Would you agree with that?
Mr. WARE. I would agree that the 7(a) program in dealing
with the lenders meant that they had more of a relationship and
they were able to let us know from the onset where the issues
were and to work with us to call back a whole lot of the money.
In terms of EIDL oversight initially with the focus being
solely on speed, initially and guardrails being lowered, it is
just, that was the reason. That was the reason that we ended up
with what we have.
Mr. LUETKEMEYER. Okay. So it begs the question then, have
the guardrails been put back up?
Mr. WARE. Have they? That is what you are asking me?
Mr. LUETKEMEYER. Yeah. You said the problem with the fraud
was the guardrails were taken off. Have they been put back up?
Mr. WARE. Yes. Many of the guardrails have, and many of our
recommendations to that regard have been put in place.
Mr. LUETKEMEYER. I am going to follow up with regards to
the PPP. We had this discussion before and we found that a lot
of the fraud that was in the PPP program was in the fintech
folks. They did not have the `` know your customer'' law in
place that the banks and credit unions do, or the banks have in
place, and did not really take the precautions to make sure
that those dollars were actually going to a real person and
that this was not duplicative actin on the part of the
borrower. And so you were telling me in earlier conversations
and your other reports that the fintechs were really kind of
the problem children here. Have you seen that continue to be
the situation? Do you see something different now or where are
we at with this?
Mr. WARE. What I told you at the time was that our
investigative work was finding that where we were seeing the
most fraud in terms of our arrests, convictions, indictments
and everything else, there was a great deal, a percentage of
those that had to do with fintechs. Not saying that if the
proper control environment is in place that would be the case
but that is what the evidence demonstrates.
Mr. LUETKEMEYER. Okay. I know that the Chairman asked a
number of times about the recommendations that you are making
and it seems that they are making some progress, which is
great. I know the last time we talked there was some concern
that one of the problems was you make recommendations and the
SBA administration would put them in place but their staffs
would not execute on those recommendations. Have you seen that
improve? Is that still going on? Is it getting worse? What are
you seeing?
Mr. WARE. I am actually happy for that question because I
wanted to clarify something. What I needed to clarify in this
regard is that these things normally take time to happen in
earnest. So somebody conducting a loan review and what my folks
brought me up to speed on was this. It is not every person
conducting a review that did not follow what is currently in
place; right? We are finding that in some instances it happens;
in other instances, it does not. And I believe though we may
find that in just about every program or every industry that
sometimes what is in place is not followed.
Mr. LUETKEMEYER. Inspector, you just opened up a whole new
can of works there. So do we have people that are doing a good
job and adhering to the recommendations and now we have other
people that are not? Have you identified those other people yet
so we can point to them and say these people have to either
shape up or ship out? I mean, if we have got some bad apples in
the barrel, we need to get rid of them.
Chairwoman VELAZQUEZ. Mr. Ware, time has expired but I will
let you answer the question.
Mr. WARE. Thanks.
Mr. Luetkemeyer, I do not believe it is a bad apple
situation; right? I believe that it is in terms of expertise.
It is in terms of training and it is in terms of having people
know exactly what people need to do to the T. We have not found
where someone is willfully doing a poor job in terms of loan
review. So I would not want to categorize it in that way. And
we have work coming out on that that will be coming to you
very, very shortly.
Mr. LUETKEMEYER. Well, when 40 percent of the program is
being fraudulently active, we have got a problem, sir. Thank
you.
Chairwoman VELAZQUEZ. Time has expired.
Now we recognize the gentlelady from Illinois, Ms. Newman,
for 5 minutes.
Ms. NEWMAN. Thank you, Madam Chair, and thank you Ranking
Member. This is a great discussion today.
Thank you, Mr. Ware, for being here, and thank you for
executing this very daunting task. It does not fall short on us
that this is a complicated action that involves actions that
took place 2 and 3 years ago, so this forensic taskforce has
really been helpful but realizing that it is tough.
I want to make one comment and clarify something because I
just want to clarify with you, you are investigating potential
fraud and those numbers are relative to potential fraud, not
proven fraud; correct?
Mr. WARE. So investigations and audits, two different
things clearly.
Ms. NEWMAN. Yes.
Mr. WARE. So in terms of our audit findings, those were
potential fraud. We have not reviewed or completed our review
on the entire package, large package to determine what is the
actual fraud. We do know anecdotally that what we have called
potential fraud is very likely fraud because our fraud cases
and criminal convictions and indictments speak directly to the
patterns that we document as potential fraud.
Ms. NEWMAN. Thank you for clarifying.
So I have three areas of question. I hope we can get it in
in the five. Tell me a little bit about this right-sizing
project. I really like this idea. I have done this in business
before so I really like the agile product. Can you just share a
little bit about what is in that product kit?
Mr. WARE. Great. In the toolkit is a way for you to
identify and focus on a single question or to notify management
and leadership of serious crucial problems that they need to
take action on immediately.
So in the case of EIDL, for example, once we started to see
the trends, we got to the table with the leadership team here
while the team was working on putting together something for
public consumption and told them, listen, you need to put a
stop to this right now. You need to set up a system of control
that can identify these duplicate IP addresses and these bad
emails and these things that fall in like three, four buckets.
It needs to be addressed right now. And we try to get that so
the information is immediate and then the public sees the
entire thing that they could respond to within 30 to 60 days.
Ms. NEWMAN. Thank you. That sounds like it is working in
real time which is what we want right now. We do not want to
lose any more time.
A couple of other areas. One is data integrity. In our
visit, oh, gosh, it was probably in first quarter, it was clear
that there were some data integrity issues. Can you share with
the Committee here what has been done in the last 3 quarters to
address the data integrity issues?
Mr. WARE. Great. So what we have found in working with
them, initially, of course, the deluge of things that came in
completely broke the system; right? So since that time they
brought in a third-party contractor that has done a great job
in terms of cleaning up the data. And as you know they put out,
what, I think monthly they put out the stats. They put out
these things. This data has been fixed tremendously. There are
some, I think there is one field. I am trying to remember. It
has to do with congressional data that we are looking at right
now. So we are in the process of determining just how clean it
is.
Ms. NEWMAN. Good. And I will look forward to that report.
And then finally, which of all of the loan programs did you
find the least potential fraud and why do you think that fared
the best?
Mr. WARE. Great. So, the least potential fraud, of course,
was found in the Paycheck Protection program. And I believe one
of the reasons was because they knew, most of the lenders knew
their customers. So they were able to ask the right questions
off the bat and to put a stop to it prior to funds being
disbursed. We got like within the first week or so like 5,000
contacts from banks where we knew there was a problem. And they
were being able to hold and they have been a great partner with
us in terms of having the funds seized and returned to the
government.
Ms. NEWMAN. Well, thank you for that. And thank you for
your great work on this. And I will say again, thank you for
going back forensically to 2 or 3 years prior to this in
solving some of the issues that arose at that time. So
appreciate your work.
Mr. WARE. Thank you.
Chairwoman VELAZQUEZ. The gentlelady's time has expired.
Now we recognize Mr. Williams, the Vice Ranking Member of
the Committee from Texas.
Mr. WILLIAMS. Thank you, Madam Chairwoman, and Ranking
Member Luetkemeyer. I am just listening to this. Already as a
small business owner it is amazing to me how this Committee and
this agency is so political and the main street small business
owner is getting squeezed right in the middle. This is going to
have to change.
Now, Mr. Ware, your report found massive fraud in almost
every one of the SBA's COVID relief programs. In the EIDL
program we talked about this morning alone there has been
nearly $80 billion in fraudulent activity. This leads to us to
question the ability of the SBA to carry out or set up new
programs in the future if they are unable to properly account
for taxpayer dollars when main street businesses need it most
and have earned it. The SBA demonstrated their inability to
discharge emergency lending at every single turn, yet, my
democratic colleagues want to expand the SBA's lending
authority and kind of reward bad behavior even when the private
sector has proven willing and better suited to take on these
efforts. The private sector always does it better.
Mr. Ware, why should we expand direct lending authority for
the SBA when evidence that you talked about today has clearly
proven they were unsuccessful in properly executing their
duties in combatting fraud in COVID relief programs?
Mr. WARE. Mr. Williams, thank you very much for that
question. The question as to why should you do that is really a
policy and program question that the IG is prohibited by law
from responding to. I could tell you what our body of work
talks about in terms of an internal control structure and that
a proper internal control structure, regardless of which way
this Congress or the administration determines to go from a
policy perspective is what is most critical in my eyes.
Mr. WILLIAMS. Okay. During the pandemic, various federal
agencies were tasked with getting money to the American people
as fast as possible. Now, unfortunately, the SBA seemed to be
one of the worst in distributing business saving funds for the
last 2 years. The Shuttered Venues Operator Grant (SVOG)
program, which was created from my bipartisan Save Our Stages
Act, took over 6 months from being signed into law before a
single dollar was disbursed. Cinemas, theaters, concert halls,
and other entertainment venues across the country struggled to
stay in business while they were left in the dark by the SBA's
Administrator Guzman who has still not been held to account for
these catastrophic failures. People lost jobs. Futures were
torn apart.
So Mr. Ware, based on their fundamentally unprepared to
perform their duties, is it your opinion that the SBA setbacks
are indicative of greater organizational challenges? Or was it
basic incompetence and lack of leadership that caused these
embarrassing rollouts of events and lifechanging events for
small business owners? That is a pretty simple question.
Mr. WARE. Well, I mean, again, I go back simply to the work
that we have done. And you know, we put out a management alert
on the control environment and tracking performance results in
that program, the Shuttered Venue Operators Grant Program;
right? And in terms of the risk framework that we asked them to
put in place, clearly the five performance goals, we know that
they put those items in place. Relative to the rollout of it
and what happened and who was to blame and everything like that
for the delay, we have not looked into that. We have another
report on SVOG that should be out shortly.
Mr. WILLIAMS. Well, I look forward to seeing that but you
ought to look into it and see who is responsible for delaying
this to these businesses that cost so many jobs.
So the SBA is tasked with assisting small businesses across
the country. I am a small business owner. However, they fail to
properly communicate with businesses, borrowers, and lenders
and Members of this Committee during important times of need.
So when the SBA system disruptions halted the SVOG program in
the spring of 2021, businesses were unable to reach anyone at
the SBA to get a status update on their applications. And I
mean, you could not get anybody. So meanwhile, Members of this
Committee such as myself, were being stonewalled and did not
receive the answers to our pressing letters until October when
our concerns were really pressing. As Members of this
Committee, we are charged with overseeing the SBA and I find
this lack of communication troubling.
So Mr. Ware, do you have any information or data on the
SBA's lack of communication with borrowers, lenders, or Members
of this Committee? We are customers, too, and you have to take
care of your customer. So if not, would your office to commit
to looking into the efficiency and the effectiveness of SBA's
communication with stakeholders?
Mr. WARE. Yes. Well, definitely. Anything that is a concern
to this Committee is taken seriously as a concern by my office.
And if there is a request that you would like to put forward
for us to look into that, we can.
Mr. WILLIAMS. Yeah. I just did.
Chairwoman VELAZQUEZ. The gentleman's time has expired.
Now we recognize the gentlelady from California, Ms. Chu,
for 5 minutes.
Ms. CHU. Mr. Ware, I am so glad to hear that your office
will continue to audit the PPP program and take a focus on
fraud in the loan forgiveness process. As you know, in order to
qualify for total loan forgiveness, the employers had to expend
at least 60 percent of their PPP proceeds on payroll. Well, I
have heard from labor unions representing hospitality workers
in Southern California who have made very concerning
allegations of several major hotels in the area including JW
Marriott and the Chateau Marmont. Their Members experienced
widespread layoffs at the start of the pandemic, yet the
employer still received millions in PPP loans and have applied
for forgiveness. It is unclear how they could have met the
payroll requirements for the loan after laying off nearly all
of their workers so they have submitted complaints to OIG but
they have not been contacted yet.
So can you talk about the office's process for responding
to complaints regarding PPP forgiveness? And with tens of
thousands of complaints coming in, will your office need
assistance to investigate these claims in a timely manner?
Also, let me ask this. I mean, in the hospitality business, the
allegations are made of larger employers who received loans
worth millions of dollars, so are you planning to establish a
dollar threshold over which loan forgiveness recipients will
receive more scrutiny?
Mr. WARE. Thank you. So, there is a lot to unpack there.
Let me start with our hotline process and what we are dealing
with. You are correct; there are tens of thousands constantly
coming in. Here is what we have done. Clearly, my office, we
tried just about everything up front in terms of dealing with
all the hotline complaints, including reassigning staff.
Including we got help from 10 different IG offices in terms of
processing. What we have done now is we have moved to more of a
data-driven model in concert with the Pandemic Response
Accountability Committee (PRAC). And the PRAC and my office
developed a system by which we could take this in and
categorize them and do some triaging so we could get these
things out to the field. We actually got a public award for
innovation for putting that together and we are still working
on it. As a matter of fact, it is my hope that if I was to be
in front of you in 30 days that I would tell you that there is
no backlog; that everything has been addressed. That is how
aggressively we are moving on it.
But that lends itself to a different issue; right? The
issue is that I have a finite amount of staff, investigative
staff, that we have staffed up. We are at about 180. And my
criminal investigators are carrying huge workloads. That is why
we are partnering across the entire law enforcement landscape.
So the process in terms of getting back to someone on like the
people that you spoke about, right, for us is an
acknowledgement that we received it but we do not provide
updates, case updates to complaints. So that is the process of
maybe why they would know that.
I hope I touched everything. What did I miss?
Ms. CHU. Oh, I also asked about thresholds and how are you
ensuring that the larger transgressors are being addressed?
Mr. WARE. So as you are aware, all our criminal
investigations are run through the Department of Justice, and
AUSAs across the nation. These offices set the thresholds for
our community. So what we are doing, listen, the focus right
now, really, is on the big ones. The ones that were the rings
and everything like that. So you might see some that pop up
because we have been providing I think monthly, I hope.
Monthly, we have been providing you an update with the
convictions, the cases and everything like that. You might see
some that are a small dollar amount, smaller dollar amount. You
see others with large dollar amounts. The small ones would
spill into what we are looking at in terms of a ring. They are
natural outpourings of that.
Chairwoman VELAZQUEZ. The gentlelady's time has expired.
Now we recognize the Ranking Member from the Subcommittee
on Economic Growth, Tax, and Capital Access, Mr. Meuser, from
Pennsylvania, for 5 minutes.
Mr. MEUSER. I thank the Chairwoman very much. And I thank
our Ranking Member. And Mr. Ware, I appreciate you being here
as well. It is unfortunate as this is an oversight hearing that
the United States Treasury Department has oversight of PPP as
you well know, and Secretary Yellen has been requested along
with by law required to appear before this Committee twice on
an annual basis and yet has yet to appear.
Do you have conversations with Secretary Yellen? Can you
inform her perhaps for us since she is ignoring our requests to
appear before this Committee and answer some of these important
oversight questions, Mr. Ware?
Mr. WARE. No, I do not. My oversight is within the Small
Business Administration.
Mr. MEUSER. Okay.
Mr. WARE. I meet regularly, every other week with the
administrator here.
Mr. MEUSER. Well, PPP obviously falls within your
wheelhouse as well. So perhaps her insight and answers would be
helpful to you as well as this Committee.
So let me continue along related to the EIDL Disaster Loan
Program. Perhaps appropriately named, unfortunately. The thing
is that, look, there was $80 billion in fraud out of $260
billion in loans. I mean, that is a really outrageous figure
here as well as to taxpayers. PPP as you offered and stated
honestly was far more effective and successful. Nine hundred
billion in loans with $4.6 billion in potential fraud. So a
far, far better ratio for legitimate loans. And as you
mentioned, Mr. Ware, it is due to the partnership with the
private sector. So it would be considered to expand the SBA
sole lending vehicles by Members, our colleagues on this
Committee, or even your office. Would that be something that
you would advocate for, expanding lending vehicles solely
through the SBA resources as opposed to advocating for such
lending vehicles to be expanded via the partnership of the
community banks such as how the PPP loan was handled? Which
would you prefer?
Mr. WARE. In my role, I do not advocate one way or the
next; right? I rely solely on the work that is done by my
office to inform this Congress and the people who would set up
policies and the people who would set up programs on what you
have before you. There are a lot of moving parts in order to
make a determination into that. Our focus has been on the fraud
environment in terms of----
Mr. MEUSER. Well, you are in charge of it. We need your
input on what would be most effectively carried out by the SBA.
So please keep that in mind.
Let me just ask you this as well regarding EIDL loans. Is
it going to get better before it gets worse? Are you
comfortable at this point with the loans being made? Have we
put, as Ranking Member Luetkemeyer brought up, additional
safeguards in place so this fraud does not continue?
Mr. WARE. I believe, and I think I have said it on record,
and I will say it again here, I believe that SBA's programs
have more integrity in them right now than they did at the
onset. And I believe that, for example, the major fraud
concern, right, initially SBA was dependent on self-
certification. There was not sufficient vetting of that
information, even when information was clearly illogical. And
that led to many of the problems that we found. I think it is
the 4506T tax transcripts and the type of data that they are
processing from the Internal Revenue Service, I think it
addresses much of it and I will tell you, we are in the process
of making a determination as to how that fraud landscape
changed and what that meant in terms of savings to the American
taxpayer.
Mr. MEUSER. Thank you, Madam Chairwoman. I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Pennsylvania, Mr.
Evans, for 5 minutes.
Mr. EVANS. Thank you, Madam Chair.
In the past, you have reported that many missions critical
and senior positions at SBA are staffed by federal employees
nearing retirement. How has the SBA been dealing with the
alleviation of the workforce challenges? And can you please
share with the Committee the progress that has been made in
this area?
Mr. WARE. Thank you for that question. This is one of them
that I hate to have to say I believe I am going to have to get
back to you on that because I do not believe I have current
work that informs it. But I do know that my people ask
questions like this regularly. I know I have seen from the
chief human capital officer here, Elias Hernandez, that they
have put together some plans to address that. We have not
reviewed those plans as yet.
Mr. EVANS. Let me ask this question. Many small businesses
in my district are interested in contracting with the
government. Such contracts can help the businesses grow and
expand. In recent years, the federal government has been
successful in achieving the statutory goal of awarding 23
percent of all contracts primarily to businesses. Can you tell
us exactly how is that process proceeding?
Mr. WARE. The process of determining whether or not the
mandate has been met in terms of the percentage?
Mr. EVANS. Exactly. Exactly.
Mr. WARE. Well, over the past, at least since I got in,
long before I got here in 2016, we have been going back and
forth with the agency on how they actually calculate those
percentages. And including how they run the numbers. They have
been, actually, the one change that they have made is that they
have been transparent to everyone in what goes into the
denominator or what goes into the numerator and coming up with
that percentage. So at least they are doing that. But it is
within, remember, they are responsible for ensuring that all
other government agencies are calculating the same way in terms
of making their percentage. The improvement that they have made
is that we all know how they do it.
Mr. EVANS. Thank you.
Thank you, Madam Chair. I yield back the balance of my
time.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Florida, Mr. Donalds,
for 5 minutes.
Mr. DONALDS. Thank you, Madam Chair. And Mr. Ware, thanks
so much for making yourself available to the Committee on such
an important topic and for all the work of you and your staff
that you have been doing here.
I was taking some in-depth time reviewing your written
statement and you identified several challenges for the SBA in
the financial year 2022.
Challenge 3. The SBA's economic relief programs are
susceptible to significant fraud risks and vulnerabilities.
Challenge 2. Inaccurate procurement data and eligibility
concerns in small business contracting programs undermine the
reliability of contracting goal achievements.
Challenge 3. SBA faces significant challenges in IT
investment, system development, and security controls.
Challenge 4. SBA risk management and oversight practices
need improvement to ensure the integrity of loan programs.
Challenge 5. SBA's management and monitoring of 8(a)
business development program needs improvement.
Challenge 6. Identification of improper payment in SBA loan
programs remains a challenge.
Challenge 7. The SBA's Disaster Assistance Program must
balance competing priorities to deliver prompt assistance and
prevent fraud; and
Challenge 8. The SBA needs robust grants management
oversight.
Mr. Ware, these challenges are significant for any lending
institution, let alone the SBA. Based upon all of this, does
the SBA have frankly the necessary infrastructure and
wherewithal and capacity to embark on direct business lending
considering all the challenges the agency still faces?
Mr. WARE. That is a good question. Our goal and the goal of
all IGs, because all of us have to put out the top management
challenges facing whatever agency or department that we are
responsible for. In all of this, I believe that the men and
women of the Small Business Administration are up to the task.
I do believe that there needs to be the type of systemic
changes that we have detailed in this document put in place and
then I believe that the programs could run and we could have an
assurance that there is more integrity in these programs.
I think it is probably better that I stop there. I do
believe that the Small Business Administration has the capacity
to be able to run the programs that they are charged with
running.
Mr. DONALDS. Mr. Ware, what I will tell you is that could
they run their existing programs? I believe it is a maybe. But
in the world of lending, and I spent, you know, many years as a
loan underwriter, in the world of lending, maybe is what costs
you your customers money. And with respect to the SBA, maybe is
what is going to cost taxpayers money. I mean, I think the core
question for the Committee, and frankly for the American people
overall, is that if the SBA has a track record with direct
business lending that they have already had with the EIDL
program, who is going to actually carry the losses when the SBA
gets it wrong because of so many systemic challenges they have
in their infrastructure? Like, who bears the real burden of
losses from the SBA if they do not have basic, you know,
underwriting capacity that has been outlined in your report?
Mr. WARE. You are asking me who bears it?
Mr. DONALDS. Yeah. Who bears the responsibility? Who is
going to bear the responsibility for dollars lost?
Mr. WARE. Well, for dollars lost it is the taxpayer; right?
But that is in all the programs. That is in the direct lending
program. That is in the 7(a) program because the agency pays
the guarantee.
Mr. DONALDS. Well, and honestly, it is a statement,
frankly, Mr. Ware, that I think we both know but I think it is
important for all the Members of the Committee, no matter what
side of the aisle that you are on, for us to understand that
even though there are some good intentions that the Members may
want to have or want to see SBA engage in for the benefit of
various business in our country, the reality is that the SBA is
nowhere near capable from an institutional standpoint, from an
infrastructure standpoint, from a capacity standpoint to
address those needs, especially considering the fact that what
they already have on their books with respect to the EIDL
program and the PPP program and the existing loans in the 7(a)
program. There is a lot of work to be done over at the SBA.
They are nowhere close. And to, in my view, radically change
the mandate into direct lending would actually cause
significantly more problems and exacerbate those programs. It
will not fix them and we will be right back here having more
hands just like this one.
I yield back. Thank you so much, Madam Chair.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from Pennsylvania, Ms.
Houlahan, for 5 minutes.
Ms. HOULAHAN. Thank you, Madam Chair. And thank you so much
for being here today and for your diligent work, Mr. Ware, to
oversee SBA's unprecedented response to COVID and the COVID-19
pandemic.
And I wanted to take my time and opportunity to ask for
your insights on how we can possibly apply lessons that we have
learned from the pandemic and the pandemic response to future
disaster relief programs.
Many small businesses in my community have also been
seriously impacted by the damage that was recently caused by
Hurricane Ida. In fact, my community is under a federal State
of Emergency. While some have bounced back quickly, others have
been less fortunate such as the Veterans Construction and
Utility Services Company that is located in Modena. Faced with
damages to equipment on top of economic pressures from the
pandemic, this veteran-owned and service-disabled small
business opted to close its doors for good, informing my office
that they simply did not have the capital to apply for an SBA
loan, nor the capacity to take on another bill to pay,
particularly without the possibility of forgiveness.
Unfortunately, this situation is very common. According to
FEMA, between 40 and 60 percent of small businesses never
reopen their doors after a natural disaster like Ida. Something
I heard time and again from small businesses in my community
following the hurricane is where is PPP for natural disasters?
I agree. Why do we not have loan forgiveness like we did under
PPP for small businesses impacted by these natural disasters
that are increasingly more and more common. It is our
responsibility to take the positive aspects of our SBA COVID
assistance programs, making improvements where necessary to
address lessons learned and ensure that our small businesses
have the support they need to recover from all disasters,
whether they be related to public health or climate change.
So with this context in mind, I am interested in learning
more from you about how we can appropriately balance the need
that we have talked about here to get more money into the hands
of small businesses quickly in an emergency while understanding
certainly that the prevention of fraud can require a much more
deliberative and careful review.
So my question, sir, to you is has the SBA and has your
organization and operation examined what the tipping point is
between getting money to businesses in a timely manner while
also sufficiently rooting out cases of fraud and abuse? So my
specific question is, are you not just looking at cases and
addressing whether they are fraud or not, but are you also
trying to catalogue what it is that we could be doing to be
better at preventing this fraud and abuse to begin with so that
we can take the good of the PPP program and apply it to other
uses?
Mr. WARE. Thank you for your question. Please know that
that is a major focus of my office. We have put out 18
different reports on the pandemic programs. From before the
very first loan was issued on PPP, we issued a report
addressing this very same thing, what needs to be done to
balance speed and controls. How you need to communicate to
folks so that everybody knows what they are doing. It is a
major part of what we are looking at. And I have sought to do
this across government in my role on the PRAC. We are going to
work on a document that tells the entire disaster story and to
make sure that the lessons that we learn this time around are
there forever so that we do not make the same type of mistakes
again. So, yes, it is a huge focus of my office and has been
from the beginning.
Ms. HOULAHAN. And of those 18 reports, and I am sure in
counting that you are working on right now, are there any
aspects of those reports that this Congress and its
responsibility can be helpful in terms of changing, modifying
PPP so that we could end up with a PPE disaster program?
Mr. WARE. Yes. As a matter of fact, we worked closely with
Congress on one of the earlier reports on PPP where legislation
was put in place to address some of our findings. So this body
has actually been on top of it in terms of making immediate
changes, changes that move pretty rapidly.
Ms. HOULAHAN. So I only have 40 seconds left of time and I
would really rather not ask my second question because I do not
believe we would have time for an answer but with the very
limited time I have left, I am an entrepreneur, a small
businessperson, mid-size businessperson as well, and some of
the most remarkable things that ever happen, happen under
duress, when a company is under duress or when an organization
is under duress. And so we have experienced extreme duress in
this country due to COVID and the innovations that have
resulted are things like the PPP program which arguably, and
granted, have definitely, we have seen some abuse. But we
really should make sure that we are taking advantage of an
innovation such as PPP, figuring out how to take advantage of
the neuropathways that we have created between companies and
their banking institutions and our SBA, and make sure that we
are able to use those innovations for something like the
stressors that happen in natural disasters as well.
And with that I yield back. And thank you, Madam Chair.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from Minnesota, Mr. Stauber,
for 5 minutes.
Mr. STAUBER. Thank you very much, Madam Chair, and Ranking
Member Luetkemeyer for putting this hearing on. Thank you, Mr.
Inspector General for being here to answer our important
questions.
What number of recommendations that you have made to the
Biden administration's SBA in relation to fraud have yet to be
closed out?
Mr. WARE. So the exact number of the recommendations I
could get back to you really quickly on. But I do know----
Mr. STAUBER. Mr. Ware, has the agency explained why they
have yet to be closed out to you?
Mr. WARE. Oh, no. So it is important for me to note this.
The agency has moved rather expeditiously to close out the
majority of the recommendations. There are not that many
outstanding that have to do directly with what our systemic
recommendations were. When you look at it, the numbers are
coming back to me, like 110 recommendations but about, what,
60, 70 of them had to do with the financial statement audit. So
in terms of the systemic things to move PPP and EIDL and to
deal with the Shuttered Venues program that we issued----
Mr. STAUBER. Mr. Ware----
Mr. WARE.--they have pretty much closed those out. There
are only a few that are remaining. Most of them the date has
not come for when they are supposed to be closed.
Mr. STAUBER. Mr. Inspector General----
Mr. WARE. There are a handful that came----
Mr. STAUBER.--because my time is limited, Mr. Inspector
General, you mentioned that the SBA has either partially or
totally disagreed with some of your recommendations. What
procedure is in place that occurs if they do not support your
recommendation? Do they remain open or what?
Mr. WARE. No. So here is what we have. It is both the
agency's and my office's responsibility to get these closed
out. So we have a process in place where we go to what we call
the audit follow-up official to make a final determination. If
the final determination is that, well, we flat out do not agree
with you, I raise that with this Committee as an item to
determine whether or not you feel----
Mr. STAUBER. And I think, Mr. Ware, I think that some of
those suggestions are going to be coming back to this Committee
I am quite sure.
One of the things that you had mentioned in your previous
testimony today, and this is almost a quote, that you do not
advocate in one way or the other. Mr. Ware, we need you to
advocate one way or the other because when you look at $4.6
billion of fraud in the PPP and $84 billion in the EIDL loan,
you see some deficiencies. The SBA needs some changing and so
we need you to advocate for those changes. Eighty-four billion,
and my guess is as you go, as you look into this further, you
are going to see more fraud. And my colleague, Byron Donalds
from Florida asked you who pays for this? It is the American
taxpayer that pays for this. I understand in this town,
millions and billions, and now even trillions is thrown around
like it is nothing. Eighty-four billion dollars, Mr. Ware, is
exactly what we need you to find and hold these people
accountable, so we need your advocacy. That is the priority
that your mission statement says as Inspector General, to
advocate for the taxpayers.
And lastly, lastly because my time is limited, I just want
to say in closing, I just want to express my deep concern about
this fraud at the SBA. It should be troubling to everyone here
that as families are struggling with inflation, higher energy
bills and the supply chain crisis, that their hard-earned tax
dollars are not being stripped away to pay criminals for fraud.
I completely, Mr. Ware, and I want you to understand this,
I completely respect the work that you are doing to recover
these taxpayer dollars but it is beyond me that my colleagues
on the other side of the aisle still are trying to ram through
their Build Back Broke program to increase the funds at the SBA
when we know that they are not efficient right now. When the
safeguards that you have recommended are not even put in place
by the SBA. So we need your advocacy in this. We need you to
step up and help us. This Committee has full oversight of the
SBA and we cannot allow career bureaucrats in the SBA to
determine this because when we have done that, like the EIDL,
$84 billion. That is with a B. Billion dollars of taxpayer
money. I cannot explain that to my constituents in Northern
Minnesota but I will tell them we are going to find that money
and we are going to prosecute the fraud. We need your help, Mr.
Ware. I am asking you to be an advocate for every taxpayer.
Chairwoman VELAZQUEZ. Time has expired.
Mr. STAUBER. And I yield back.
Chairwoman VELAZQUEZ. The gentlelady from Georgia, Ms.
Bourdeaux, is recognized for 5 minutes.
Ms. BOURDEAUX. Thank you, Chairwoman Velazquez and Ranking
Member Luetkemeyer for holding today's hearing. And thank you,
Inspector General Ware, for joining us today and for your
important work.
Since taking office, I have been working to ensure small
businessowners in my district have access to the tools they
need to apply for and receive loan forgiveness under the PPP
program. Can you give us an update on the OIG's work to
evaluate the PPP loan forgiveness activity? So how involved
have you been in this process? And of particular interest to me
was that early on we noticed that there was disparity among
different communities in my very diverse district and who was
receiving that loan forgiveness and who was not. And so I would
ask that you talk to that particular issue as well if you have
looked at that.
Mr. WARE. Thank you for the question.
We have two ongoing reviews right now on the loan
forgiveness process. What I do know as of this month probably a
week ago or so, 94 percent of the loans have been fully or
partially forgiven. The 2020 PPP loans that is. And less than
95 percent of the amount that the loan value for 2020 PPP has
been forgiven all or in part. I do know that. So that is what I
have so far. The work is in progress.
Ms. BOURDEAUX. Okay. Thank you. That should cover everybody
pretty much.
So on that, so then moving on with this, so the other half
of it, of course, is making sure that we are preventing fraud
in the loan forgiveness piece. And can you speak to the work
you are doing to prevent PPP forgiveness fraud, of course,
without holding up forgiveness process for rule following
businessowners?
Mr. WARE. Great. So I think what I do know, last year,
about the middle of last year, that is when SBA changed the way
that it was going to do the loan review process for forgiveness
status; right? So they decided that they were going to
prioritize more manual reviews that were based on fraud risk
rather than the status of forgiveness. They have gone to more
of a, they say, a machine learning type environment where they
are able to determine risk. Know this, getting forgiven does
not mean that we cannot review the loan afterward, that we
cannot come after a fraudulent actor after. So we are still in
the fight for that.
Ms. BOURDEAUX. Okay. Thank you.
And you are going to be evaluating, it sounds like, sort of
a data driven risk program to see if that is really effective?
Mr. WARE. Yes.
Ms. BOURDEAUX. Okay. Thank you.
And then last of all, I know your office has been working
on identifying preventing fraud, you know, across different
programs. And can you provide some insight into why the agency
is further along in addressing the PPP fraud issues as compared
to the COVID EIDL issues?
Mr. WARE. Is the question why were they further along?
Ms. BOURDEAUX. Yes.
Mr. WARE. Maybe an answer could be found. And so COVID EIDL
was realigned internally in order to address it. They were
realigned under the division within SBA that deals with the PPP
lending. So it is a familiar, more of a familiarity from the
banks, the lending institution private standpoint in terms of
the systems that they have in place to address and to catch
fraud and to catch things up front that allowed it to be better
suited to deal with this attack by fraudsters that came the
agency's way. And the lowering of guardrails in the EIDL
program in order to focus specifically on speed at the time.
Ms. BOURDEAUX. Thank you. I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back and now we
recognize the gentlelady from California, Mrs. Young Kim,
Ranking Member of the Subcommittee on Innovation,
Entrepreneurship, and Workforce Development for 5 minutes.
Mrs. YOUNG KIM. Thank you, Chairwoman Velazquez. And I
would also like to thank our Ranking Member Luetkemeyer for
holding this very important hearing.
Thank you, Mr. Ware, for being with us and taking time to
testify about your findings and help shed light on some of the
waste, fraud, and abuse issues taking place at the SBA. We all
recognize that your work is indispensable in our efforts to
safeguard taxpayer dollars and push the federal government to
work more efficiently and effectively for all constituents and
small businesses.
A lot has been discussed regarding how SBA direct loans
have been more susceptible to fraud than loans provided by
private financial institutions. And I want to echo many of the
same concerns raised by my colleagues on the fraud plaguing
SBA's direct loan program. And I have to say that I am very
troubled that we are considering expanding SBA's direct loan
programs without ensuring internal controls against fraud and,
you know, that is working properly before we do anything.
So Mr. Ware, since the beginning of the pandemic, the SBA
Economic Injury Disaster Loan program has been riddled with
fraud and we all know this and we have been talking about this.
With fraudulent loans potentially topping $78.1 billion, this
program calls into question the efficiency of the SBA in any
direct lending. So has SBA leadership done all that it should
to combat fraud in the direct lending programs that the
administration has administered over the past year?
Mr. WARE. I would say yes. They have done a great deal. And
there is so much that pops into my head. Remember, at the
onset, in the EIDL program, that is when we put out the
management alert that was able to capture what type of fraud we
were dealing with within the program. And yes, SBA did not
move. Leadership did not move at the time as quickly as we
would have liked it to stem the tide of that fraud. But since
that time, they have implemented quite a bit of our
recommendations. Some they even did in real-time, like at the
table making a telephone call. One that comes to mind was stop
people from changing the bank account information after the
verification has already been conducted. That was one way that
we stopped it almost immediately, that level of fraud.
Addressing the duplicate IP addresses and everything like that.
So a lot of controls have been put in place. That is the answer
to the question.
Mrs. YOUNG KIM. Another concern, and my colleagues' concern
about direct lending, given that the SBA has a checkered past
in direct lending, would it not seem to call into question
whether the SBA has the capacity to undertake more direct
lending authority such as originating loans directly through
the 7(a) program without opening the door for more fraud?
Mr. WARE. What I would say is this, again, the work that I
provided on the onset, right, was a completely different
control environment. The reason that I said, and sorry to
offend, that I do not advocate one way or the next, I think
that to have any kind of advocacy that comes from an inspector
general is in terms of the evidence that I put before you that
shows you what is going on in the programs.
Mrs. YOUNG KIM. Well, thank you for your response.
I want to move on to another one of your findings regarding
the SBA's failure to adopt effective IT systems. Your top
management report said SBA was expected to complete work on
revising the project scope and improving management areas by
the end of 2021. Can you provide us with an update and tell us
if SBA was successful in meeting that baseline reviews and
completing the functionality of that as certified by the end of
2021 like the report said?
Mr. WARE. I can tell you right now that from the
information that I have before me currently, the system is
basically where it was when we last spoke but we are looking
into it. Like you said, it was at the end. We are just at the
beginning of 2022 so we are looking at it. My understanding is
it still is not working as promised. That Beta Certify--was
supposed to be what delivered the woman-owned small business
capability and that the application is still in the program
sustainment and production mode in other words. So they hope to
make a directional decision in the next 2 months. That is what
I was told.
Mrs. YOUNG KIM. Well, thank you for your response.
It looks like my time is up so I will yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from Minnesota, Mr.
Phillips, Chairman of the Subcommittee on Oversight,
Investigations, and Regulations for 5 minutes.
Mr. PHILLIPS. Thank you, Madam Chair. Greetings, Mr. Ware.
Moments ago, one of my colleagues insinuated that Democrats
seem to not care about the fraud and are reckless with
investment in the SBA. I just want to remind everybody that I
think we all agree we are all here to provide oversight and
ensure that there is no fraud, at least as much as we can.
Every dollar that is lost to fraud and fraudsters is a dollar
denied to the very small businesses that we are here to serve
and a source of understandable disgust by me and every American
taxpayer. I just want to make that clear.
And there is a lot of work to be done. We all know that.
But I applaud OIG's dedication to providing oversight and to
the SBA for its diligence in implementing a number of important
IG recommendations in recent months.
As Chair of the Small Business Committee on Oversight and
Investigation, along with Ranking Member Van Duyne let me
assure you we are both committed to ensuring that OIG has the
necessary resources to conduct proper oversight. Period. And
with just $50 million in support from Congress, the OIG
recovered $4.2 billion in fiscal year 2021, which is an
extraordinary return on investment.
So Mr. Ware, with that in mind, what more can Congress do
to support OIG and your efforts to ensure even more efficient
and effective oversight and recovery efforts?
Mr. WARE. Thank you. Thank you for that.
Let me first say thank you to this Committee for all the
work that you have done with our office to make sure that we
get you what you need. But I think a reframing of the question
might be do we have enough resources for the oversight that
will provide for the pandemic loans that are going to perform
many years after the pandemic? So at present, like we
demonstrated, we could provide more oversight with more
resources. That is not a good argument though. The current
level of oversight that we have includes just over 180
positions. The problem is that our nonsupplemental budget
authority only provides for 125 and as I said in my opening,
the supplemental funds are going to be gone by the end of
fiscal year 2024. So I think that it is bad timing in terms of
that is going to be a key moment for realizing the true scope
of fraud in these programs. But, so I believe that the annual
resource level, the ones that we get annual appropriation. You
know, I am Executive Branch. I work with the Office of
Management and Budget and they work well with me. What I could
ask the Committee is to just please support what comes forward
in terms of right sizing us to match the fraud landscape.
Mr. PHILLIPS. Okay. Thank you, sir. And I encourage my
colleagues to give that deep consideration when that request is
made.
As we all know, PPP was designed to expeditiously
distribute funds with much of the fraud and eligibility
controls designed to occur not at loan initiation; rather,
during the loan forgiveness period. I know OIG has identified I
think it is 70,000 loans roughly totaling $4.6 billion in
potentially fraudulent PPP loans and stated `` this might the
tip of the iceberg.'' So with a large majority of the PPP loans
now being partially or fully forgiven, does OIG have a better
sense of the extent of total PPP fraud? I do not remember if
you gave a specific sense of that. And if not, when will you
have a more distinct picture of fraud?
Mr. WARE. That work is ongoing. So the work on loan
forgiveness, we have I think there are two that are ongoing
currently in which we should have at least some indication of
what we are looking at. I still think we are going to see where
the rubber meets the road on a lot of these that will not come
back for loan forgiveness because the numbers are large; right?
Even if it is 5 percent, the numbers are still huge. So, and on
those that may default early, because we have an early default
high-risk lending review program internally.
Mr. PHILLIPS. Okay. With my minute left or so, we know
there are a number of nonbank lenders that may have been
particularly susceptible to processing fraudulent or ineligible
loan applications. Is OIG working specifically to identify and
investigate those lending institutions, the nonbank lenders?
Mr. WARE. Well, we have not focused on any over any. The
number that we are dealing with, we have enough from the entire
landscape to select from. I mean, our agents have caseloads
that are just unimaginable, quite frankly.
Mr. PHILLIPS. I imagine.
Mr. WARE. So.
Mr. PHILLIPS. Okay. Well, with that in mind, you know, my
first question was what resources do you need? I trust you will
not be shy in asking us because it is our responsibility to
ensure you have the resources to provide the oversight that we
expect and demand, and so do American taxpayers. So thank you,
again, for your service, sir.
And with that, Madam Chair, I yield back.
Mr. WARE. Thank you.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Wisconsin, Mr.
Fitzgerald, for 5 minutes.
Mr. FITZGERALD. Thank you, Madam Chair.
General Ware, thanks for being here again. You can hear the
level of frustration I think in some of the Members' voices as
they continue to ask the questions. And it is difficult I think
in a 5 minute exchange to kind of get down to the nitty-gritty.
Let me just ask you a couple of things here. In the Fall of
2021 Semi-Annual Report to Congress you mention that the OIG
had been working diligently with federal, state, and local law
enforcement partners over the past year to bring more than 300
PPP or EIDL fraudsters to justice. The result has been
reiterated numerous times today. It is $460 million in assets
recovered not including the $3.1 billion that the OIG helped
financial institutions recover. So I guess my question is, what
is the measuring stick that you are using at this point to kind
of gauge what you would consider success? You know, those
numbers the way the math kind of shakes out is it is just a 3
percent recovery but, you know, what I am wondering is what is
that goal that you guys have internally right now and certainly
I would love to hear updates on a regular basis given to the
Committee so that we know kind of where we are at and what is
going on.
Mr. WARE. Regarding the updates, there is an update
document sent to this Committee that comes out I believe on a
monthly basis. Either monthly or quarterly. Yeah, it is
monthly. On a monthly basis that goes to this Committee.
Relative to measuring the numbers that you are using, do you
remember that the Semi-Annual Report covers 6 months; right? So
understand that as well.
In terms of a measuring stick for success, success is the
whole of government approach that we have taken from the onset.
We are working with the Department of Justice and with AUSAs
across this country in order to pull this together. We are
working with the FBI, the Secret Service. Our success is all of
our successes. It is really the success of the American
taxpayer in terms of how much fraudulent actors we will catch.
I do not have a number like we need to catch X amount of
people. What I do know is that we are diligently working on
bringing fraudulent acts, fraudsters to justice in these
programs.
Mr. FITZGERALD. Well, I think my concern is that as we go
through this process now, and unfortunately, I mean, PPP and
the EIDL program, you know, even though they have been great
successes, they are tarnished now. And they are tarnished by
this high fraudulent number. If there is some way for us to
moving forward say this is where you might shutter a program,
you may actually make a determination that it is no longer
serving its purpose because of the high fraudulent number. I
mean, I do not think that is out of the realm and that appears
to be something that has happened in the past related to some
other SBA programs. So I mean, from my perspective, I think
that is something that we should be aware of, we should be
watching and, you know, a year from now, let us all get back
together and see exactly where we are at because,
unfortunately, I think it might mean the end of some programs
if it is not characterized this way or if there are not
specific hard deadlines on trying to meet some of those goals.
And I think it would be in the best interest of obviously the
SBA but, you know, your office kind of has the reigns there and
you can make that happen. So I am hoping that, you know, with
these regular, and if you say it is monthly updates I certainly
will pay more attention to that and I hope the communication is
free flowing between the Committee and your office.
Mr. WARE. Can I say one thing?
Mr. FITZGERALD. Yeah, go ahead.
Mr. WARE. Okay. One of the things I forgot to mention that
I think is very important for everyone here to understand is
that white collar crime of this type normally takes years to
manifest and to really come forward. What we have done is we
have expedited this in a way that really has not happened in
the past and so what we are seeing is we are only still at the
beginning of it because the loan forgiveness process is not
even done yet. The EIDL loans have not even come up for
repayment yet. So that would be where the real rubber meets the
road in terms of fraud cases and everything else. So that is
understanding that we are still at the very onset of our
oversight.
Chairwoman VELAZQUEZ. The gentleman's time has expired.
The gentlelady from Kansas, Ms. Davids, Chairwoman of the
Subcommittee on Economic Growth, Tax, and Capital Access is
recognized for 5 minutes.
Ms. DAVIDS. Thank you, Chairwoman. And thank you, Mr. Ware,
Inspector General Ware for joining us today to report on the
SBA's managerial and programmatic challenges.
As you mentioned in your testimony, the Paycheck Protection
Program and the COVID EIDL program have unfortunately been
susceptible to forms of fraud and abuse, and these programs
have been especially vulnerable because of the broad scope and
as you mentioned, the rapid implementation during the very
beginning of the pandemic.
I am particularly concerned about the fraud in the COVID
EIDL program involving identity theft because it not only harms
the taxpayers and real small businessowners, but also innocent
individuals who are not at all connected in that way. So, you
know, in your OIG report 21-15 which was released in May, you
examined the SBA's handling of identity theft in the EIDL
program and raised concerns about the OIG's lack of
administrative seizure authority. So I am curious if the lack
of seizure authority has impacted the case, you know, what you
are seeing now and how that has impacted cases your office is
able to pursue.
Mr. WARE. Great. So I would say that in terms of impact, it
has not stopped anything because we work very closely with the
Secret Service. We have a great relationship with them to seize
on our behalf because they have, obviously, the seizure
authority. Now, if we had it in this instance I believe we
would be able to move a little bit faster but that is it.
Ms. DAVIDS. Okay. Well, I appreciate that. And that was
definitely something that stuck out to me.
And then I think I kind of want to switch over to ongoing
liability. So you had mentioned many of the initial
vulnerabilities of the program had been fixed and I am curious
if you could speak to the ongoing liabilities in the Paycheck
Protection Program and EIDL programs and what further steps the
SBA or even this Committee need to take as we move forward. You
know, if you want to speak to that for a minute.
Mr. WARE. Can you help me to understand? What do you mean
specifically by ongoing liability?
Ms. DAVIDS. I guess what I am thinking about is, you know,
there were some, you know, guidance to financial institution
issues that had occurred earlier on and I am curious if, you
know, whether or not there is ongoing, I say ongoing
liabilities. I think what I am thinking about is the potential
for, you know, additional fraud and those kinds of things. As
you said, when the rubber meets the road, you know, those dates
have not come up yet so I am curious if you could talk to us a
little bit about what is going on or if there are any steps
that we need to be taking.
Mr. WARE. So the whole landscape would be different because
of closed programs; right? So the money at this point is
already out. So we are dealing with looking at it from a loan
forgiveness perspective of which we have two ongoing reviews
that will inform us greatly on what that continued risk is from
that standpoint. The same will happen when the loans come up
for repayment in COVID EIDL. So in terms of informing, that is
the work that is ongoing currently. But it is kind of two
different things, if you know what I mean. In terms of the
money going out the door is where we were at before. The money
is out the door already.
Ms. DAVIDS. Yeah. Okay. Well, I appreciate your being here.
I appreciate the work you guys are doing over there and I will
look forward to if there are any further issues that we are
seeing, we will absolutely keep the line of communication open
with your office.
Mr. WARE. Thank you.
Ms. DAVIDS. Thank you, Madam Chair. I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentlelady from Texas, Ms. Van Duyne,
Ranking Member of the Subcommittee on Oversight,
Investigations, and Regulations, for 5 minutes.
Ms. VAN DUYNE. Thank you very much, Chairwoman Velazquez
and Ranking Member Luetkemeyer for holding this hearing today.
And thank you, Inspector General Ware for being here and
for your continued oversight work. What your office does,
especially over the last 2 years has been vital. This has been
clear by the $4.2 billion in recovered funds and savings from
your oversight of SBA's pandemic response efforts last year.
As we are all aware, the December CPI numbers just came out
today and they are even worse than expected once again.
Gasoline is up 49.6 percent. Used cars and trucks are up 37.3
percent. Rental cars and trucks are up 36 percent. Propane,
kerosene, and firewood are up 33.8 percent. This is on the
backs of working Americans and on small business employers.
Many deserving applicants are being pushed out and being beat
out by fraudulent applicants. So if about $80 to $100 billion
worth of fraudulent improper payments have been given by the
SBA, theoretically, if the SBA was to return that fraudulently
obtained money, could they then provide that money to other
more deserving applicants?
Mr. WARE. I will need to get back to you on that one. That
is a complicated question quite frankly and I believe that it
has to go through Treasury. There are some rules that need to
be followed. I do not believe it is as easy as going back into
the program and going back out. But I would need to clarify
that. I would not want to give a wrong answer on the record.
Ms. VAN DUYNE. I would be interested in hearing the
response on that. Because if $100 billion was appropriated to
be able to give out in this fund to those deserving applicants
and $100 billion was fraudulently given out, it seems to me
that you would be able to take that money that was fraudulently
given out and be able to help those people who need it the
most. That was the purpose. That was the appropriation of those
dollars by Congress. So if you could get back with my office on
that I would really appreciate it.
Mr. WARE. The only issue is that that money is still
potential that we do not have our hands on the money to pull
back yet.
Ms. VAN DUYNE. I think that was part of my question is if
you were able to obtain those fraudulent funds.
Mr. WARE. Okay. Okay.
Ms. VAN DUYNE. That was the assumption. Yeah.
It is clear the amount of fraud is incredibly large and the
Secret Service's National Pandemic Fraud Recovery Coordinator
was quoted saying he has never seen something at this scale. So
considering those kind of issues, what would you recommend this
Committee, or who would you recommend that this Committee reach
out to to expedite getting these funds back and prevent further
fraud from occurring?
Mr. WARE. To give which funds back?
Ms. VAN DUYNE. The funds that have been handed out
fraudulently.
Mr. WARE. Oh, that have been recovered?
Ms. VAN DUYNE. That we have not yet recovered. How can we
get those funds back and quickly? How can we expedite the
recovery of those funds? Who would you recommend that this
Committee call and work with?
Mr. WARE. Well, I would believe that that would be with the
Department of Justice, but I do believe that the Department of
Justice is working hand-in-hand with the law enforcement
community, federal, state, and local in that regard.
Ms. VAN DUYNE. All right. So the financial institutions
that have been involved with this process from the beginning
and they have not been able to help return funds. So would it
be beneficial for Members of this Committee to work
collaboratively with these financial institutions, either by
holding hearings or by other means?
Mr. WARE. So remember that you are talking about two
different programs; right? One, a direct lending program that
was done by SBA and the other that was done by banks. And like
so many have pointed out, where we found rampant fraud was in
the direct lending program.
Ms. VAN DUYNE. I am just wondering if you think it would be
beneficial for this Committee to be able to work with financial
institutions to identify how we could better the program and
prevent fraud from happening in the future.
Mr. WARE. That is a tough one for me. Perhaps.
Ms. VAN DUYNE. Okay. Okay. In your November 30th report you
highlighted that your review of a Treasury Department analysis
revealed that SBA's lack of adequate framework controls during
this period of review led to 75,180 COVID-19 EIDLs totaling
over $3.1 billion and 117,135 emergency EIDL grants totaling
over $550 million being disbursed to potentially ineligible
recipients. Has this lack of control been resolved?
Mr. WARE. Yes. Yes, it has. SBA immediately instituted the
Do Not Pay check that is now automatic in their process.
Ms. VAN DUYNE. Excellent.
Mr. Ware, I appreciate your hand work that you and your
office continue to do. It will certainly give the Members of
this Committee a lot to think about in terms of oversight. I
hope the Chairman of the Oversight, Investigations, and
Regulations Subcommittee, Mr. Phillips, agrees that we should
be holding a hearing on the rampant fraud that we see in these
programs and that would be an excellent first step. Thank you
very much.
I yield back.
Chairwoman VELAZQUEZ. Time has expired.
Now we recognize the gentleman from Louisiana, Mr. Carter,
for 5 minutes.
Mr. Carter, you need to unmute yourself.
Mr. CARTER. Thank you. Madam Chair, thank you very much.
Mr. Ware, thank you very much for your service.
Staffing up for major disasters continue to be a top
management performance challenge for SBA. The challenge has
been even more evident with the current pandemic, and for me in
Louisiana, insult to injury is the pandemic as well as the
natural disasters that we suffered with with Hurricane Ida.
When the agency was forced to hire more permanent and temporary
staff than ever before and process millions of COVID EIDLs, Mr.
Ware, your office recommended the agency develop an after
action plan to assess how the agency staff performed during the
pandemic so they could do better with the next disaster. To
your knowledge has the agency committed to conducting these
assessments?
Mr. WARE. They have committed to conducting the
assessments. We have not yet seen it.
Mr. CARTER. So when do you anticipate, do you anticipate
them actually doing it, and what effort do you have to kind of
make sure that this actually gets done?
Mr. WARE. I do anticipate. I believe that there was a date
associated, a deadline for when they were supposed to do that.
That deadline has not come up yet I believe. I do not have the
exact dates in front of me. I certainly could get that to you
but the only way that that recommendation would be resolved is
with that document.
Mr. CARTER. Will you provide any guidance for them on the
best way to conduct this assessment or do you plan to play any
role in providing guidance?
Mr. WARE. That is the trick part of the job of an inspector
general. I cannot build it for them and then review it by law.
So what I could do is provide the evidence based on the work
that I have done up to that point that they could get from and
deal with the recommendation from there.
Mr. CARTER. Are there best practices that are out there
that does not put you in a potential conflict but that can
provide some guidance on best practices on how this could be
done?
Mr. WARE. The best practices are what we can offer up. I do
not recall, because I do not have that particular report in
front of me where the recommendation came from but this is
definitely something I could get back to you on more
definitively.
Mr. CARTER. Okay.
Mr. WARE. I do not want to speak above it and then have the
auditors come after me.
Mr. CARTER. That is fair. Are there lessons you could take
from FEMA or other agencies on how to rapidly staff up better?
Mr. WARE. I certainly could but I also believe they have,
because remember that the EIDL program is not new; right? The
EIDL program has been around forever. So they have consistently
had this challenge. They know how to ramp up. The question is
the ramping up, are the folks trained? Are the folks properly
vetted? And that is something that we continue to work with
them to see that it is done.
Mr. CARTER. As a part of your oversight, do you look for
and determine if small minority businesses, woman-owned,
disadvantaged enterprises are having an opportunity to be a
part of that ramp up? Oftentimes we have these ramp ups and we
have companies or agencies that are big and by its nature have
the ability to be ready for these kinds of opportunities but
because Small Business Administration obviously, we have an
interest in making sure that we are providing opportunities for
small businesses, truly small businesses to play a role. Any
guidance or thoughts as you go through your oversight to
determine if, in fact, we are reaching those small businesses
so they have an opportunity to partake in the aftermath in the
case of a pandemic or other natural disasters?
Mr. WARE. That is a good question. I do not believe my
office has performed or conducted any work in the area that is
in alignment with your question. But it is certainly something
that we could look at. I will talk with my team responsible for
the disaster programs and get their thoughts on it.
Mr. CARTER. That would be very helpful, particularly as I
mentioned in my jurisdiction we have a plethora of small
businesses that are, in fact, oftentimes on the side watching
larger firms get the work, many of which are not in the
jurisdiction that the natural disaster took place in and
obviously that is very difficult when we are trying to build a
small business base and create opportunities for small and
emergent businesses. So any assistance that you can give us in
that area and provide some guidance and/or resource would be
greatly appreciated.
Madam Chair, I yield back.
Mr. WARE. Thank you.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from New York, Mr.
Garbarino, for 5 minutes.
Mr. GARBARINO. Thank you, Madam Chair and the Ranking
Member, for having this hearing. Thank you, Mr. Ware, for being
here.
I have a question. And I know my colleagues brought it up
before and you mentioned the top challenges, there are a couple
that SBA is facing in fiscal year 2022 and the first one on the
list was SBA's economic relief programs are susceptible to
significant fraud risks and vulnerabilities. You have seen the
books. You have seen the inner workings of the SBA. And I know
a couple people have asked you already if you would advocate
that they increase these programs. I am not asking you to say
yes or if they should not, but is the SBA prepared to start new
direct lending programs or increase the amount of money that
they are lending before this challenge is addressed? I am not
asking you if they should or not; are they prepared?
Mr. WARE. Great. Good question.
I believe that SBA is more prepared now than they have ever
been in terms of the control environment that is currently in
place from a risk perspective. And I look at it in my role from
a risk perspective to the taxpayers' funds. So I believe that
their control environment is stronger now than it has ever
been. And certainly, much stronger than it was at the onset of
the pandemic.
Mr. GARBARINO. So for risk, you are saying that there still
is risk of fraud because I am looking at your comments and you
say your audits and investigations continue to find that the
agency is facing significant risk of fraud because of the size
and scope of its loan programs and related internal control
environment. So that still currently exists. They are still
facing significant risk of fraud but it is less fraud, risk of
fraud than at the beginning when the program started?
Mr. WARE. Yes. Let me clarify because it is important for
us to understand that fraudsters do what fraudsters are going
to do. There will be a risk of fraud to any program; right? Our
role is to make sure that that risk of fraud is mitigated to
the lowest level possible.
Mr. GARBARINO. Is it as mitigated now as it could be? I
mean, the reason I ask that is there are 110 open
recommendations. Would there be less risk if those 110 open
recommendations were taken into account?
Mr. WARE. Certainly. Important to understand that more than
half of those have to do with the financial statement audit
which is dealing with something quite different.
Mr. GARBARINO. No, I understand that. So, yeah, I think you
said 60 or so are part of it. So there is still 50 out there
that could be addressed that would even further reduce the risk
of fraud if they were addressed; correct?
Mr. WARE. Yes.
Mr. GARBARINO. Okay. So----
Mr. WARE. Although not all of the 50 have to do with fraud.
But the ones that do, definitely.
Mr. GARBARINO. There are some of them, out of these
recommendations there are some that would reduce the risk of
fraud?
Mr. WARE. Yes.
Mr. GARBARINO. Okay. So would you like to see those items
addressed before any new programs start?
Mr. WARE. Certainly. Certainly. I have advocated from the
very beginning that certain controls need to be in place before
any program is started. I said that before PPP was rolled out;
right? Before COVID EIDL was rolled out. We had our report out
imploring the agency to take a look at these things before
kicking them off.
Mr. GARBARINO. Okay. I appreciate that and I do appreciate
the work that your office has been doing on these reports. They
are very thorough. And I agree, I would love to see the SBA
address these risks because I think any risk of fraud, and like
you said, bad guys are going not do bad things. They are always
going to find a way to do it. We need to stay on top of them to
make sure that that risk is as diminished as possible. I just
do not think based on what you said, and as you said, your
advocacy is what you put in front of us with your reports. That
is how you advocate. You are not going to take a position. I
think what your reports are saying is clear to every Member on
this Committee that before the SBA starts any new direct
lending program or increases the amount of money that they do
through current programs, they should listen to you and address
those issues, those recommendations, because any risk of fraud
of taxpayer dollars is unacceptable. Again, I appreciate the
work you have been doing. Thank you for your testimony today
and I hope the SBA administrators listen to you so less
dollars, less taxpayer dollars go to fraud.
And thank you, Madam Chair, I yield back.
Mr. WARE. Thank you.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from New York, Ms. Tenney,
for 5 minutes.
Ms. TENNEY. Thank you, Chairwoman, and Ranking Member
Luetkemeyer.
I just want to say thank you, Mr. Ware, for taking your
time for being here. And we are really grateful for your work
and what you are doing and exposing some of the issues we have
had with the Small Business Administration and how to improve
it and make it more friendly to our business community.
As a small businessowner, we greatly appreciate that. And
we know that they have struggled at times and that is one of
the reasons that I actually partnered with Senator Lee to
introduce the Transparency and COVID-19 Expenditures Act. And
only through the full audit of COVID-19 emergency programs can
we really ensure that these mistakes are not made again and we
appreciate your effort in trying to get these reports out.
We do know that SBA has failed to respond to a lot of these
policies that you have set forth in your reports which are
highlighting where we need to move them. And as my colleague,
Mr. Garbarino said, we want to make sure that we push them in
the right direction.
I want to specifically first get into an issue that I had
with Administrator Guzman when she was here in November. She
said she was unaware, and I tried every angle on this question
to her, that SBA was illegally providing millions of dollars in
Paycheck Protection Program loans to multiple Planned
Parenthood affiliates, including a $10 million PPP loan for
Planned Parenthood of Greater New York. And as you are aware,
it is illegal for these federal funds to be used for abortion
and all applicants for PPP must abide by the rules and the size
standards. And since Planned Parenthood has over 16,000
employees nationwide, they are ineligible. Have you provided
information about the Paycheck Protection loans to Planned
Parenthood to Administrator Guzman? Is she aware of these as
far as you know or have you provided her with this information?
Mr. WARE. I have not personally provided information on
Planned Parenthood to the administrator. I believe, I hope that
the Committee knows that we have kicked off a job that looks
into eligibility of nonprofits that will deal with affiliation
and size standards, and Planned Parenthood is a part of that.
Ms. TENNEY. Let me ask----
Mr. WARE. So we do have work that is going on right now
that addresses it. As a matter of fact, it came as a request I
believe from the Senate Small Business Committee.
Ms. TENNEY. Great. So are you aware of loans that were made
to Planned Parenthood?
Mr. WARE. Yes, I am.
Ms. TENNEY. Okay. And do you know if those loans were made,
if Administrator Guzman was aware of that and if those loans
were forgiven?
Mr. WARE. No, I do not know either of the two right now off
the cuff. Like I said, the work is ongoing.
Ms. TENNEY. Right.
Mr. WARE. When the team briefs me I will know.
Ms. TENNEY. Does Administrator Guzman have access to this
information, whether the topline numbers, does she know, does
she have access to see this information anywhere as the rest of
us would?
Mr. WARE. I cannot say definitively that she does. I would
guess so.
Ms. TENNEY. Do you recommend that SBA change any of its
internal controls or anything to make sure that these types of
loans, illegal loans that violate either constitutional
provisions or the provisions of the PPP program to ensure that
SBA does not give these out in the future? That is something
that I think through your inspector general role you could do
that as far as recommendations to the administrator.
Mr. WARE. I believe that recommendations will be
forthcoming at the conclusion of our review.
Ms. TENNEY. Have there been any----
Mr. WARE. But the review is ongoing.
Ms. TENNEY. So if it is ongoing, have there been any
preliminary information given to Administrator Guzman? For
example, she denied knowing of any of these, and as the
administrator I found that quite startling. But would she be
aware of those now since it is an ongoing production of
information?
Mr. WARE. I have not received an update myself from the
audit staff as to where we are on this assignment. So I do not
have something to provide to the administrator currently.
Ms. TENNEY. So nothing is uploaded on any website or no
information is in the public domain on this issue other than
what we know because there have been loans given and received
on their 990 forms? Or what other IRS forms are. It may not be
a 990 Form.
Mr. WARE. No. My work would never be uploaded before it is
fully vetted and completed.
Ms. TENNEY. Okay. So there has been nothing disclosed since
November that she would know?
Mr. WARE. No. I have not had any discussions with her. I
meet with her every other week.
Ms. TENNEY. Okay. Well, I just want to thank you.
I also just wanted to reiterate the concerns that my
colleague, Mr. Garbarino had about the customer service issue.
We still are receiving information about loans and other things
that are not being handled in an efficient and continuous
matter. We hope that you will continue as the inspector general
to urge the administration to answer customer information
complaints faster and more efficiently as many people are out
there waiting or have not had loans processed for over a year.
But again, I appreciate, I know my time is running out but I
appreciate your work in trying to get the correct information
to the administration so SBA can work and function better for
our communities and our small business community who are
struggling through this pandemic. I thank you.
And my time is out so I yield back my time. Thank you.
Chairwoman VELAZQUEZ. The gentlelady's time has expired.
Thank you again, Mr. Ware, for being here today. Your
oversight of SBA programs is very important, and it is more
important now than ever as we work to address the challenges
with the stimulus lending programs and learn valuable lessons
for the future. It is vital that we address the systemic
challenges at SBA and work together to ensure that internal
controls are put in place. Doing so we will make the agency
stronger, nimbler, and better able to handle disasters in the
future. To that end, it is encouraging to see SBA is heeding
your advice and working to close out the outstanding
recommendations. Most importantly, your work helps the
Committee track challenges all throughout the agency that need
to be addressed. If we have learned anything over the last 2
years it is that we need to have a well-functioning, funded,
and staffed agency to address the day-to-day needs of small
firms and be ready for any catastrophe facing our nation. I
truly hope that today's hearing motivates all of us to work to
find bipartisan solutions to bolster the agency.
Without objection, Members have 5 legislative days to
submit statements and supporting materials for the record.
If there is no further business to come before the
Committee, without objection, we are adjourned. Thank you.
[Whereupon, at 11:55 a.m., the committee was adjourned.]
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