Office of Inspector General Reports to Congress on Investigations of SBA Programs (House Small Business subcommittee hearing, April 19, 2023)

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Transcript of the April 19, 2023 hearing Office of Inspector General Reports to Congress on Investigations of SBA Programs, before the House Small Business Subcommittee on Oversight, Investigations, and Regulations, Small Business Committee Document Number 118–009. Chairwoman Beth Van Duyne presided, and she and Jared Golden gave opening statements. The witness was Hannibal Ware, Inspector General of the United States Small Business Administration. The appendix carries his prepared statement and his answers to questions from Williams, Bean, Van Duyne, Mfume and Velázquez.

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OFFICE OF INSPECTOR GENERAL REPORTS TO
CONGRESS ON INVESTIGATIONS OF SBA
PROGRAMS

HEARING
BEFORE THE

SUBCOMMITTEE ON OVERSIGHT,
INVESTIGATIONS, AND REGULATIONS
OF THE

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

HEARING HELD
APRIL 19, 2023

Small Business Committee Document Number 118–009
Available via the GPO Website: www.govinfo.gov

U.S. GOVERNMENT PUBLISHING OFFICE
51–813 WASHINGTON : 2023
HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
NYDIA VELÁZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MORGAN MCGARVEY, Kentucky
MARIE GLUESENKAMP PEREZ, Washington
HILLARY SCHOLTEN, Michigan
SHRI THANEDAR, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire

BEN JOHNSON, Majority Staff Director
MELISSA JUNG, Minority Staff Director

(II)
CONTETS
OPENING STATEMENTS
Page
Hon. Beth Van Duyne ............................................................................................. 1
Hon. Jared Golden ................................................................................................... 2

WITNESS
Hon. Hannibal ‘‘Mike’’ Ware, Inspector General, United States Small Busi-
ness Administration, Washington, DC ............................................................... 5

APPENDIX
Prepared Statement:
Hon. Hannibal ‘‘Mike’’ Ware, Inspector General, United States Small
Business Administration, Washington, DC ................................................ 16
Questions and Answers for the Record:
Questions from Hon. Williams and Answers from Hon. Ware ..................... 28
Questions from Hon. Bean and Answers from Hon. Ware ............................ 34
Questions from Hon. Van Duyne and Answers from Hon. Ware ................. 46
Questions from Hon. Mfume and Answers from Hon. Ware ........................ 47
Questions from Hon. Velázquez and Answers from Hon. Ware ................... 50
Additional Material for the Record:
None.

(III)
OFFICE OF INSPECTOR GENERAL REPORTS
TO CONGRESS ON INVESTIGATIONS OF SBA
PROGRAMS

WEDNESDAY, APRIL 19, 2023

HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
SUBCOMMITTEE ON OVERSIGHT,
INVESTIGATIONS, AND REGULATIONS,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:13 a.m., in Room
2360, Rayburn House Office Building, Hon. Beth Van Duyne [chair-
woman of the Subcommittee] presiding.
Present: Representatives Van Duyne, Williams, Luetkemeyer,
Mfume, Golden, and Perez.
Chairwoman VAN DUYNE. Good morning, everyone, I now call
the Committee on Small Business to order. Without objection, the
Chair is authorized to declare a recess of the committee at any
time. The committee will hear testimony today from the Small
Business Administration’s inspector general.
Before my opening statement, I ask unanimous consent for the
Congressman from Missouri, Mr. Luetkemeyer, to participate in to-
day’s hearing. And without hearing objections so ordered.
I now recognize myself for my opening statement. I want to wel-
come everyone here to today’s hearing which will focus on the Of-
fice of the Inspector General’s investigation of Small Business Ad-
ministration programs. First, I want to thank our witness, Inspec-
tor General Ware, for joining us today. I hope this is the first of
several productive hearings that we will have with you in this Con-
gress and I appreciate you speaking with us today.
This hearing could not be coming at a more important time. I
have heard from countless small businesses in north Texas who
have faced difficulties in dealing with the SBA and the waste and
mismanagement that we have seen from the agency is a complete
disservice to our job creators and their employees. Some of the
most egregious examples of SBA mismanagement came in the form
of pandemic-related funds and programs. As the SBA dispersed an
unprecedented amount of money, they relaxed internal controls and
failed to be a responsible steward of taxpayer dollars.
While the SBA was overwhelmed with an increased workload,
they left the door wide open for criminals to abuse pandemic relief
programs. Who ultimately the pays the price? Hardworking Amer-
ican taxpayers. The SBA’s disorganized management structure and
(1)
2

a lack of basic guardrails to prevent fraud led to wasted taxpayer
dollars.
The OIG identified nearly 71,000 potentially fraudulent PPP
loans totaling more than $4.6 billion, and that may only be the tip
of the iceberg. In the Economic Injury Disaster Loan program alone
the inspector general found $78 billion in loans and grants that
were potentially fraudulently obtained. Tens of bills of dollars of
apparent fraud. That was from just one program.
Again, against Inspector General Ware’s advice, the SBA ended
collection on and forgave all PPP loans with an outstanding bal-
ance of $100,000 or less. This sets a horrible precedent of allowing
fraudsters to avoid facing repercussions.
While billions in pandemic relief funds were misused, the SBA
neglected to implement simple fraud mitigation measures until the
first round the PPP loans were approved. We could have prevented
much of this fraud and still can for future programs. But the SBA
has ignored proposed reforms. Right now our nation’s small busi-
nesses are facing runaway inflation, rising interest rates at a fast-
est pace since the 1980s and a labor shortage. This committee is
prioritizing the needs of our small businesses and their employees
and we stand with them.
I hope this hearing can help gauge how Congress can take steps
to improve the integrity, accountability and performance of the
SBA. Inspector General Ware has done a commendable job on shin-
ing a light on waste, fraud, and abuse within the SBA. I am hope-
ful that this hearing with our committee will help us better under-
stand how we can help our job creators get the support they need
and deserve from the SBA.
And with that, I yield to our distinguished Ranking Member who
is actually not with us yet so we are going to go ahead and recog-
nize Mr. Golden, from the wonderful State of Maine for 5 minutes.
Mr. GOLDEN. Well, look at that right there, folks. On queue.
Chairwoman VAN DUYNE. We are going to yield to our distin-
guished Ranking Member Mr. Mfume, from the wonderful State of
Maryland.
Mr. MFUME. Madam Chair, Members of the Committee my
apologies. As all of you know, these are the days when we are hav-
ing for some reason committee meetings that all run simulta-
neously. So I apologize. I had to be in the Oversight Committee
hearing and deal with an issue of an Afghanistan withdrawal. But
I am happy to be here. And I want to welcome Inspector General
Ware. Thank you very much for your presence today.
The past 3 years have been extremely challenging, and we com-
mend you for your oversight of the pandemic relief programs, as
well as making sure that the Small Business Administration’s core
programs are working effectively as well for small businesses.
Every year your office issues the top management challenges report
and the semiannual report to the United States Congress. Both of
those reports call attention to long-standing issues and identify
some of the biggest challenges facing the agency.
As the Ranking Member of the Oversight, and Investigations and
Regulations subcommittee, I want you to know that your work with
guide this committee throughout the year as it conducts and as it
should its oversight of the SBA. I anticipate that much of the dis-
3

cussion today will focus on pandemic relief programs. Since 2020,
SBA has distributed more than $1 trillion in economic relief to
small firms. And while the economic aid was vital in keeping mil-
lions of small businesses afloat during the pandemic, we know that
your work and through your work that there was a significant
amount of potential fraud. And I have stated my disgust with that
in previous hearings both at full committee level and at another
subcommittee.
I think most of us are concerned about that, particularly as it re-
lates to the Paycheck Protection Program and the Economic Injury
Disaster Loan program. Much of this potential fraud can be traced
back I think to the early days of the pandemic when programs
were new, when the loan volume was high and there was a need
to get loans out of the door quickly. Those priorities unfortunately
in many respects created the possibility of potential fraud.
This committee took steps to address the problems and to make
sure that the money went to small businesses that needed it and
that it did not go to a bunch of bad actors who we are all incensed
about. To that end I support a bipartisan legislation to extend the
statute of limitations for fraud in the Paycheck Protection Program
and the Economic Injury Disaster Loan program in the last Con-
gress.
Both of those bills which became law we believe sent a strong
message to the unscrupulous behavior by a number of people and
that behavior would no longer be tolerated and that those who
committed the fraud would be held accountable in the years to
come. And we all hope that there are fewer years than more years
in order to make sure sure they are held accountable.
The SBA under the leadership under leadership of Administrator
Guzman has taken steps to combat fraud in the pandemic relief
programs. And today it will be important for all of us to hear your
perspective on the progress of the agency and on the progress that
we believe has been taking place since that time and to hear more
about your combined efforts to recover the stolen funds, which real-
ly at the end of the day looms as a significant undertaking.
Oversight of the pandemic relief programs will be a top priority
for all of us for years to come. And your office will play a central
role, obviously. I recognize that you will need additional resources
in order to be able to investigate the fraud and to bring bad actors
to justice. And I expect to hear more about that in your fiscal year
2024 budget request. It is a reality unfortunately, but we have got
to find a way to hold people accountable. And we have got to be
able to have the resources to do that.
It is also important to know what is working well with the agen-
cy and how it is working well and what more needs to be done to
ensure that core SBA programs are in fact working effectively. So
I am committed to working with my colleagues on this committee,
the administration and your office to root out fraud, to bring
fraudsters to justice, to find bipartisan solutions to make the SBA
run for effectively. And I want to again thank the distinguished
Chairwoman who has called us together for this particular hearing.
I apologize, Madam Chair, for my in and out on this as I am
dealing with two other committee meetings quite frankly. Thank
you.
4

I yield back.
Chairwoman VAN DUYNE. Thank you very much.
I now yield to Chairman Williams for a brief opening statement.
Mr. WILLIAMS. Thank you. And good morning, General Ware.
Thank you for being here. We appreciate that.
I want to thank my fellow Texan, Beth Van Duyne, for holding
today’s subcommittee hearing with the SBA’s Office of Inspector
General. Today’s hearing is a critical component to examining the
competency and performance of the SBA, especially after the pan-
demic forced the agency to take on a more prominent role which
exposed many shortcomings.
For nearly 71,000 fraudulent PPP loans as we have talked about
already to $78 billion in fraudulently obtained loans and grants to
the Economic Injury Disaster Loan program the SBA failed to im-
plement adequate guardrails to protect taxpayers’ dollars. And this
allowed criminals and illegitimate entities to have a payday after
payday while legitimate small businesses struggled through pan-
demic.
The change is needed and we hope that you, General Ware, can
help lead the way in fighting the success of waste, fraud, and abuse
so Main Street America who we represent cannot continue to allow
the recommendations that you have made for the agency to be ig-
nored. There must be significant changes made to improve the in-
tegrity and accountability of the agency.
And with that, I am looking forward to today’s discussion and
hope we can create a sense of urgency for the SBA to listen to your
suggested changes.
So thank you, Chairman Van Duyne. I yield back.
Chairwoman VAN DUYNE. Thank you very much.
It is an honor today to introduce or witness, the honorable Han-
nibal Mike Ware, Inspector General Ware is a native of the U.S.
Virgin Islands and holds a bachelor of arts degree in accounting
from the University of the Virgin Islands. In May 2018, following
his confirmation from the U.S. Senate, Inspector General Ware was
sworn in as inspector general of the Small Business Administra-
tion. Prior to his appointment, Mr. Ware served as deputy inspec-
tor general. Mr. Ware has over 30 years of experience within the
OIG community.
In 1990, he joined the Department of the Interior OIG Virgin Is-
lands’ field office as an auditor and later became the field office su-
pervisor. Mr. Ware later moved to the DOI OIG’s office of manage-
ment and served as the deputy assistant inspector general for man-
agement. In this capacity he executed the DOI OIG’s independent
operating budget and managed the logistical concerns to the offices
nationwide presence.
In his current role as inspector general, Mr. Ware’s responsible
for independent oversight for Small Business Administration’s pro-
grams and operations, which normally encompass more than $100
billion in guaranteed loans and nearly $100 billion in federal con-
tracting dollars.
Inspector General Ware, thank you for joining the subcommittee
today and I am looking forward to our conversation.
I now recognize Mr. Ware for his 5-minute opening remarks.
5
STATEMENT OF HONORABLE HANNIBAL MIKE WARE,
INSPECTOR GENERAL, SMALL BUSINESS ADMINISTRATION
Mr. WARE. Thank you very much. Thank you, Chairman Van
Duyne, Ranking Member Mfume, and distinguished Members of
the Subcommittee. And Chairman Williams and Congressman
Luetkemeyer, thank you for being here. And thank you for the op-
portunity to appear before you today.
I am as always super honored to represent the dedicated men
and women of the SBA’s Office of Inspector General and their work
to provide oversight of SBA’s programs aimed at bolstering the na-
tion’s small businesses to include more than a trillion dollars at
stake as part of the pandemic response programs. I am confident
that much of our discussion today will focus on the challenges SBA
faced and experience in delivering critical funds that stem from the
economic ruling as a result of the pandemic are oversight efforts
span SBA’s other programs.
To a significant degree, the strain of the pandemic response laid
bare SBA’s systematic management and performance challenges.
My office knew from the onset of pandemic relief that SBA would
face a delicate balancing act of preventing widespread fraud while
ensuring timely disbursement of relief funds to Americans in im-
mediate neat of assistance.
The biggest concerns for our office was SBA’s quick delivery of
capital to qualifying small businesses without first establishing the
internal controls necessary to decrease risk. This was why we
issued three reports prior to the first PPP loan or EIDL being dis-
bursed, stressing the importance of up front program controls to
mitigate the risk of fraud.
Notwithstanding these early warnings, SBA’s internal controls
challenges engendered the biggest fraud in a generation. It was im-
mediately clear that pandemic relief efforts had drawn the atten-
tion of unscrupulous and greedy criminals. Complaints from lend-
ers and allegations of misuse of funds overwhelmed our hotline.
Over 100,000 complaints in the first year alone, which has swelled
to more than 240,000 and counting.
We actively engaged SBA’s leaders throughout the duration of
the pandemic to notify them of preliminary findings so they could
respond in real-time to prevent loss to the taxpayer. At the same
time, we launched criminal investigations and audits to root out
the fraud and abuse engendering these critical resources.
There are is no higher priority than addressing the top manage-
ment and performance challenges facing SBA, which is the pan-
demic response. We have unleashed the power of data analytics in
our oversight, fueled by the expertise and experience of our crimi-
nal investigators, auditors and analysts. To prioritize our work and
to bring fraud that is hidden in plain sight within the vast port-
folio, we have indeed embedded data analytics into the hearts of
those efforts. We have been able to responsibly use machine learn-
ing and artificial intelligence to identify outliers in a portfolio for
review and investigation.
To date, we are have issued 30 pandemic-related reports with
dozens of recommendations for corrective actions to the agency. Ad-
ditionally, since March of 2020, we have initiated over 1,000 inves-
tigations involving complaints of fraud resulting in arrests, indict-
6

ments and convictions. Our investigative work has resulted in 860
indictments, 687 arrests and 486 convictions as of March. And
those numbers continue to balloon.
Through our oversight OIG has provided taxpayers an expo-
nential return in investment. In the past 2 years alone our work
has resulted in more than $9 billion in accomplishments, over $8
billion in EIDL funds also have been returned to SBA by financial
institutions and another $20 billion by borrowers. We have played
a key role in the return of those funds to working with our law en-
forcement partners and financial institutions.
With swift congressional action last year the President signed
into law an increase in the statute of limitation for fraud in PPP
and EIDL to 10 years. It is vital that sufficient resources are avail-
able to my office to confront the fraud landscape. The President has
sought a $63.3 million in total budget authority from my office in
fiscal year 2024.
Budget scenarios such as return to the fiscal year 2022 funding
levels for us would be detrimental to instilling integrity in SBA’s
program and promoting accountability for wrongdoing. Reducing
our funding to fiscal year 2022 enacted would decrease our inves-
tigative and fraud enforcement capabilities nearly equivalent to
staffing levels that we had following sequestration in 2013, which
is less than 100 total positions. Such a funding scenario simply
does not allow us to provide effective oversight.
We are able to provide information to you to ensure adequate re-
sources are made available to promote the public trust and instill
integrity in SBA’s programs. The nation can depend on my office
to provide independent, objective and timely oversight of SBA.
Thank you for the opportunity to speak to you today. I am happy
to answer any questions you have of me.
Chairwoman VAN DUYNE. That was exactly 4 minutes and 59
seconds. Congratulations. Thank you very much.
We will now move to Member questions under the 5-minute rule
and I recognize myself 5 minutes.
On April 17, 2022, the SBA decided to formally end collections
on remaining defaulted PPP loans with an outstanding balance of
$100,000 or less. Your office noted in a September 2022 report that
this decision lacked evidentiary support. Do you still stand by that
analysis?
Mr. WARE. Thanks for the question. I definitely stand by my
analysis. Feel strongly that there are many steps that could be
taken. And I believe it sends a detrimental message for any future
emergency programs or any programs period across government.
Chairwoman VAN DUYNE. So as of September 30, 2022, the
value of $100,000 and under loans no longer being pursued was ap-
proximately $1.1 billion. Do you have the current total dollar
amount of these loans that are no longer being pursued?
Mr. WARE. I could get back to you on the exact total. I could
give you a general right now. The general on it is about $8 billion
that it has gone up to. I believe that is what it is.
Chairwoman VAN DUYNE. Okay.
Mr. WARE. I have it in front of me. I can find it.
7

Chairwoman VAN DUYNE. All right. Thank you. We were just
looking for—if you could find that out and follow up with me after
that would be great.
The committee sent a letter to the SBA on March 15, 2023, ex-
pressing our concerns about the SBA’s decision not to collect on
these loans and the taxpayer dollars being abandoned. The SBA re-
sponded on March 27 claiming that collection of the government is
not a cost effective use of taxpayer resources. As justification the
SBA used historical data from the SBA Express loan program
which they claim is most analogous to PPP loans.
The SBA claims that because Treasury recovered only .28 per-
cent of the Express loans referred for further collection, that collec-
tion on the exponentially greater outstanding PPP loan portfolio
was futile. Do you agree that these programs are a fair comparison
and that that collection is futile?
Mr. WARE. I actually don’t agree that it is a fair comparison. I
actually think it is more like apples to orange in that regard. Rel-
ative to collection that is not—what they are comparing is not the
only form of collection, it is not the only collection efforts. There is
more simple avenues such as Treasury offset. Where Treasury off-
set works that any future government funds that would go, it could
be a tax return, it could be anything would be held to fulfill the
debt to the government. And these are not—that is not a difficult
mechanism to deploy at all. On top of it, it would help in ensuring
that folks who defaulted, who didn’t pay for whatever reason, it
may not have been fraud, it was just that they refused to pay, it
would help that they don’t get access to future programs until they
are current. So I really don’t—it is not something that I am in
agreement with.
Chairwoman VAN DUYNE. The SBA had mentioned that they
provide this analysis to and I am just going to ask if you could pro-
vide that to the committee when you get a moment.
Mr. WARE. Sure I could.
Chairwoman VAN DUYNE. The SBA had mentioned in a brief-
ing to the committee staff their attempts to collect this money has
already been made, including by mailing letters to borrowers. Are
you aware of these attempts and do you believe they are sufficient?
Mr. WARE. We have not looked into exactly how frequently they
did that, but they were required to do so. And that is what you do
prior to going to going to Treasury offset so it would be the first
step actually.
Chairwoman VAN DUYNE. But then they did the first step and
they just dropped it after that.
Mr. WARE. Well, on that they made a decision that they would
go away from that.
Chairwoman VAN DUYNE. Okay. And another questionable de-
cision, the SBA has evidently also decided to end collections on
COVID Emergency Injury Disaster Loans, COVID EIDL, under
$100,000 which makes up approximately $71 billion of the $303.6
billion COVID EIDL loan portfolio. Unlike PPP loans, most of
which were able to be forgiven if certain criteria were met. COVID
EIDL loans were meant to be repaid. So the SBA has not said how
many loans are in repayment or experiencing issues with repay-
8

ment. Do you agree with this decision not to collect on COVID
EIDL loans under $100,000?
Mr. WARE. I definitely don’t agree with that stance. And I am
pretty public with that. And I am internally public with it as well
in my discussions.
Chairwoman VAN DUYNE. Did SBA provide you with any anal-
ysis for the justification of that decision?
Mr. WARE. We have a current—an ongoing review right now
that is ramping up on that. So I believe the audit team has their
justification, but from what I am being told it is along the same
lines that they provided for PPP.
Chairwoman VAN DUYNE. So are you able to provide justifica-
tion for this committee at all?
Mr. WARE. As soon as the report is finalized.
Chairwoman VAN DUYNE. Would you be interested in drafting
legislation to require the SBA actually be—collect those loans
under $100,000?
Mr. WARE. So I don’t believe in my role I can draft legislation.
Chairwoman VAN DUYNE. No, I am just—if you think that
would help, if we actually drafted legislation to be able to get at
least $8.8 billion plus the $78 billion?
Mr. WARE. I would say this, I would say that I believe SBA
should make every effort to collect. And that they are pretty simple
avenues to make an attempt to collect that money. And I believe
it sends a terrible message relative to how seriously we take that.
Chairwoman VAN DUYNE. Excellent. Thank you very much.
I yield. And I now recognize Mr. Golden from Maine for 5 min-
utes.
Mr. GOLDEN. Thank you, Madam Chair.
Mr. Ware, the budget proposal coming out of the White House is
a reflection of an institution’s priorities. So in fiscal year 2024
there was a request for an increase from your office of nearly $16
million, that is about a 33 percent increase from last year’s enacted
levels. So how does this proposal reflect the priorities of the admin-
istration to fight fraud as it relates to pandemic relief programs?
Mr. WARE. Thank you. It definitely demonstrates that they have
a real commitment or high confidence in my office’s ability to go
after bad actors, because the majority of that money if you looked
at it is for to deal with our criminal investigations. And on top of
it, it is basically to keep us afloat. When we had the supplemental
budget that we had, that is about to be to finished in 2024. We
have quite a bit of term investigators who would basically dis-
appear, if not for that. We are basically trying to right size that
to stay there before even going forward.
Mr. GOLDEN. Okay. So there is proposals out there right now
to cap discretionary spending levels overall for the government, fis-
cal year 2022 levels, of course that doesn’t have to be an even cut
across every program. So how vital is it that that not occur to your
budget? What do we stand to lose if you actually lost money rather
than got more?
Mr. WARE. If my office lost money or went back to the 2022, fac-
ing what is happening with my term employees in 2024, I wouldn’t
be able to provide the oversight. The number goes back to almost
like our 2016 or something like that enacted number.
9

Mr. GOLDEN. Sir, I understand the GOP is pending a debt ceil-
ing legislation which we may see soon, it may actually include a
funding government savings to the tune of $50 billion related to
COVID, part of which is the recovery of fraudulent loans. Would
you be able to help recover fraudulent loans if you took a cut?
Mr. WARE. No, I don’t believe that I would be able to. I simply
would not have the staffing necessary to do so. But if we did re-
cover the funds, it would be at a much smaller clip. Look at what
we are dealing with. My office—with an office that has a budget
of 20 something million dollars, we have returned what close to $30
billion or played a major role in returning close to $30 billion. That
is kind of an unprecedented return on investment.
Mr. GOLDEN. Yeah, I like those odds.
So just focusing a little bit more on how much we can recover
and suffice it to say that I think everyone on this committee thinks
that you shouldn’t lose money but rather get more and deepen that
return on investment. So what do you think is a reasonable esti-
mate for SBA to recover in regards to fraudulent PPP or EIDL
loans over the next let’s say 2 years or looking further over the
next 10 years? What is in the realm of possible for a goal?
Mr. WARE. That is a great question, very difficult to answer.
Mr. GOLDEN. Yes, I know.
Mr. WARE. Very, very difficult. I don’t believe I could put my
arms around what that could be. Criminal investigations are pretty
tricky, but I will tell you this, when we go after normal fraud be-
fore the pandemic I created the footprints in sand. So you have to
move quickly in order to catch a bad actor or it is gone, the evi-
dence is gone. What we have right now is footprints and cement.
Right? When we get to it, it is found. As soon as we open that file
it is found. All the records are there.
Mr. GOLDEN. Very good.
Just thinking about over all expectations, when does your kind
of confidence on the ROI start to diminish? Surely I mean we
would love to get every penny back, but that is probably not a rea-
sonable expectation. So when do we start to go beyond the return
on investment?
Mr. WARE. I don’t think you can with my office and I will ex-
plain.
Mr. GOLDEN. Your office, sure, but certainly the SBA argues
that at some point they might use more resources trying to recover
some of these funds than they would actually get back. It is a deli-
cate balance and I know you don’t want to send a bad message.
Mr. WARE. I agree that there is some sort of delicate balance.
I don’t believe we are there yet.
Mr. GOLDEN. Yeah, I agree with that very much. I appreciate
your testimony and the work that you do, very important.
Chairwoman VAN DUYNE. Thank you very much, Mr. Golden.
I now recognize Mr. Luetkemeyer from Missouri for 5 minutes.
Mr. LUETKEMEYER. Thank you, Madam Chair. And thank you
General Ware for being here again and your continued hard work
to recover these tax dollars from fraudsters.
One of the things in some of our previous conversations that we
have talked about were the fintech companies that were kind of the
main problem children in the PPP program. And it is very con-
10

cerning because the SBA now is trying to enlarge the number of
entities that can make 7(a) loans to include fintech companies. To
me this is was very concerning whenever we say in the PPP pro-
gram that the banks and the credit unions were basically the good
actors and the real problem children were the fintech companies
and there is about a handful of them. Do you have concerns about
this program being expanded, 7(a) program to be able to include
more fintech companies?
Mr. WARE. Thank you. I have concerns with the inclusion of any
type, it could be a bank, it could be a fintech, any our type of non-
depository lender that doesn’t have brightly marked out rules that
they are going to work under, that doesn’t have an internal control
structure in place to deal with it and that doesn’t have the proper
oversight and monitoring mechanism in place to go with it.
Mr. LUETKEMEYER. So you bring up the point that I was try-
ing to get to here, in order for these fintech companies to be able
to do this, do you think it would be a good idea for us to put in
place some additional requirements for them to be able to partici-
pate in a program or would that something that comes from you
as the inspector general saying these folks need to have these extra
precautions because these things were in place for the banks and
credit union, which things to be in place and then force the SBA
to do it that way. So how would you recommend us going about
this process?
Mr. WARE. So a couple of ways. One is that we have some work
that is going on right now, the evaluation of SBA’s oversight of the
fintechs and the Paycheck Protection Program that will definitely
have recommendations that would get to a proper control environ-
ment and making sure that SBA properly oversees and manages
them, because as you know with the nondepository lenders, SBA is
basically the oversight. They are the regulator. So that is of con-
cern to me. But we have also had prior work that identified key
areas of risk with fintech and they also speak to the very same
things that I am talking about here.
It is basically a three headed monster up front, rules and regs,
that is a general thing that doesn’t happen well with everybody
having a level playing field and knowing which rules they are play-
ing under and really playing under the same rules that the inter-
nal control environment and then very important the oversight and
monitoring.
Mr. LUETKEMEYER. Thank you for that. And I think it’s very
concerning to us to see that they have done this and there doesn’t
seem to be any additional protocols or procedures in place to mon-
itor the fintech. So one of the questions that I asked the director
the our day when she was here were how many people showed up
for work everyday? Do you monitor that at all?
Because she was talking about well, because we know that there
is a lot of them still working from home. And she talked about
maybe they are in the office 2 out of 5 days. I mean, I think you
would go over there and you would see dust on some of the desks
personally, but do you monitor that at all.
Mr. WARE. That is not an area that we have looked into. But
I must self disclose, my office had a as pretty robust telework and
remote work policy in place currently. The main reason that we are
11

in the major fraud fight right now. That work is done in court-
rooms and U.S. attorney’s offices and in the Department of Justice
across the country. That is where our focus is.
Mr. LUETKEMEYER. So you people are out in the field doing
their work. They are not home behind the—in their PJs with their
feet up, drinking a latte, while they are looking on their computer.
Is that what you are saying?
Mr. WARE. I am not saying. I don’t know if anyone is doing that.
Mr. LUETKEMEYER. But I am not wrong in my perception of
the fact that they are not there. We have got people out in the field
doing their work where they are supposed to be.
Okay. Just to get a handle again as a follow up on the previous
two questioners here, what do you see as the total amount of fraud
that is all there—not that you can recover all of that—do you have
an idea roughly of about what the amount of fraud that is still out
there that you would be going after? If it is, like, $50 billion, we
realize you may get 10 percent or 5, can you give us an idea of
roughly where we are at?
Mr. WARE. So at the beginning the pandemic we put out these
numbers that Chairman Van Duyne spoke about. Those numbers
were at the beginning, those are tiny. Where we are at now, we are
way past that. I can’t give you the exact number now.
I am telling you that we have a report coming out, our fraud
landscape report will be out in just a few months. And that report
I am extremely confident in our methodology, it will tell the story
of what the true fraud landscape is and it is meant to be a living
document because as we continue to dig in on or data analytics and
get access to more data points the number could grow.
Mr. LUETKEMEYER. Thank you for that. I yield back.
Chairwoman VAN DUYNE. Thank you very much, Mr. Luetke-
meyer.
And I now recognize Chairman Williams for 5 minutes—oh, I am
sorry. I am so sorry.
I did not recognize you. I now recognize Ms. Perez, from the
State of Washington for 5 minutes.
Ms. PEREZ. Thank you so much, Chairwoman.
And thank you for your testimony, Mr. Ware. A lot of conversa-
tion today has focused on how we can prevent and tackle fraud in
small businesses programs and I agree that is critically important.
We also need to ensure that SBA dollars are not being misspent
or defrauded by criminals.
With my time I would like to focus on the flip side of that, mak-
ing sure that dollars that reach small businesses are spent effec-
tively and meeting small business owners where they are at. By
definition the Small Business Administration deals with small
businesses, these are often one man or woman shows operating
with a skeleton crew.
A small business owner’s most valuable asset is their time. They
don’t have time to waste reading mountains of SBA paperwork. So
when overseeing SBA programs, how do you evaluate the small
business experience in accessing SBA programs in addition to SBA
programs.
Mr. WARE. Right. So thank you for that. And you are absolutely
right. That is part of our portfolio. We have done some work on this
12

in the past, but I don’t believe—it hasn’t been during the pan-
demic. We have not looked at that or I think that as part of the
beginning when they were kicking this off we were looking at the
customer experience and we were looking at—and we have done
work in a disaster realm where we have looked at how much time
it takes to get someone at SBA and what that experience is like.
So we have done some work in that area. SBA has some chal-
lenges in that area, but it is something that, you know, it is some-
thing that we are always looking, looking for. We were thankful for
the legislation that allowed to us do general surveys. And I know
that that is part of our work that we are teed up.
Ms. PEREZ. Great. I know that you closely engage with Adminis-
trator Guzman, do you also engage with small businesses to see
how SBA programs are rolling on the ground.
Mr. WARE. Personally I have not. My teams do——
Ms. PEREZ. Okay.
Mr. WARE.—when they are doing their reviews.
Ms. PEREZ. Okay, I am glad to hear that.
In general, how can SBA make its resources more accessible to
the average small business owners, not just the small businesses
that have this sort of administrative capacity to look into the SBA.
Mr. WARE. Yeah, so I mean they have their whole business de-
velopment group. And the business development group, that is
what they are charged with, that is part of what they are charged
with. Our work—I don’t know if we have work to that regard, but
I know that we can get work to that regard, I can get you that.
Ms. PEREZ. That would be great.
Your states that the SBA has made limited progress in servicing
EIDL loans. What improvements has SBA made to improve cus-
tomer service and servicing those EIDL loans?
Mr. WARE. Right. The customer service angle of it has not been
the angle that I have focused on, but now I realize that will have
some focus in that area.
Ms. PEREZ. So the Office of the Inspector General also has an
important consumer-facing role taking calls and investigating com-
plaints. The top management in performance challenge report
found that the OIG received over 208,000 calls on its hotline during
the pandemic. How has your office handled that increase of calls?
What is the current backlog of complaints? And what is the aver-
age sort of timeframe it takes to address a complaint once it is
made?
Mr. WARE. Had you asked this question about a year ago, I
would have had quite a backlog. But thank goodness for a really
capable data analytics group that we have that we don’t have a
backlog. We are able to triage these things and to distill what is
actionable and what is not. What we have actionable right new is
over 100-year’s worth of criminal investigative work in the hotline.
So there is triage’s own process that starts with that and then it
goes out to the field, but the field has their own portfolio, that is
why I was talking about the importance of resources for our office.
Our investigators are so dedicated and so driven that I had to
fight them to reduce their portfolios, because it is not sustainable
for a single agent to be working 20 something, 30 something cases
at the same time.
13

And the ramifications of that means that their supervisor, who
is supervising ten our agents, would have 25 times 10 super-
vising—that is what we are dealing with.
Ms. PEREZ. Yeah, yeah. Mr. Ware, you have an important role
in keeping the SBA on track and accountable to taxpayers. I know
that you take that responsibility seriously and I sincerely look for-
ward working with you to improve these programs. Thank you very
much.
Mr. WARE. Thank you. I appreciate your questions.
Ms. PEREZ. Thank you.
Chairwoman VAN DUYNE. I now recognize Chairman Williams,
for 5 minutes.
Mr. WARE. Go frogs.
Mr. WILLIAMS. Thank you again for being here.
The SBA has faced major challenges in managing enormous fi-
nancial lending programs, we are talking about that, IT and other
areas even before the pandemic. Now existing issues were exas-
perated by the sheer volume and lack of controls of SBA’s COVID-
19 related programs and problems continue to surface in the after-
math of SBA’s pandemic response, particularly around identifying
the mitigating fraud, balancing the competing priority short-
comings and oversight, insufficient reporting requirements and fail-
ure to meet legislative intent.
So it seems the agency does not have the ability to manage the
current loan volume or remedy existing fraud issues, yet the Biden
administration is trying it expand. And we talked about that the
SBA’s loan portfolio changes to the 7(a) lending program. On Octo-
ber 14, 2022, the OIG issued a report stating that OIG anticipates
the agency will face significant challenges managing its loan vol-
ume going forward.
Here is the question, is this still your view? And if so, what are
your greatest concerns with the new 7(a) loan programs that will
grandfather in all current community advantage lenders as well as
bring in more SBLCs.
Mr. WARE. Yes, thank you. My—I still share those concerns.
And I share those concerns because of the volume. Now SBA would
say that they are not adding that much more and that the people
who actually deal with this oversight have assured everyone that
they can handle it, because they are intent is to deal with more of
data analytics to deal with it.
My problem is data analytics is just what you—the capacity is
what you build it to be. So if you don’t build it with the right pa-
rameters in place, you are not going to be overseeing the right
things. You are going to miss the things that you actually should
be looking at. And I don’t have an assurance that that has been
built in mainly because I haven’t seen it.
Mr. WILLIAMS. The bigger they are, the more we lose is prob-
ably what the formula is right now.
The SBA is supposed to be the lender of last resort. However we
are hearing that the SBA is considering changing standard oper-
ating procedures to allow for businesses to self certify, that they
could not find any credit elsewhere in the private sector.
14

Now in your opinion, how would this major departure from the
current practice add additional risk to the system or deviate away
from their current role as a lender of the last resort.
Mr. WARE. In my opinion, and I have stated it just about every-
where, I don’t believe in any self certification on program. After
what we just came through with PPP and EIDL, I don’t see how
can we could still be relying on any type of self certification.
Mr. WILLIAMS. I agree with you.
Mr. WARE. I believe it adds significant risk. And I think we
have the evidence and the experience to know that it does.
Mr. WILLIAMS. The SBA has continually said that they believe
they can leverage technology to make up for staffing shortages
when the Office of Credit Risk Management would be charged with
overseeing the new lenders in the 7(a) programs. I know what your
answer is, but do you share the same opinion? And believe the
agency is equipped to be the sole federal regulator of these new
participants.
Mr. WARE. Even in house for the Office of Inspector General, we
rely on data analytics a great deal and it has really been a force
multiplier for us in terms of our investigations, but even those we
have to back check. Right?
That is why we still talk about potential fraud because we
haven’t looked at every single one of them. Right? We have looked
at a lot, enough to validate our data points. So to me, that is where
the concern lies with the reliance on data analytics is do you have
enough people still to know for certain that you have reduced the
mitigating risk in your program and is it built correctly.
Mr. WILLIAMS. Right. Well, we need to get better at what we
do rather than what we want to do. And I will just ask you a ques-
tion, I am in the car business back in Texas. This money that we
can’t find. Right, that we have talked about, what if we people your
people on commission, would they be able to find it?
Mr. WARE. Sorry, I don’t mean to laugh. Like, wow.
Mr. WILLIAMS. It is a pretty good idea.
Mr. WARE. That would have changed my entire career.
Mr. WILLIAMS. You think about it and let me know.
Mr. WARE. I will.
Mr. WILLIAMS. Madam Chair, I yield back.
Chairwoman VAN DUYNE. I am going to yield 2 minutes to Mr.
Golden for additional questions.
Mr. GOLDEN. Thank you, I appreciate it. I know we are looking
to wrap up here.
Really more just some feedback, Mr. Ware. First on the issue of
spending a little bit of time and resources looking into the effi-
ciency of these programs rather than just waste, fraud, and abuse
which is important.
For those of us that represent rural communities I could tell
there is a lot of anecdotal evidence that you could find ways to im-
prove programs if your staff spent time putting some reports out
to Congress on those things so I appreciate Ms. Perez’s questions.
I just couldn’t help, when Mr. Luetkemeyer was talking about
fraud and how much is out there and you mentioned you have got
a report coming. And I know that you don’t want to, like, rush to
close something out, but it is pretty timely topic. The Republicans
15

are talking about reducing the deficit spending, they are talking
about a debt ceiling proposal that involves the recovery of COVID
funds.
Not all of that I think, but some of it is counting on getting some
of this fraudulent money back and important decisions about what
type of budget to give you to help make sure that we can actually
capture those funds, you know, it is pretty timely.
So could you maybe get an early report out to the committee or
some kind of preliminary data about how much fraud is actually
out there and how much you think we might be able to recover.
Mr. WARE. I am so glad you said that, because this is the point
that I make internally all the time relative to timelines and being
relevant in this space. So I am so glad you said that.
The issue with providing something early is that it has not gone
through our independent indexing and independent referencing to
ensure that what we are reporting is 100 percent factual. And I
would not be comfortable in releasing something that has not gone
through that process.
Mr. GOLDEN. Well, always relevant but like I said the clock is
ticking.
Mr. WARE. The clock is ticking.
Mr. GOLDEN. We would love to have the information yesterday.
Mr. WARE. Man, I can’t wait. I am putting those words in
quotes and putting it up on a board in the office, the clock is tick-
ing. That is our new mantra.
Chairwoman VAN DUYNE. Thank you. I would like to thank our
witness for his testimony and for appearing before us today.
Without objection, Members have 5 legislative days to submit ad-
ditional materials and written questions for the witness to the
Chair. Witnesses to the Chair which will be forwarded to the wit-
ness. I ask the witness to please respond promptly.
If there is no further business, without objection the committee
is adjourned.
[Whereupon, at 10:58 a.m., the subcommittee was adjourned.]
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