Preventing Fraud and Abuse of PPP and EIDL — Hannibal “Mike” Ware, Inspector General, U.S. Small Business Administration (October 1, 2020)

Summary

Testimony of Hannibal “Mike” Ware, Inspector General of the U.S. Small Business Administration, before the House Small Business Subcommittee on Investigations, Oversight, and Regulations on October 1, 2020, at the hearing 'Preventing Fraud and Abuse of PPP and EIDL.' He says SBA was given over a trillion dollars in lending authority and executed over 14 years' worth of lending within 14 days, and that his office's reviews found SBA lacked adequate controls to ensure PPP and EIDL funds reached only eligible recipients. He cites the office's May flash report on PPP and its July management alert on potentially rampant fraud in EIDL. He says more than 57 defendants had been charged with PPP fraud as of September 10, 2020, and that the CARES Act appropriated $25 million to his office.

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                   HANNIBAL “MIKE” WARE
                    INSPECTOR GENERAL
            U.S. SMALL BUSINESS ADMINISTRATION

                       BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS
              COMMITTEE ON SMALL BUSINESS
              U.S. HOUSE OF REPRESENTATIVES

                      OCTOBER 1, 2020
                                  INTRODUCTION

Chairwoman Chu, Ranking Member Spano, and distinguished members of the
Subcommittee, thank you for inviting me to testify before you today and for your
continued support of the Office of Inspector General (OIG). The hearing is titled,
“Preventing Fraud and Abuse of PPP and EIDL: An Update with the SBA Office of
Inspector General and Government Accountability Office.” I am proud of the
dedication and hard work of the men and women of OIG to not only prevent fraud in
these programs, but also to detect, deter, and combat fraud.

OIG provides auditing, investigative, and other services to support and assist SBA
in achieving its mission. As a result of its oversight efforts, OIG provides dozens of
recommendations each year to SBA leadership aimed at improving the integrity,
accountability, and performance of SBA and its programs for the benefit of the
American people. Similarly, OIG’s investigative efforts result in dozens of
convictions and indictments as we aggressively pursue evidence of fraud in SBA’s
programs. In doing so, OIG provides taxpayers with a significant return on
investment as it roots out fraud, waste, and abuse in SBA programs. During fiscal
year (FY) 2019, OIG achieved $111.0 million in monetary recoveries and savings—a
fivefold return on investment to the taxpayers. The monetary recoveries and
savings for all of FY 2020 are anticipated to be exponential to OIG’s base operating
costs.

                                  BACKGROUND

SBA was given a tremendous role in the nation’s response to mitigate the economic
impact of social distancing and other negative effects of the COVID-19 outbreak.
Over a trillion dollars in lending authority was made available to SBA through
public law.

The Coronavirus Preparedness and Response Supplemental Appropriations Act
deemed COVID-19 a disaster. The Act authorized SBA to provide Economic Injury
Disaster Loans (EIDLs) to eligible entities under the Small Business Act in
geographic locations declared disaster areas. In addition, the Coronavirus Aid,
Relief, and Economic Security (CARES) Act provided $10 billion for a new vehicle—
emergency advance grants. The Paycheck Protection Program and Healthcare
Enhancement Act provided another $10 billion for the emergency advance grants
and $50 billion in loan credit subsidy to support approximately $366 billion in
additional disaster loans.

The President signed the CARES Act into law on March 27, 2020, to provide
economic relief from the impact of COVID-19. One of the Act’s most significant
provisions, Section 1102, provided $349 billion for the PPP under section 7(a) of the
Small Business Act. The PPP provides fully guaranteed SBA loans for certain



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eligible small businesses, individuals, and nonprofit organizations that can be
forgiven if loan proceeds were used as required by the Act. Eligible expenses include
payroll, rent, utility payments, and other limited uses.

On April 24, 2020, the President signed the Paycheck Protection Program and
Health Care Enhancement Act to provide an additional $310 billion to the PPP.
SBA initiated this round of additional funding on April 27. The deadline for PPP
borrowers to apply for a loan was originally June 30, 2020. However, Congress
passed legislation that extended the program until August 8, 2020.

SBA’s role in the nation’s pandemic response has provided an oversight challenge
for which this OIG nor any OIG in history has ever faced. OIG is grateful that the
Congress and the Administration recognized the need for oversight and the value of
OIG in performing this oversight. The CARES Act appropriated $25 million dollars
to OIG to supplement its resources for a limited time. However, billions of dollars in
loans will perform in SBA’s portfolios for up to 30 years, and statute of limitations
for fraud associated with CARES Act lending and programs will allow for
prosecutions for more than a decade into the future.

Through the CARES Act, Congress also established the Pandemic Response
Accountability Committee (PRAC) within the Council of the Inspectors General for
Integrity and Efficiency (CIGIE). SBA OIG was designated as a statutory member
of the PRAC, which provides increased oversight capacity to the pandemic response
efforts. The PRAC’s initial successes have been in consolidating the whole of
government oversight reports and offering a window of transparency into the
pandemic response funds across government.

          OVERSIGHT OF SBA’S PANDEMIC RESPONSE PROGRAMS

SBA is exercising over a trillion dollars in lending authority and entrepreneurial
assistance as part of the Government’s pandemic response. OIG currently is
charged with providing oversight of this unprecedented amount of SBA lending
authority. OIG also is providing oversight of billions in subsidy loan payments and
hundreds of millions of dollars in entrepreneurial development efforts by SBA. At
the same time, SBA also continues to have identified management and performance
challenges across its programs, to which OIG directs its discretionary oversight
efforts.

OIG sought to inform SBA’s efforts before the lending even happened with our ‘risks
and lessons learned’ white paper reports. OIG published a robust oversight plan
and immediately initiated its first reviews focusing on implementation and
eligibility of PPP, EIDL, and the entrepreneurial development programs.




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OIG also proactively sought to prevent the public from being a victim of a fraud
scheme or scam. Prior to the first PPP loan being made by SBA, OIG published a
list of fraud schemes and scams to alert the public and SBA stakeholders. We
partnered with SBA’s Office of Communication and Public Liaison to have this
information available in 18 languages. This information was made available on
OIG’s and SBA’s webpages and distributed broadly through established
communication channels to include social media. OIG also sought assistance from
organizations involved with SBA lending to distribute the information and raise
awareness. We also consolidated all OIG pandemic response-related reports, press
releases, and testimonies on a single webpage.
In the ensuing weeks of the pandemic and SBA’s response, our criminal
investigators partnered with the Department of Justice and other law enforcement
organizations, conducted outreach to U.S. Attorney’s Offices, and evaluated
allegations of wrongdoing received through our Hotline. We also partnered with
SBA’s Office of the Chief Information Officer to investigate and remove websites
suspected of being fraudulent. Hundreds of investigations involving complaints of
fraud have been initiated by my office and are ongoing, with noteworthy results
being reported daily by the U.S. Department of Justice. Among these
accomplishments was the first in the nation charges against individuals
fraudulently seeking PPP loans, which was announced on May 5. This achievement
was the result of dedicated work by OIG criminal investigators and its law
enforcement partners. More than 57 defendants have been charged with PPP fraud
since the CARES Act passage, as announced by the Department of Justice on
September 10, 2020.

SBA’s tremendous role in the nation’s pandemic response is without precedent. It is
noteworthy that SBA executed over 14 years’ worth of lending within 14 days, and
this was just the beginning. The speed and reduced controls surrounding this
lending authority brought with it substantially increased risk. Our oversight work
confirmed SBA did not have adequate controls to address these risks and provide
assurance that PPP loans and EIDL grants and loans were only being received by
eligible recipients.

Those PPP and EIDL reviews revealed alarming preliminary findings, which were
confirmed as our initial reviews of these programs carried on and concluded. Given
the ongoing execution and policy considerations surrounding our preliminary
findings, we published a flash report on PPP in May, which resulted in legislative
changes to the program, and we published a management alert on EIDL in July,
sharing our finding of potentially rampant fraud in the program.

In mid-September, OIG presented its additional review findings for SBA’s
implementation of PPP and SBA’s initial disaster response efforts to SBA
leadership. Our findings further the work reported on in our PPP flash report and


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our EIDL management alert. For both EIDL and PPP, the unprecedented
challenges SBA had in responding to this pandemic, combined with missing or
lowered controls leaves limited assurance that loans went to only eligible recipients.
SBA leadership is afforded the opportunity to review our findings and offer its
official comments, which we will include in our published report with our analysis of
the same.

                                   CONCLUSION

OIG’s mission is to provide independent, objective oversight to improve the
integrity, accountability, and performance of SBA and its programs for the benefit
of the American people. Our focus is to keep SBA leadership, our congressional
stakeholders, and the public currently and fully informed about the problems and
deficiencies in the programs as identified through our work and to promote
corrective action in fulfillment of our mission.

OIG currently is charged with providing oversight of an unprecedented amount of
SBA lending authority—over a trillion dollars. The oversight challenges of SBA’s
pandemic response efforts are continuing to evolve with the hundreds of fraud
cases, tens of thousands of allegations of wrongdoing being received by OIG’s
Hotline, and concerns surrounding internal controls mounting based on our review
findings. We will continue our efforts to keep the Administrator and this Congress
currently and fully informed of our findings. Nothing short of the public trust is at
stake, as well as the vitality of the nation’s economy.




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