Ware Testimony: Inspector General, U.S. Small Business Administration (Senate, November 14, 2023)

Summary

Testimony of Hannibal "Mike" Ware, Inspector General of the U.S. Small Business Administration, before the Subcommittee on Emerging Threats and Spending Oversight, Committee on Homeland Security and Government Affairs, U.S. Senate, November 14, 2023. The testimony states that OIG's work since 2020 has resulted in more than $13 billion in dollar accomplishments and that its oversight of the Paycheck Protection Program and the COVID-19 Economic Injury Disaster Loan program has resulted in 1,180 indictments, 936 arrests, and 632 convictions as of October 31, 2023. It cites the June 27, 2023 white paper COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape (Report 23-09), which estimated that SBA disbursed over $200 billion in potentially fraudulent funds out of approximately $1.2 trillion. It also discusses OIG's FY 2024 budget request.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

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

                      BEFORE THE

SUBCOMMITTEE ON EMERGING THREATS AND SPENDING OVERSIGHT
 COMMITEE ON HOMELAND SECURITY AND GOVERNMENT AFFAIRS
                      U.S. SENATE

                   NOVEMBER 14, 2023
                                INTRODUCTION

Chairwoman Hassan, Ranking Member Romney, and distinguished members of the
Committee, thank you for inviting me to testify before you today and for your
continued support of the U.S. Small Business Administration (SBA) Office of
Inspector General (OIG). I am proud of the dedication and hard work of the men
and women of OIG to detect, deter, and combat fraud in SBA programs to the
benefit of the American people.
Our office provides auditing and investigative services to support and assist SBA in
achieving its mission. OIG audits provide recommendations to SBA leadership to
improve the performance of SBA’s programs and services, rooting out fraud, waste,
and abuse in SBA programs. OIG investigations pursue evidence of wrongdoing in
SBA programs, bringing fraudsters to justice.
We’re also leaders in the federal workplace. For the past 2 years, our office has been
ranked as the top OIG in the federal government as a Best Place to Work by the
Partnership for Public Service with a 2022 engagement and satisfaction employee
score of 86.2, which far exceeds the overall government score of 63.4.
OIG has provided taxpayers with a historic and exponential return on investment.
Since 2020, OIG’s work has resulted in more than $13 billion in dollar
accomplishments, which includes investigative recoveries, fines, and forfeitures, as
well as review findings of disallowed costs. This has resulted in a 196.47 (19647
percent) return on investment since 2022 to the American taxpayer. OIG oversight
of the Paycheck Protection Program (PPP) and the Coronavirus 2019 (COVID-19)
Economic Injury Disaster Loan (EIDL) program has resulted in 1,180 indictments,
936 arrests, and 632 convictions as of October 31, 2023. More than $1 billion has
been seized with U.S. Secret Service bulk seizures. Over $8 billion in EIDL funds
have been returned to SBA by financial institutions and another $20 billion by
borrowers. OIG has played a key role in the return of these funds through working
with our law enforcement partners and financial institutions. We educate the public
about fraud in the pandemic relief programs, which has served as a deterrent to
fraudsters. We have issued 37 reports on pandemic oversight with 95 recommended
corrective actions to strengthen internal controls and to promote integrity,
efficiency, and effectiveness within SBA programs — with more significant work to
be released soon.
On June 27, 2023, we published the white paper COVID-19 Pandemic EIDL and
PPP Loan Fraud Landscape (Report 23-09). We conducted this review to provide a
comprehensive estimate of the potential fraud in SBA pandemic assistance loan
programs using our investigative casework, prior reporting, advanced data
analytics, and additional review procedures. We estimated SBA disbursed over
$200 billion in potentially fraudulent COVID-19 EIDLs and PPP funds out of the


                                          1
approximately $1.2 trillion allocated to SBA for pandemic economic assistance. This
means at least 17 percent of all COVID-19 EIDL and PPP funds were disbursed to
potentially fraudulent actors — specifically, more than $136 billion COVID-19
EIDLs and $64 billion in PPP loans, representing more than 4 million loans. If time
and resources were available, OIG would open an investigation on every one of the
loans identified as potential fraud in the Fraud Landscape report.
Notwithstanding these accomplishments, OIG’s oversight capacity is dependent
upon the availability of sufficient budgetary resources to continue addressing the
oversight need within SBA programs. The President has put forward a Fiscal Year
(FY) 2024 budget request for OIG to ensure continued oversight of SBA’s pandemic
response and its vital flagship programs supporting the nation’s small businesses.
Absent the total budgetary resources for FY 2024, OIG will be unable to capitalize
on the laws (P.L. 117-165 and P.L. 117-166) that extended the statute of limitations
for fraud in the PPP and EIDL programs to 10 years, as well as effectively oversee
SBA’s flagship programs that have management and performance challenges. Rest
assured with an investment in our office, taxpayers will continue to receive
significant return on investment, as well as benefit of more efficient and effective
SBA.


                   PANDEMIC RESPONSE OVERSIGHT

Congress authorized SBA to administer approximately $1.2 trillion through the
PPP, COVID-19 EIDL, Shuttered Venue Operators Grant (SVOG), and the
Restaurant Revitalization Fund (RRF) to support businesses adversely affected by
the economic crisis caused by lockdowns, business closures, and other impediments.
To support businesses adversely affected by the pandemic, Congress tasked SBA
with the lending authority of approximately $470 billion in COVID-19 EIDLs and
$20 billion in COVID-19 emergency grants. In FY 2021, Congress appropriated
additional funds for new disaster assistance programs: $35 billion for Targeted
EIDL Advances and Supplemental Targeted Advances, $16.25 billion for the SVOG
program, and $28.6 billion for the RRF. The Coronavirus Aid, Relief, and Economic
Security (CARES) Act provided $349 billion for the creation of the PPP under
Section 7(a) of the Small Business Act. Congress added an additional $310 billion to
the PPP on April 24, 2020, through the Paycheck Protection Program and Health
Care Enhancement Act. On December 27, 2020, through the Consolidated
Appropriations Act, 2021, the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act extended the program through March 31, 2021. The
Economic Aid Act provided an additional $147.5 billion in program funding. The
American Rescue Plan Act of 2021 provided an additional $7.2 billion, which
increased the total program funding to $813.7 billion. On March 30, 2021, the PPP
Extension Act of 2021 extended the program through June 30, 2021, with May 31,



                                         2
2021, as the last day for acceptance of applications. As pandemic assistance
programs swelled to more than $1 trillion, the risk to the taxpayer increased
because SBA’s internal control environment was calibrated to expedite loans and
grants.
My office recognized at the onset of the pandemic that SBA would face a delicate
balancing act of preventing widespread fraud while ensuring timely disbursement
of relief funds to Americans in immediate need of assistance. The biggest concern
was SBA’s quick delivery of capital to qualifying small businesses without first
establishing the internal controls necessary to decrease fraud risk, such as verifying
that a business did indeed exist before the onset of the pandemic and that it had
been adversely affected by the economic downturn. This was why we issued two
reports prior to the first PPP loan being disbursed. Our reports stressed the
importance of up-front program controls to mitigate the risk of fraud. Because of the
lessons learned from other disasters, we knew the weaknesses found in the past
would be greatly magnified with programs as large as the COVID-19 EIDL program
and the PPP.
Even with these early warnings, SBA’s internal control environment helped to
create the biggest fraud in a generation. SBA’s need to quickly provide relief to
small businesses resulted in reduced controls on pandemic-related loans and grants,
substantially increasing the fraud risk. It was immediately clear that pandemic
relief efforts had drawn the attention of unscrupulous and greedy criminals. We
also launched investigations, audits, and other reviews, and published a list of
fraud schemes and scams to alert the public and SBA stakeholders about the fraud
and abuses endangering these critical resources. Complaints from lenders and
allegations of misuse of funds overwhelmed OIG’s Hotline — over 100,000
complaints in the first year alone, which has grown to over 270,000. The first
criminal charges of PPP fraud were announced on May 5, 2020 — approximately 1
month after the program was initially authorized by Congress.
OIG utilized agile work products to deliver findings and suggest recommendations
for corrective action to SBA in nearly real time. We published a flash report on the
PPP in May 2020, just over 1 month after the start of the program. Because of this
report, Congress made significant changes to the program, such as changing the
minimum allowable use of proceeds for payroll costs from 75 percent to 60 percent,
extending the maturity from 2 years to 5 years, and prioritizing lending to
underserved markets. We sounded the alarm internally of rampant fraud in the
COVID-19 EIDL program in June 2020.
A growing national narrative told of widespread fraudulent activity involving funds
intended to provide economic relief to qualifying small businesses and
entrepreneurs. We actively engaged SBA 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.


                                          3
Oversight work
Since the start of the pandemic, OIG has testified before Congress 12 times and
held nearly 100 briefings for congressional staff to ensure Congress remains
informed about our noteworthy oversight efforts and innovative approaches using
agile work products and data analytics.
OIG focuses its oversight capacity on the most significant risks to SBA and
taxpayers. Many of these risks are addressed in OIG’s Top Management and
Performance Challenges Facing the SBA, which OIG issues annually in accordance
with the Reports Consolidation Act of 2000. The management challenges represent
areas that OIG considers particularly vulnerable to fraud, waste, abuse, or
mismanagement, or which otherwise pose significant risk to the agency, its
operations, or its credibility.
Each management challenge has originated from one or more reports issued by OIG
or the Government Accountability Office. We do not usually rank the top challenges
in order of importance or magnitude, except for the pandemic economic assistance
challenge. We view all eight challenges as critically important to SBA operations in
the upcoming year. However, we placed COVID-19 economic relief programs at the
top of the list for the 2021 report in recognition that it is the agency’s most acute
challenge, and it remains so at present.
SBA Top Management & Performance Challenges FY 2024
      Challenge 1
      SBA’s Economic Relief Programs Are Susceptible to Significant Fraud Risks
      and Vulnerabilities
      Challenge 2
      Eligibility Concerns in Small Business Contracting Programs Undermine the
      Reliability of Contracting Goal Achievements
      Challenge 3
      SBA Faces Significant Challenges in Information Technology Investments,
      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 the 8(a) Business Development
      Program Needs Improvement
      Challenge 6
      Identification of Improper Payments in SBA’s 7(a) Loan Program Remains a
      Challenge
      Challenge 7




                                          4
      SBA’s Disaster Assistance Program Must Balance Competing Priorities to
      Deliver Prompt Assistance but Prevent Fraud
      Challenge 8
      SBA Needs Robust Grants Management Oversight

OIG annually publishes an oversight plan for reviews it has ongoing or planned for
that calendar year. The implementation of this robust oversight plan uses all
available OIG resources to provide timely, objective, and independent oversight of
SBA programs and services.
As stated in our oversight plan, upcoming reports will focus on a holistic approach
in assessing SBA’s pandemic response programs and flagship programs. Notably,
SBA’s decision to expand the role of Small Business Lending Centers within the
7(a) program. This and other regulatory changes are significant and will be subject
of oversight efforts. Additionally, OIG is working on more than 10 mandatory
reviews, which are required by law, and dozens of other reviews determined by our
risk analyses. We have initiated three inspections on SBA’s initial response to
hurricanes Fiona, Ian, and Idalia and the Maui wildfires. We expect to issue these
reports in the second quarter of Fiscal Year 2024.
Over the course of SBA’s pandemic response, OIG offered key recommendations to
strengthen the internal controls to prevent fraud in the COVID-19 EIDL program
and the PPP. SBA has been responsive to OIG recommendations for corrective
action. SBA has continually made progress to reduce fraud risks and prevent
further losses in its pandemic loan programs, and our office’s ongoing work
continues to make further recommendations for corrective action. Although we are
confident that SBA’s implementation of our recommendations stemmed the tide of
fraud, many of the improvements to the lax internal control environment were
made after much of the damage had already been done.
We will continue to monitor and assess the effectiveness of agency controls through
our ongoing and planned reviews for suspected fraud and suspicious activities.
Fraud Landscape
On June 27, 2023, OIG published the COVID-19 Pandemic EIDL and PPP Loan
Fraud Landscape . We conducted this review to provide a comprehensive estimate
of the potential fraud in the SBA pandemic assistance loan programs. Over the
course of the COVID-19 pandemic, SBA disbursed approximately $1.2 trillion of
COVID-19 EIDL and PPP funds. The fraud landscape white paper not only provided
policymakers with an understanding of the fraud perpetuated against SBA, but it
also provides OIG the insight necessary to prioritize and lead investigative efforts
across the nation, particularly in task and strike forces led by the U.S. Department
of Justice (DOJ).




                                         5
Using OIG’s investigative casework, prior OIG reporting, advanced data analytics,
and additional review procedures, we estimate SBA disbursed more than $200
billion in potentially fraudulent COVID-19 EIDLs and PPP loans. This estimate
represents approximately 17 percent of disbursed COVID-19 EIDLs and PPP funds
— specifically, more than $136 billion COVID-19 EIDLs and $64 billion in PPP
funds.
Based on the various fraud schemes identified in our ongoing and adjudicated
criminal investigations, we expanded rule-based analytics through link analysis. —
an investigative technique that identifies fraud clusters through shared data
attributes. Link analysis is distinct from simply identifying loans with duplicative
values, such as sharing the same Internet Protocol (IP) address. This technique
refines basic duplicate analysis by only capturing additional loans that are
associated with a source loan suspected of fraud. This reduced the potential false
positives and allowed us to focus on loan clusters highly suspected of being
fraudulent.
We automated a process in which we linked one-third of all OIG Hotline complaints
to associated loan data by extracting the unique identifiers of tax ID, loan number,
and Dun and Bradstreet business identifier (DUNS) number from complaint
narratives. We incorporated previously unavailable PPP borrower intake data using
administrative subpoenas, which then help us further our investigative work. This
data was from a small number of PPP lenders and third-party processors and may
be expanded upon as we obtain additional data.
Our review identified 11 fraud indicators, or fraud groups. Since SBA did not have
an established strong internal control environment for approving and disbursing
program funds, there was an insufficient barrier against fraudsters accessing funds
that should have been available for eligible business owners adversely affected by
the pandemic.
Our fraud landscape white paper demonstrated that the potential fraud estimates
directly correlate to our investigative casework, adjudicated and ongoing criminal
cases, and to schemes SBA OIG and other oversight agencies are continuing to
unravel and prosecute. The growth of the SBA’s programs coupled with over $200
billion in potential pandemic-related fraud significantly expands OIG’s oversight
responsibilities.


                             COMBATING FRAUD

OIG leads the collaborative effort to combat fraud in SBA’s pandemic and flagship
programs. Prior to the pandemic, our office had always placed great value in our
partnerships across the federal government and law enforcement agencies. With




                                         6
this committed investment, OIG’s relationships have grown, paying dividends in
terms of our office’s success in dealing with the onslaught of fraud.
Since March 2020, we have initiated over a thousand investigations involving
complaints of fraud, resulting in arrests, indictments, and convictions that are
reported daily by the DOJ and its Offices of the U.S. Attorneys. We have received
more than 270,000 SBA OIG Hotline complaints and allegations of wrongdoing
since the start of the pandemic. From that number, our data analytics team has
identified more than 104,000 actionable leads — representing more than 100 years
of investigative case work. With time and resources, OIG and our investigative
partners will investigate these loans identified as potentially fraudulent within the
statute of limitations.

To bring fraudsters to justice and return taxpayer funds, OIG fosters a whole-of-
government approach. Time and time again, OIG has proven that the task force
model is winning approach in the fight against fraud. Our model has acted as a
force multiplier to combat the ever evolving and expanding fraud cases. OIG created
these SBA-centric task forces to collaborate with the DOJ and other law
enforcement authorities in bringing fraudsters to justice while clawing back stolen
taxpayer dollars. Consequently, our investigators have successfully conducted
several large-scale sweeps related to fraudulently obtained COVID-19 relief funds,
including arrests this past summer of more than 42 co-conspirators in Puerto Rico,
bringing the total arrests for this operation to 92 thus far, and 20 gang members in
South Carolina who otherwise would have remained at-large.

Since the establishment of the COVID-19 Fraud Task Force, we have worked closely
with our law enforcement partners to analyze the extraordinary amount of data
from our state workforce agency partners and the SBA. That data is the key to
identifying and prosecuting organized criminal groups and networks of overseas
fraudsters who stole pandemic relief funds. The strike force teams accelerate the
process of turning data analytics into criminal investigations, which has continued
to enhance our prosecutions. This prosecutor-led approach has proven successful in
other organized crime arenas. We believe it is key to dismantling the networks that
egregiously stole pandemic relief funds. The President also has sought $100 million
in supplemental appropriations, in addition to other measures, for a whole-of-
government response to the massive fraud in the nation’s pandemic response
programs.

The COVID-19 Fraud Enforcement Task Forces were established to marshal the
resources of the DOJ in partnership with agencies across government to enhance
efforts to combat and prevent pandemic-related fraud. The task forces bolster efforts
to investigate and prosecute the most culpable domestic and international criminal
actors. The task forces assist agencies with administering relief programs by
helping prevent fraud by augmenting and incorporating existing coordination
mechanisms, identifying resources and techniques to uncover fraudulent actors and


                                          7
their schemes, and sharing and harnessing information and insights gained from
prior enforcement efforts.

OIG Participates in Over 10 Strike/Task Forces

      o   Oregon Task Force
      o   Nevada Task Force
      o   Utah Task Force
      o   Denver Task Force
      o   Eastern District of Washington Task Force
      o   Idaho Task Force
      o   Hawaii Task Force
      o   DOJ Strike/Task Force(s)
             o Covering the Central and Eastern Districts of California
             o Covering the Southern District of Florida
             o Covering the District of Maryland


Our Oregon Task Force is an outstanding example of how this strategy has acted as
a force multiplier in taking the fight to fraudsters’ doorsteps. Our partners on this
task force include the Federal Bureau of Investigation, the U.S. Treasury Inspector
General for Tax Administration, the Internal Revenue Service’s Criminal
Investigation, Homeland Security Investigations, the Secret Service, the U.S. Postal
Inspection Service, and the Naval Criminal Investigative Service. Recently, this
task force uncovered one of the largest attempted schemes prosecuted across the
nation, exceeding $170 million, with over $11.5 million in secured funding.

Last fall, OIG took a significant step by establishing our Technology Solutions
Division, which aligns with our objective of leveraging technology and employee
experience to improve OIG methods in carrying out our mission. Through
intentional investments in data analytics, OIG’s data analytics team has been able
to use machine learning and artificial intelligence to identify outliers in the portfolio
for investigation, as well as employing traditional data analytics to develop
investigative leads for our special agents working in tandem with task force
partners.

We must focus our limited resources because we are faced with the monumental
task of investigating $200 billion in potential fraud, as reported in our fraud
landscape report. This led us to develop an all-new interactive Pandemic Leads
Dashboard that helps special agents and investigative analysts more efficiently
access information on potentially fraudulent PPP loans and COVID-EIDLs. These
leads come from the schemes we reported in the fraud landscape estimate. Agents
and analysts can filter their search for potentially fraudulent loans by business




                                           8
location, DOJ district, dollar amount, fraud scheme, Hotline complaints, and loans
with the some identifying information.

In addition to prioritizing cases of the most egregious nature, the dashboard data
helps our agents direct and lead task force efforts. SBA OIG can drill down to any
zip code in the country and partner with local and regional law enforcement to
relentlessly root out fraudsters and bring them to justice.

Many instances of fraud have been egregious, such as:

   •   In October 2023, the head of a multimillion-dollar COVID-19 relief fraud ring
       was sentenced to 15 years in prison and ordered to forfeit $5.5 million for
       leading a conspiracy to fraudulently obtain more than $20 million in
       forgivable PPP loans. According to court documents, he conspired with at
       least 14 others to submit 75 fraudulent PPP loan applications in 2020.
       Federal agents seized real estate, a Porsche, and a Lamborghini purchased
       with illegally obtained funds.
   •   In October 2023, a Maryland man pled guilty to conspiracy to commit wire
       fraud affecting financial institutions, relating to more than $17.9 million in
       fraudulent CARES Act loan applications. The man admitted to using the
       funds to travel to Dubai and Egypt on multiple occasions, buying property,
       and staying at luxury hotels like the Four Seasons. Taxpayer funds meant to
       support American small businesses during a crisis were instead used to
       purchase property to open a beachfront restaurant in Alexandria, Egypt.
   •   In October 2023, a California chief executive officer of a company providing
       homes for parolees and probationers was sentenced to 17 years after being
       convicted of 44 felonies including conspiracy, bank fraud, wire fraud,
       aggravated identity theft, false statements to a bank, destruction of property
       to prevent a search, possession of a firearm as a felon, making a false tax
       return, obstruction, and witness tampering. The evidence presented at trial
       showed he submitted 16 fraudulent loan applications to the PPP, seeking
       approximately $34.6 million.
   •   In September 2023, an Arkansas business owner pled guilty to fraudulently
       obtaining more than $16.5 million in a wide-ranging conspiracy to obtain
       fraudulent COVID-19 relief funding. He admitted to obtaining more than
       $3.25 million in PPP and EIDL funds for his own businesses and another
       $13.5 million in EIDLs for his co-conspirators.
   •   In July 2023, a California man was sentenced to 79 months in federal prison
       for fraudulently obtaining approximately $9 million in COVID-19 business
       loans, some of which he used on stock trades and gambling excursions to Las
       Vegas. He submitted over $10 million in PPP loans, $9 million of which was
       funded, and $320,000 in EIDLs, $170,000 of which was funded, for fake
       companies.




                                          9
   •   In July/August 2023, 42 people were indicted in Puerto Rico for their
       participation in a multimillion-dollar fraud scheme to illegally obtain federal
       recovery funds under the CARES Act. The grand jury charged the defendants
       with multiple counts of wire fraud and money laundering. According to
       evidence, from April 2020 through May 2023, the defendants, and their co-
       conspirators (both indicted and un-indicted), submitted at least 273 EIDL
       and PPP loan applications seeking the disbursement of about $9 million in
       taxpayer funds.
   •   In March 2023, a federal jury convicted a Virginia woman on charges of
       conspiracy, bank fraud, and money laundering. The woman and her husband
       fraudulently obtained two PPP loans. She carried out the scheme in
       connection with two of her husband’s businesses, creating fake payroll
       documentation in support of the loan applications. The fraudulent
       documentation claimed her husband’s businesses had dozens of employees
       with over $17 million of annual payroll in 2019, when in fact they had few, if
       any, employees. She and her husband fraudulently obtained approximately
       $2.5 million in taxpayer funds they then spent on a 7,000-square-foot home.
   •   In February 2023, a California woman who fled to Montenegro to avoid her
       prison sentence from pandemic assistance fraud was returned to the United
       States after spending a year as a fugitive. The woman was a member of a Los
       Angeles-based fraud ring that stole over $20 million in PPP and COVID-19
       EIDL funds. She and her co-conspirators used dozens of fake, stolen, or
       synthetic identities – including names belonging to elderly or deceased people
       and foreign exchange students – to submit at least 150 fraudulent PPP and
       EIDL applications. The group used taxpayer funds to buy luxury homes, gold
       coins, diamonds, jewelry, luxury watches, fine imported furnishings, designer
       handbags, clothing, and a luxury motorcycle.

Whistleblowers have been instrumental in our oversight efforts. These brave
individuals have courageously come forward to help us focus our oversight on
vulnerabilities within SBA’s internal control environment and other areas of
significant concern. Many of our OIG Hotline complaints concern identity theft. We
have been able to make referrals to SBA to address complainants’ concerns
pertaining to fraudulent loans. These reports have also informed our ongoing review
of SBA’s response to allegations of identity theft. OIG is deeply appreciative of the
whistleblowers who have come forward. We will investigate any ensuing complaints
of retaliation that may be related to these protected disclosures.



       PANDEMIC RESPONSE ACCOUNTABILITY COMMITTEE

Through the CARES Act, Congress established the Pandemic Response
Accountability Committee (PRAC) within the Council of the Inspectors General on



                                          10
Integrity and Efficiency. OIG was designated as a statutory member of the PRAC,
which provides increased oversight capacity to the pandemic response efforts. I also
chair the PRAC’s Audit Subcommittee to provide strategic audit-related direction to
all government review efforts.
The PRAC plays a key role in supporting OIG’s pandemic oversight efforts. During
the pandemic, our Hotline received thousands of complaints outside of its electronic
complaint submission system. The PRAC identified 10 volunteers to perform a
short-term detail to our Hotline. These volunteers performed data entry to
consolidate these complaints into the case tracking system, where they can be
efficiently assessed and addressed. We are also engaged with the PRAC to bolster
our internal data analytics capabilities, though we have developed over the past
year a robust internal capability to guide and enrich our oversight efforts.

OIG’s investigative and data analytics experts were an integral part in the PRAC’s
establishment of Pandemic Analytics Center of Excellence (PACE). The PACE was
established to provide an analytic platform with the capacity and scale to help
oversee more than $5 trillion in pandemic-related emergency spending, including
the SBA COVID programs. In addition, OIG investigative experts assisted in the
training of PRAC’s Task Force members and provided guidance and deconfliction on
their task force cases. The PRAC’s PACE and Task Force have been a tremendous
force multiplier in combatting the fraud, waste, and abuse associated with the SBA
COVID programs.

OIG continues to collaboratively work alongside the PRAC to further safeguard
taxpayer dollars, identify cases of fraud in SBA pandemic relief related programs,
and proactively alert external stakeholders to areas of potential waste, fraud, and
abuse. Through this partnership, the PRAC has issued three reports that relied
heavily on our subject matter expertise. These reports include the following: SBA
PPP Phase III Fraud Controls; Risk Advisory – Potential Identity or Other Fraud in
SBA Pandemic Relief Programs; and the Fraud Alert: PRAC Identifies $5.4 Billion
in Potentially Fraudulent Pandemic Loans Obtained Using Over 69,000
Questionable Social Security Numbers. The July 2023 PRAC Impact Project
produced in collaboration with SBA OIG and eight other OIGs reviewed the sources,
intended purpose, and effects of federal pandemic funds for six geographic areas.

Additionally, our partnership with the PRAC furthers goals of promoting integrity,
efficiency, and effectiveness of SBA programs. This partnership continues to amplify
our oversight through engagement with an external stakeholder.


                  SUSTAINED OVERSIGHT APPROACH

While PPP lending is anticipated to resolve within the next several years, our
efforts to detect and investigate the substantial fraud will continue. We will be


                                          11
working diligently to offer recommendations that improve SBA programs and
operations, strained by the unprecedented demand during the pandemic crisis. This
oversight will require vigilance so that SBA can efficiently and effectively meet the
needs of small businesses.
The scale and scope of the pandemic response programs, and the potential fraud
under investigation, far outmatches oversight resources. To prioritize our work and
root out fraud in these vast portfolios, we have moved data analytics into the heart
of our oversight efforts. Our data analytics staff is assisted by contractor support
secured through our partnership with the PRAC. Data analysis produces a higher
quality of audit and investigative information so that we can improve our audit and
investigative work. SBA’s loan portfolios are comprised of millions of records, which
are too expansive for manual review. Data analytics has already proven to bolster
our investigative capacity, bringing fraudsters to justice across the country.
In August 2022, the President signed into law two bipartisan bills that were aimed
at holding accountable those who commit pandemic assistance fraud. The two laws
extend the time available to prosecute individuals who committed fraud through the
PPP or COVID-19 EIDL programs, extending the statute of limitations for criminal
and civil enforcement against a borrower from 5 to 10 years. Thanks to
congressional foresight, pandemic relief fraud enforcement will continue to be a
priority for many years to come.
The President’s requested increase in OIG’s base operating budget for FY 2024
coincides with the exhaustion of supplemental funds appropriated during the
pandemic. OIG’s proposed FY 2024 budget maintains our pandemic staffing level at
185 positions. The budget proposal also provides for 3 additional investigative
groups (27 positions) to expand our investigative efforts to match the unprecedented
resources expended on pandemic economic assistance. Vital to the oversight
successes of OIG, the budget also provides for three additional data scientists,
which are essential to detecting the fraud, prioritizing investigations, and
enhancing their impact.
With sufficient resources, coupled with the 10-year statute of limitations on PPP
and EIDL fraud, our office will be poised to combat fraud for years to come. We are
grateful for the swift action from the 117th Congress to extend the statute of
limitations on PPP and EIDL fraud. We look forward to working with Congress on
resource determinations for FY 2024 and beyond.
Support of OIG’s budget request sends a strong message of deterrence to fraudsters
taking aim at all U.S. government programs. OIG has proven with adequate
resources that we instill integrity in SBA programs and promote the public trust.
Budget scenarios, such as a return to FY 2022 funding levels, would be detrimental
to instilling integrity in SBA programs. Reducing OIG’s funding to FY 2022, as
enacted, would decrease OIG’s investigative and fraud enforcement capabilities



                                         12
about equivalent to our staffing levels following sequestration in 2013, which is less
than 100 total positions. At the same time, OIG will exhaust supplemental funds
being directed to combat fraud in SBA’s pandemic response programs in FY 2024.
Such a funding scenario simply does not allow OIG to provide effective oversight.


                                  CONCLUSION

Using OIG’s past recommendations ensure smooth rollouts of future spending plans
to avoid a pay-and-chase model, which is imperative to ensure that funds stay out of
the hands of fraudsters. We learned that the demand for swift pandemic relief
funding lowered the guardrails, and removed controls designed to flag potential
fraud. This, combined with the added pressure due to the economic uncertainty
many Americans faced, led some to believe they had a false license to perpetrate
fraud. Congress should provide data sharing capabilities for oversight such as tax
records, and social security numbers, which would enable agencies to place controls
at the front end of the programs. Future spending package rollouts also need to
develop a better process of returning and tracking potentially fraudulent funds and
systems to assist identity theft victims.
The pandemic presented a whole-of-government challenge. Fraudsters found
vulnerabilities and coordinated schemes to bypass controls and gain access to funds
meant for eligible small businesses and entrepreneurs adversely affected by the
economic crisis. The nation can depend on OIG to provide independent, objective,
and timely oversight of SBA. OIG’s engaged workforce will continue to give
taxpayers a significant return on investment, rooting out fraud, waste, and abuse in
SBA programs. Our resources will focus on systems and processes that present
serious management and performance challenges within SBA programs to improve
the integrity, accountability, and performance of those programs for the benefit of
the American people.




                                          13


File and source

File

ware-testimony.pdf

Size

352,939 bytes

SHA-256

77bc019cae20e59b79fb626f53833a3c1312bc93067a75613c5753ff507519e7

Our copy

ware-testimony.pdf

Original

www.hsgac.senate.gov