[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
SBA MANAGEMENT AND OVERSIGHT OF SCORE
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HEARING
BEFORE THE
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JULY 11, 2019
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[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-033
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
36-966 WASHINGTON : 2020
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
JUDY CHU, California
MARC VEASEY, Texas
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TRENT KELLY, Mississippi
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
Adam Minehardt, Majority Staff Director
Melissa Jung, Majority Deputy Staff Director and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. July Chu.................................................... 1
Hon. Ross Spano.................................................. 3
WITNESSES
Mr. Hannibal ``Mike'' Ware, Inspector General, United States
Small Business Administration, Washington, DC.................. 4
Mr. Allen Gutierrez, Associate Administrator, Office of
Entrepreneurial Development, U.S. Small Business
Administration, Washington, DC................................. 6
APPENDIX
Prepared Statements:
Mr. Hannibal ``Mike'' Ware, Inspector General, United States
Small Business Administration, Washington, DC.............. 20
Mr. Allen Gutierrez, Associate Administrator, Office of
Entrepreneurial Development, U.S. Small Business
Administration, Washington, DC............................. 28
Questions and Answers for the Record:
Questions from Hon. Judy Chu and Hon. Ross Spano to Mr. Allen
Gutierrez and Responses from Mr. Allen Gutierrez........... 32
Additional Material for the Record:
The SCORE Association........................................ 204
SBA MANAGEMENT AND OVERSIGHT OF SCORE
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THURSDAY, JULY 11, 2019
House of Representatives,
Committee on Small Business,
Subcommittee on Investigations,
Oversight and Regulations,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:57 a.m., in
Room 2360, Rayburn House Office Building, Hon. Judy Chu
[chairwoman of the Subcommittee] presiding.
Present: Representatives Chu, Evans, Craig, Spano, and
Burchett.
Chairwoman CHU. Well, good morning. The Subcommittee will
come to order.
Everybody is so timely that we are actually starting a few
minutes ahead of time. But we are actually all here, so why
not.
Okay. So thank you for all being here.
As Chairwoman of the Subcommittee on Investigations,
Oversight, and Regulations, I, along with my colleague, Ranking
Member Spano, are responsible for performing oversight of
Federal programs that affect small business.
Today, we will have an opportunity to learn about the
inspector general's audit of the SCORE program, and discuss
what steps the agency is taking to resolve the IG's
recommendations.
SCORE was first established in 1964 as a national volunteer
nonprofit organization whose mission is to foster vibrant small
business communities through mentoring and education. Over the
years, it has grown to one of the largest network of
volunteers, with more than 11,000 expert business advisors at
350 chapters nationwide.
SCORE provides free or low-cost mentoring and training to
small business owners throughout the country to help them draft
business plans, market products, and manage cash flow.
SBA reported that SCORE volunteers mentored and trained
600,000 clients in fiscal year 2018, and helped launch more
than 54,000 businesses in 2017. These statistics are
impressive. And because of the past successes, Congress
increased funding for the program from $3.5 million in 2000 to
$11.7 million in 2019, a more than 230 percent increase.
And with the additional funding came expectations that
SCORE would help thousands more entrepreneurs thrive and
achieve new levels of success that help grow the economy and
strengthen our communities. Congress also expected the
leadership at SBA and SCORE to use taxpayers' dollars wisely
and to ensure that the program operates effectively and
efficiently.
Unfortunately, SBA's Office of the Inspector General's
recent audit of the program uncovered systemic issues with
SCORE's use of Federal funds and SBA's management and oversight
of the program. That is unacceptable.
Sadly, the OIG found that SCORE commingled restricted funds
with unrestricted funds, despite Federal rules and accounting
standards restricting this practice. This is a result of
haphazard oversight by SBA and a failure of SCORE's national
office to enforce the accounting standards. SCORE's chapters
used 300 separate accounting systems, some on volunteer's
laptops, making effective oversight next to impossible.
And because of lack of appropriate financial oversight by
SBA, Federal funds used for excessive employee bonuses went
unnoticed, and improperly awarded contracts to vendors were
made, lessening the likelihood that the prices paid for the
goods and services were reasonable. I am particularly troubled
by these findings. As an elected official, I fully expect the
SBA and its resource partners to be good stewards of taxpayer
dollars.
Moreover, the problems identified in audit may just be a
starting point. The audit only examined $2 million of a $10
million Federal award for 2017 and part of an award for 2018.
This is just a snapshot of the funding SCORE has received over
the past 55 years. I am concerned that this may just be the tip
of the iceberg and that SBA's lack of financial management of
the SCORE program could be endemic of the program and possibly
more widespread throughout the agency.
Even more troubling is the lack of senior leadership at the
top of SBA that puts a strain on the agency's ability to
effectively resolve these issues. The fact that SBA has been
without an administrator since March 2019 and without a deputy
administrator since April 2018 is particularly disconcerting.
While acting heads of agencies can keep the lights on, the SBA
needs strong leadership at the helm to restore integrity and
accountability.
Today, we will have an opportunity to learn about the
findings of the audit and to hear directly from SBA about the
steps the Office of Entrepreneurial Development is taking to
address the IG's recommendations and restore confidence in the
SCORE program.
I look forward to hearing from Mr. Ware and Mr. Gutierrez.
While I understand that the financial irregularities in the
program preceded Mr. Gutierrez' tenure at SBA, I trust that you
are making it a priority to restore public confidence in SCORE
and in the SBA's role to ensure that taxpayers' dollars are
being used effectively and efficiently and in accordance with
longstanding Federal accounting standards.
SCORE's mission has always been to foster vibrant small
business communities through mentoring and education and to
give every person the support they need to thrive as a small
business owner. But when there is misuse and abuse of taxpayer
dollars, the real victims are the small business owners and
entrepreneurs who are not getting the service that they
deserve.
I thank all the witnesses for being here today. Your
testimony will help inform the committee as we work toward the
goal of ensuring that the SCORE program is achieving its stated
objectives while being a responsible steward of taxpayer
dollars. I look forward to your testimony.
I would now like to yield to the Ranking Member, Mr. Spano,
for his opening statement.
Mr. SPANO. Thank you, Madam Chair.
For over 50 years, the Small Business Administration has
entrusted the SCORE program with fostering vibrant small
businesses through mentoring and education. Congress has
entrusted the SBA's Office of Entrepreneurial Development with
administering the SCORE program according to Federal statutes
and regulations.
The SBA's Office of Inspector General has repeatedly
identified unallowable costs enabled by weak internal controls
at SCORE and the SBA Office of Entrepreneurial Development. The
inspector general audit released in April 2019 stated that
program officials need to make major improvements to the SCORE
program to ensure effective financial oversight and performance
measurement. The problems identified in this SCORE audit are
neither isolated or unique.
In 2017, the inspector general issued an audit of the SBA's
$840,000 grant to the SCORE Association to provide technical
assistance to small businesses impacted by Hurricane Sandy. In
that report, the inspector general questioned 391,000 of
unallowable costs, nearly half of the grant award. The report
stated that the SBA cannot be certain that SCORE effectively
achieved the Sandy grant objectives.
As a member of the Florida delegation, I put a lot of faith
in Federal disaster recovery efforts, and I expect every dollar
to make an impact on people whose lives have been upended.
Due to unreliable and conflicting performance data, we
don't know how many people received SCORE services. The
inspector general continually identifies significant systemic
deficiencies throughout SBA grant programs. And this year,
grants management was elevated to the SBA's top management
challenges.
The purpose of today's hearing is to identify systemic
weaknesses in the SCORE program, measure SBA's progress in
implementing the inspector general's recommendations.
Our witnesses are here to provide greater detail about the
report and outline plans for reform. I appreciate your efforts
to protect taxpayer dollars and improve entrepreneurial
development efforts at the Small Business Administration.
And with that, Madam Chair, I yield back.
Chairwoman CHU. Thank you, Mr. Spano.
The gentleman yields back.
And if committee members have an opening statement
prepared, we would ask that they be submitted for the record.
I would like to just take a minute to explain the timing
rules. Each witness gets 5 minutes to testify and the members
get 5 minutes for questioning. There is a lighting system to
assist you. The green light will be on when you begin, and the
yellow light comes on when you have 1 minute remaining. The red
light comes on when you are out of time, and we ask that you
stay within that timeframe to the best of your ability.
I would now like to introduce our witnesses. Our first
witness is The Honorable Hannibal ``Mike'' Ware, the Inspector
General of the Small Business Administration. Mr. Ware was
sworn in as the Inspector General of the Small Business
Administration in May 2018. He is responsible for independent
oversight of SBA's programs and operations, which encompass
more than $100 billion in guaranteed loans and nearly $100
billion in Federal contracting dollars.
Mr. Ware has 28 years of experience within the OIG
community and has received numerous awards throughout his
career, including several awards from the Council of the
Inspector Generals on integrity and efficiency as recognition
for his significant work in the inspector general community.
Welcome, Mr. Ware.
Our second witness is Mr. Allen Gutierrez, the associate
administrator of that Office of Entrepreneurial Development at
the Small Business Administration. Prior to joining the SBA, he
served as the national executive director of The Latino
Coalition, where it grew to include 1.2 million Hispanic
business owners and over 90 coalition partners. Before his time
at The Latino Coalition, Mr. Gutierrez served as the senior
advisor to the chief operations officer at the SBA from 2001 to
2006. He earned his Bachelor of Arts in political science, with
a minor in business administration from the University of
Southern California.
Welcome, Mr. Gutierrez.
Mr. Ware, you are now recognized for 5 minutes.
STATEMENTS OF HANNIBAL ``MIKE'' WARE, INSPECTOR GENERAL, UNITED
STATES SMALL BUSINESS ADMINISTRATION; AND ALLEN GUTIERREZ,
ASSOCIATE ADMINISTRATOR, OFFICE OF ENTREPRENEURIAL DEVELOPMENT,
U.S. SMALL BUSINESS ADMINISTRATION
STATEMENT OF HANNIBAL ``MIKE'' WARE
Mr. WARE. Chairman 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. I am always proud
to represent the dedicated men and women of the Office of
Inspector General and to speak to you about their important
work.
In recent years, my office has produced two audit reports
on SCORE, as well as a capping report on SBA's grant management
programs. All three reports point to systemic issues in the
agency's grants management function and deficiencies by the
agency for oversight and monitoring of Federal funds. This lack
of oversight and monitoring, coupled with IT issues associated
with the agency's performance system of record, EDMIS, hampered
SBA's ability to defect fraud, waste, and abuse in SCORE. It
also led to a culture in SCORE in which whistleblowing was
discouraged.
In total, we made 27 recommendations to enhance the overall
management and effectiveness of SCORE, 13 of which are closed.
We published our most recent report on SBA's oversight of
SCORE in April of this year. Our objectives were to determine
whether SBA had effective oversight to ensure SCORE spent
Federal funds per the cooperative agreement requirements and
measured achieved program goals.
We determined that program officials did not effectively
oversee SCORE's use of Federal funds. They did not perform
enough reviews to ensure that SCORE adhered to the Federal
requirements for quarterly financial reporting. As a result,
SCORE commingled Federal funds with unrestricted donations and
used Federal funds for unallocable and unsupported costs.
Furthermore, despite the longstanding partnership between
SBA and SCORE, program officials did not keep track of the
total cost of the program and did not perform a complete
financial examination of SCORE.
Compounding these issues, SCORE relied on more than 300
accounting systems to track Federal funds, which affected its
ability to perform effective oversight.
We questioned costs totaling over $713,000 that did not
adhere to the cooperative agreement requirements or were not
properly supported and made 11 recommendations, 3 of which are
closed.
Our previous report on SCORE focused on the $840,000
supplemental grant that SBA awarded to SCORE in fiscal year
2013 for disaster technical assistance following Hurricane
Sandy. We found that SBA did not provide effective oversight
over SCORE's financial management of grant funds. We also found
that SBA exempted SCORE from submitting quarterly financial and
performance reports. As a result, we questioned costs totaling
more than $391,000, or 47 percent of the grant. The audit
report included 12 recommendations, 10 of which are closed.
We issued a capping report in early fiscal year 2019 in
response to our work on SBA's various grant programs, many of
which, like SCORE, are under the purview of the Office of
Entrepreneurial Development. The audit found systemic risks
with SBA's ability to conduct financial oversight, including
not enforcing financial reporting requirements, cost category
reimbursements, exceeding budget, weak financial review
procedures, and incomplete supporting financial documents.
We also found systemic issues regarding SBA's performance
oversight, including inaccurate and incomplete performance data
and documentation, failure to enforce performance reporting
requirements, and performance measures lacking outcome results.
We made four recommendations, all of which remain open.
In addition, several of our most recent reports on
entrepreneurial development programs, including SCORE, have
identified problems with SBA's performance system of record,
EDMIS. Technology lapses with it continue to impact program
management. These systemic issues led us to identify grants
management as one of the most serious management and
performance challenges facing SBA in fiscal year 2019.
Additionally, we recently conducted three criminal
investigations for potential instances of embezzlement and
whistleblower retaliation violations within the SCORE program,
two of which were substantiated and are now closed. SBA has not
yet provided a response to our March 29 report of
investigation, which substantiated a SCORE volunteer was
terminated in part for cooperation with my office on one of the
just mentioned fraud investigations.
SBA officials acknowledge the systemic issues with grants
and SCORE management and have documented plans to address them.
That said, we will continue to perform reviews and make
recommendations for corrective action to promote efficiencies
and effectiveness within SBA's grant programs.
Thank you for the opportunity to speak to you today. I look
forward to your questions.
Chairwoman CHU. Thank you, Mr. Ware.
Mr. Gutierrez, you are now recognized for 5 minutes.
STATEMENT OF ALLEN GUTIERREZ
Mr. GUTIERREZ. All right. Thank you very much, Chairwoman
Chu, Ranking Member Spano, and members of the subcommittee, for
inviting me to testify this morning.
I appreciate the opportunity to appear before the
Subcommittee again. As you know from my previous hearing, I am
associate administrator of SBA, the Office of Entrepreneurial
Development. Our program office is the agency's technical
assistance arm, oversees SBA's primary counseling and training
programs.
Today's hearing is focused on one of our three resource
partners, the SCORE program, and recent findings of an
inspector general report on the program.
First, let me acknowledge that the agency, unfortunately,
did not exercise adequate program oversight in the past. SBA
did not have proper internal controls in place to monitor the
spending activities as outlined in the IG report. We have been
correcting this and will be doing better in the future.
With the SCORE program, SBA provides the funding to the
national SCORE Association, who then distributes to their more
than 300 chapters across all 50 States and U.S. territories.
This is different process than other--than our other resource--
two resource partners, where the grant is provided directly to
the 63 small business development centers or directly to the
hundred-plus women business centers.
The primary manner in which the agency exercised oversight
of our resource partners is through the terms and conditions
outlined in the cooperative agreements.
When I was first appointed to my role in May of 2017, the
SCORE program was two-thirds of the way through their 2017
cooperative agreement and their fiscal year 2018 cooperative
agreement was mostly completed.
In fiscal year 2019, the cooperative agreement, we were
finally able to establish some fundamental foundational items
that we had been working on for over a year. In 2018, I
initiated change management processes that included changing
the performance matrix for all three resource partners to make
them more consistent and to hold them more accountable.
I also revised the funding announcement opportunities and
terms and conditions in the cooperative agreement for all three
resource partners to strengthen the agency's oversight.
One example with SCORE was the inclusion of language in
their fiscal year 2018 cooperative agreement for potential
financial examinations. In the past, the agency, unfortunately,
did not prioritize financial examinations. We are now and will
be performing an examination of the SCORE for the first time in
August.
I have also focused on addressing longstanding audit
findings in the SBA's Inspector General. Working
collaboratively with IG, my office has successfully closed 90
percent of all recommendations. We anticipate closing the
remaining recommendations in the next 2 months.
With the IG April report, my office has continued to work
collaboratively with their auditors, and we have closed three
and resolved eight of these newly issued recommendations.
Since the IG issuance of the audit report, we have
increased oversight of the program. As previously mentioned, we
are nearing the completion of the SCORE's standard operating
procedure, a first in the program. We also have modified
SCORE's terms and conditions to clarify language regarding
whistleblower reporting. Further, my office has developed
guidance and will be providing training on Federal financial
management as SCORE's upcoming national leadership conference
that will take place this August.
Please know that I take this issue raised in the IG report
very seriously. I remain committed to making improvements in
the oversight and monitoring of SCORE's use of government funds
and its reporting of performance results. I feel the changes we
have been making and the new parameters we have established
will help to prevent abuses in the future.
Thank you again for the chance to testify, and I look
forward to answering any questions you may have.
Chairwoman CHU. Thank you, Mr. Gutierrez.
Well, I will begin by recognizing myself for 5 minutes.
Mr. Ware, SCORE was first established in 1964. Today, it is
the largest network of volunteers, with more than 11,000 expert
business advisors at more than 350 chapters nationwide. SCORE
offers free and low-cost counseling and training to about
600,000 clients each year.
I am particularly troubled by the findings in your audit,
since SCORE could serve such great purposes. And I would like
to know, on a scale of 1 to 10, with 10 being the most serious,
how substantial are your findings and why? I want to know how,
relative to other audits that you have done, how serious this
is.
Mr. WARE. On a scale from 1 to 10, I would be comfortable
giving it an 8. And I can explain.
It is not uncommon--as we have said, you know, we find
systemic issues across programs. It is not uncommon to find the
type of issues we found. What elevates it to this is where you
have a culture where whistleblowers are penalized for reporting
fraud, waste, and abuse. And that, to me, is completely
unacceptable. We substantiated the fact that a whistleblower
was, in fact--which is basically an unpaid employee, a
volunteer--was, in fact, removed, in part, because he reported
fraud to us, which resulted in a conviction. And that for me
raises it to a level 8.
Chairwoman CHU. Well, that is--that is really incredible.
And, Mr. Ware, your report found that SCORE commingled
Federal funds with unrestricted funds. Federal regulations
require recipients to maintain financial management systems to
identify the source and application of funds for federally
funded activities. Moreover, the program announcement for SCORE
specified that the program income may not be commingled.
So how many years have these regulations been in place, and
why didn't SCORE comply with the Federal regulations, and why
didn't SBA take steps to ensure that SCORE was adhering to this
clear guidance?
Mr. WARE. So I have been auditing for a long time, you
know, since like 1990. And if I--that prohibition has been in
place, not just for SCORE, but across government from then. I
remember circular--OMB Circular A110. I believe that was in
1993. That definitely made it clear that you could not
commingle funds--Federal funds, period, not just for SCORE. And
that was superseded recently--recently, like 2014 recently--by
the uniform guidance, but it maintained the same prohibition of
using it.
But my auditors determined that the volunteers placed in
charge of the chapter funds are not properly guided on the
requirement of separating funds. And with no uniform accounting
system in place, it is almost--it is almost impossible to do
so.
When I say they have 300 accounting systems, I am being
generous. You know, if you want to call an Excel spreadsheet an
accounting system, okay. You know, but that is why.
Chairwoman CHU. Well, I would have to say that that was one
of the most astounding findings, that there were 300 separate
accounting systems and some were on the private laptops of
volunteers.
So, now, SCORE is moving towards a consolidated accounting
and banking system, which would require all chapters to be part
of this new system by September 2020.
In your view, will this consolidation of all chapter-level
banking into a single account controlled by headquarters be
sufficient to reduce the risk of Federal dollars being misused?
Mr. WARE. On the surface, I would say that it--as a matter
of fact, let me just say it this way. It has a great potential
to be sufficient. I say that because a system in and of
itself--clearly, this system, when you had 300 before, will
make things work a lot better in terms of oversight. But the
system is just a system. It is up to the folks who are
responsible for oversight to still conduct the type of
oversight responsibilities like reconciliation, like asking
questions when things come up that look fishy and things of
that nature. So it has to be coupled with that real oversight
drive by the agency and by SCORE.
Chairwoman CHU. And would a full-time compliance officer
help in this situation?
Mr. WARE. That is a--that is a tough question for me. I am
not certain if that would help, but it does speak to our
recommendation to SBA that they consolidate their grant
function so that they have one person who is responsible for
the success of all its grants programs.
Chairwoman CHU. Okay. Thank you.
And now, Mr. Spano.
Mr. SPANO. Thank you, Madam Chair.
Thank you, gentlemen, for being here. We appreciate your
time.
Many of the financial and performance issues have been
identified in previous IG reports on the SCORE program. And so
my question for you is this: Have any action--any substantive
actions been taken to address those issues after the 2017
report, or did things pretty much remain status--status quo
between 2017 and 2019?
Mr. WARE. Well, I could answer. So some improvements were
made. We had 12 recommendations. We had 10 that we were able to
close based on the information. The problem was, with the two
that are outstanding, have to do with the SOPs that Mr.
Gutierrez spoke about that would really drive that true
financial oversight and drive at real performance, outcome-
based performance measures. So they haven't put those SOPs out,
so they haven't been sent out to the field or to anybody else
for use.
Mr. SPANO. Okay. So to summarize your comment there,
essentially, what you are saying is that the sum and substance
of what would make a difference hasn't really been implemented.
Mr. WARE. Correct.
Mr. SPANO. Okay. And then I will sort of ask you, Mr.
Gutierrez, can you explain why that is the case?
Mr. GUTIERREZ. Sure. Couple of things. One is, I think as
mentioned in my oral, is that when I first got there, as Mr.
Ware mentioned, is the culture in the oversight. For me, I take
it near and dear and very personal in that sense.
So in terms of making everything effective and efficient,
when looking at everything that was presented to me in arriving
there in 2017, was really to--couple of lanes. One lane was the
outstanding IG items that were there that had never been taken
care of, right? And taking those, within a year, 90 percent of
wiping those out and taking care of them, working hand-in-hand
with the IG to make that statement to staff and internally also
to the agency that we take things very seriously and I take
things very seriously. So that was one area.
The other thing I would say too is that as this audit was
being done by the IG in terms of SCORE, as we got to the final
draft of being--three of them already had been taken care of.
Why? Not because they were already doing the audit. It was
because I had already started doing stuff when I first got
there and looking and looking under the rug to really take care
and ownership of the overall Office of Entrepreneurial
Development.
So I really have expressed that--and the culture in
changing that ongoing with the team of accountability and
everybody on the team being held accountable, including myself,
in moving forward.
Mr. SPANO. Would you disagree with Mr. Ware's testimony
just a moment ago that the primary recommendations in terms of
accounting and how to effectively oversee and provide
oversight, would you disagree or agree with his comment that
that has not been implemented by the SBA?
Mr. GUTIERREZ. Well, the accounting process is--first of
all, I am--it is good to see that SCORE has mentioned that they
have--will be consolidating everything to headquarters. That is
a positive step. But I am disheartened in terms of his
testimonies and his--especially to the Senate, where in his
responses, he mentioned in March of 2020 that he will have it
done, and here he responds back in saying that now in September
of 2020. He keeps kicking the can down the road.
I feel that that is not--that is not good. I am going to
follow up with his office in that. Because I think the first
priority, it shouldn't take since 2016 for the SCORE
Association to be consolidating the 300 accounts into one in
headquarters. That needs to be a number one priority for them,
to recognize from this report that this means serious business.
By them doing it sooner than later, that is--we are going
to still do the first financial exams in August, but certainly
that is going to enable us even more oversight with them when
they consolidate everything at headquarters in Herndon.
Mr. SPANO. Okay. So that begs the question, how is the SBA
going to make sure that happens?
Mr. GUTIERREZ. I have a followup that I will be sitting
down with them. I am going to ask for more extra data from
their side.
I think that instead of doing events across the country and
asking for $900,000 for next year's budget, he should hire
folks and get this thing done sooner than later. That should be
the number one priority. The number one priority should not be
doing events in the next couple of years. The number one
priority should be consolidating all those accounts, making
that Herndon a one-stop shop in accounting and having that up
and implemented October 1 of this year.
Mr. SPANO. Thank you. I yield back.
Chairwoman CHU. Thank you. The gentleman's time has
expired.
And now the gentleman from Pennsylvania is recognized for 5
minutes, Mr. Evans.
Mr. EVANS. Thank you, Madam Chair. I appreciate this
opportunity.
Inspector General Ware, I applaud your work on the audit of
the SCORE program, and I hope the SCORE is listening intently.
These are some very serious issues. Providing more robust
oversight of the SCORE program is a priority for the Small
Business Committee.
With components like personalized one-on-one counseling,
convenient online and local community workshops, multilingual
guides and programs targeted towards women, minorities, and
veteran entrepreneurs, I honestly believe that if operated
appropriately and effectively, this program has the potential
to help a lot of entrepreneurs who just need the right tools
and guidance to thrive.
In your view, Inspector General, what more can Congress do
to ensure that the program is operating effectively?
Mr. WARE. Thank you. In my view--and I kind of prepared for
this question in the last testimony and wasn't asked. But in my
view, I think it has to do with--as a matter of fact, let me
use a different program, the STEP program. So in the STEP
program, Congress put in specific performance measures to
ensure that the program was meeting its intended purpose. Well,
that hasn't necessarily been done for SCORE.
But I have to say that Mr. Gutierrez and his team, in
making some of our--in implementing some of our
recommendations, put in some pretty good outcome-based
performance measures this time around. But if it is not
measured properly, it almost doesn't--doesn't matter. And to
this date, that is done based on Mr. Gutierrez'--and the SBA's,
to be more correct--SBA's understanding of what the purpose of
the program is. The Congress has not defined--fully defined
what their true intent for the program is in terms of
measurables. So we would like this measured. And I think it
worked really well for STEP, and I think that that would work
well for SCORE and some of the other programs as well.
Mr. EVANS. Can you give an example of it?
Mr. WARE. Well, an example of some of them that they did
implement recently was like the financial impact to the
businesses, the growth in the businesses. That is what you want
to see in terms of it, not just how many people showed up to
one of your mentoring things or one of your workshops. And
those things drive at what we believe would be--what is the
obvious to us, you know, the reason the program exists.
Mr. EVANS. Uh-huh.
Mr. WARE. And they put that in the 2020 CBJ, and they have
also put it in the grant announcement, I think, for 2019, if I
am not mistaken. Yeah, the program announcement.
Mr. EVANS. Mr. Gutierrez, can you please explain to the
committee why SBA failed to conduct a financial audit of the
SCORE program?
Mr. GUTIERREZ. As I mentioned--let me add a little bit to
the performance too as well, sir, if I may.
All three resources partners, when I got there, they had
never been held accountable for all their expected outcomes and
performances. They had been given a free pass for many years.
And that is truly unacceptable with taxpayers' dollars. Because
what we want is we want more effective and efficient to reach
out to our entrepreneurs, to reach out to all small businesses
that have that dream to become a large company and provide jobs
for all Americans.
So from that standpoint, I just wanted to add that we added
performance outcomes and performance matrix, first time for
many years that we released this past year. It hadn't been
touched for many, many years.
In regards to the financial audit, by then moving
everything to a one system in Herndon, that will enable us to
really work hand-in-hand doing that financial oversight
financial exam.
It hadn't been done in the past, I will admit that and I
mentioned in my testimony. I don't know for many reasons in the
past for my predecessors why they didn't, but we will be
implementing that in August. And, certainly, what I would like,
as I mentioned earlier, more expedited from the SCORE
Association, to have this all implemented by October 1 so we
can have even more stronger checks and balances and oversights
on them.
Mr. EVANS. Thank you, Madam Chair. I yield back the balance
of my time.
Chairwoman CHU. Thank you. The gentleman yields back.
And now the gentleman from Tennessee, Mr. Burchett, is
recognized for 5 minutes.
Mr. BURCHETT. Thank you, Chairlady and Ranking Member.
Mr.--is it Gutierrez? Tell me your name. Mine gets
massacred every time somebody says it, and I just nod. So tell
me how to say your name.
Mr. GUTIERREZ. Gutierrez.
Mr. BURCHETT. Gutierrez. All right. And I got Mr. Ware. I
believe I am going to stick with that.
I appreciate y'all being here. And, again, I appreciate the
Ranking Member and the Chairlady for letting me speak.
This is for both of y'all and just whichever one wants to
handle it first. Is it the SBA's responsibility to monitor and
oversee the ongoing SCORE operations for effective and
efficient use of Federal funds? And how do your offices define
effective and efficient of Federal funds?
Mr. WARE. I could go first, if I may.
Mr. BURCHETT. Yes, sir, please.
Mr. WARE. It is our belief that it is the SBA's
responsibility. SBA is the person administering the grant and
running the grant. They are the ones with real responsibility
to the American public to ensure that integrity exists in a
program and that taxpayer dollars are being used for its
intended purpose.
And what was the next part, the other part? Sorry.
Mr. BURCHETT. Yes, sir. How do your offices define
effective and efficient use of Federal funds?
Mr. WARE. Oh, that would be--from an inspector general
standpoint, that would be where proper internal controls are in
place to mitigate the risk of any fraud, waste, or abuse in the
programs, which is not as complicated as that sounds. It is
doing general oversight, doing general reconciliation, asking
for the right financial reports and reviewing them when they
come in.
And the next problem that we have where--let me flip it so
that it would be in a positive--would be a program that
adequately measures the program outcomes.
Mr. GUTIERREZ. I would say definitely. You know, yes, sir,
in a sense, effective and efficient is the reason why I put in
more performance matrix and more accountability to all the
three resources partners. We are talking close to $200 million
a year in appropriated dollars, and we want that to be more
effective and efficient and reach out to all stakeholders
across the country.
What I would say, that the internal controls is something
that, you know, my staff, you know, they have gotten to know me
even more these last 2 years, but I get into the weeds on
things, right? Why? Because I take it seriously, and I want to
make sure that from the vision of previous Administrator
McMahon and the future administrator too, that we always are
taking the agency to the next step, right?
So as mentioned, the SOP, as it should be, I would say in
the next couple of weeks ready to be released. And that is
something that had never been done before, never been done. No
SOP for SCORE for many, many years. For me, it was mind-
boggling. For women business, OWBO, for example--we are not
here for OWBO, but same thing, no SOP ever. And we are almost
finalizing that as well.
So those are measures and steps of proactiveness approach
and creating those internal controls.
Another example, in terms of--I know Mr. Ware talked about
grants, right? Other thing too is that creating--you know, we
all know about, you know--you know, we get the option when we
are on our phones or emails to create a two-step verification
process, right, so we don't get hacked, right? Well, my thought
is, and what I will be implementing is, same thing as well, a
two-step verification process.
Because in the past, the reimbursable that would come in
from SCORE on a quarterly basis would go to the program
manager, but the program manager that reports to the head of
that office would never really see that. And I am like, that
just--we want to have more accountability for everybody on my
team. So that two-step verification process we are going to be
implementing before it goes to grants to pay that particular
reimbursement.
I feel that that way, it is accountability for everybody,
everybody is on the hook, that we continue to improve and make
everything more effective and efficient.
Mr. BURCHETT. Thank y'all very much.
Chairlady, I yield back the reminder of my time.
Chairwoman CHU. The gentleman yields back.
And we actually have time for a second round of
questioning, and so I will just start it off.
Mr. Ware, SCORE used more than $100,000 of remaining funds
to increase its bonus pool with a significant portion going to
four SCORE executives. Your report found that SBA did not
detect the fact that SCORE redistributed these funds for these
bonuses for the staff.
Could you discuss the rules and regulations governing the
reprogramming of these funds and the seriousness of this issue?
And is this type of reprogramming allowed under SBA rules and
regulations?
Mr. WARE. Right. So under grant rules and regulations,
there are ways that the grantee is allowed to reprogram funds.
Some of those require that--you could just do it as long as it
is under 10 percent. It is not specific to bonuses. It might be
for anything. You just find that you need it somewhere else for
the efficient and effective running of your program, right?
Chairwoman CHU. Yeah.
Mr. WARE. So bonuses are a little bit different to me, the
way that I think about it.
Anyway, if you go over 10 percent, like they did in the
case with the bonuses, you are required to notify the agency
first, and the agency can determine whether or not that is
allowable. In this case, that didn't happen. And as a matter of
fact, they called it--they did a line item called additional
personnel budget line item, which meant that when SBA looked at
it--well, when they looked at it, they didn't--they didn't know
that it was for bonuses. Now, something like additional
personnel budget would beg the question, like, what is
additional personnel budget?
But what was more egregious to us was they used the money
that was left over on the grant to decide that that was going
to bonuses. And, I mean, I think that just opens up a terrible
Pandora's box, if you may, that, well, we could just--we know
how much bonuses we really want to give, right, so how about we
just cut off what we are doing? I am not saying that is what
they did. I am saying it opens the box, and we would like to
see that box closed.
So, yeah, that was our main problem with it.
Chairwoman CHU. Mr. Gutierrez, what are you doing to make
sure that box is closed?
Mr. GUTIERREZ. All right. I hear you. Let's close the box,
huh? That is the term of the day, ``let's close the box.''
No. Certainly, as Mr. Ware mentioned, there is that 10
percent threshold that they do moving forward, at any
discretion for them. But one thing that I was talking to my
staff and my team is that we are looking at some language in
the terms and conditions and the funding opportunity to require
them to provide us what is the formula, you know. It is very
interesting that in there--and it is unfortunate, you know,
that it is top heavy in terms of bonuses. I think that that is
just not an incentive for the whole team over there to know
that only the top are the ones that are receiving the most.
I think that a lot of times, as we know, is that people in
middle and lower staff are the ones that do a lot of the work,
right? And they deserve to be compensated in that aspect.
So I would say that what we are looking at is putting in
language in there to ask them what are the formulas up hand and
give them guidance in terms of it. Because he was asking like,
well, what is excessive related? It is very interesting that he
mentioned, you know, that the range of 5 to 20 percent of SES
executive pays receive bonuses.
I am on the PRB, the performance resource board. I have not
seen something where we give 20 percent to SES, noncareer--I
mean, career individuals. So I don't know where he is getting
that from. But certainly, we are going to create guidance and
more language in the terms and conditions and also on the
funding opportunity.
So there is no--so he knows--everyone knows what the
expectations are and that we are all on the same page.
Chairwoman CHU. Thank you.
And, Mr. Ware, SBA overreported SCORE's accomplishments for
numbers of clients trained by 31 percent and underreported
SCORE's accomplishments for the total number of clients
mentored. And you concluded in your report that SBA should
improve its performance measures and program oversight.
How could we improve the performance metrics for SCORE?
Mr. WARE. Yeah. So those metrics--SBA is getting at it in
terms of doing the outcome-based, but in reality, even the
output-based measures could be questionable, because their
system of record, it has a tendency to lose information and the
proper information is not in it.
Their own internal auditors, when they--of all the--let's
say they tested a whole--their test pool, they found errors in
100 percent. Yeah. So, you know, they are going to need to
clean up EDMIS as best they can. I know that is not a simple
ask or a simple task, but it needs to be done if we are going
to know if the--if we are going to have accurate measures.
Chairwoman CHU. Thank you. My time has expired.
And, Mr. Spano, you are now recognized for 5 minutes.
Mr. SPANO. Thank you, Madam Chair.
Mr. Gutierrez, as far as the misallocated moneys, it seems
pretty clear, obviously, from the testimony that that occurred,
okay? What does the--I guess the first question is, have you
communicated with SCORE and their representatives and asked
them whether they plan to return the misallocated money, and
what has been their response?
Mr. GUTIERREZ. Sure. Thank you. Where we are at so far of
the 696--696, we are at a point where it is close to 113, per
se, that they are already saying that they are going to submit
back in repayment. Still there are--there is still a
significant amount there.
There are certain areas that we are still waiting for,
which is kind of interesting, he submitted. I did the same
process--and it is not like I like doing this every year. But
as we were talking about the Sandy, when I got there, it was--
the culture when I got there was like let's just slap on the
wrist and tell them not to do things ever again. I am like, no,
we are not doing that. We are going to give them a chance,
submit anything that they have that substantiates for us to go
to Mr. Ware's team to reconcile and let go.
So I did the same process on this one, gave them an
opportunity up to June 30 to submit any additional things that
we can go back to the team and IG to work on.
Mr. SPANO. Let me just interrupt you. Have they suggested
that they use money from the grant to repay the misallocated
moneys?
Mr. GUTIERREZ. They haven't--what they so far have--on some
of the items that they responded in saying, yes, we will repay
this, this only--in the formal writing, they are saying we
admit and we will repay this. They haven't said how they are
going to pay it. But because--my thing is, we want to get to
more of getting as much as we need----
Mr. SPANO. I understand that. But I want to make sure that
they are not using grant money to repay misallocated grant
money. That doesn't make a whole lot of sense.
Mr. GUTIERREZ. I hear you, yes.
Mr. SPANO. So then I would also ask, as far as the
cooperative agreement is concerned, okay?
Mr. GUTIERREZ. Uh-huh.
Mr. SPANO. Is it a contract per se, as we typically would
know it, where both parties would have responsibilities and
then there are enforcement mechanisms?
Okay. You are nodding your head yes.
So my question is, as it relates to potential future
failure to not meet whatever the metrics are as it relates to
their failure to repay misallocated money, you know, as it
relates to the violation of the whistleblower law, what in the
cooperative agreement do we have--does the SBA have that is--we
could use--SBA can use as a hammer to enforce compliance?
Mr. GUTIERREZ. Yeah, good question. Certainly, I would say
that, you know, if you don't put something in there, then you
can't hold them accountable, right? So in revising and updating
all of the cooperative agreements and terms and conditions that
hadn't been done for many years--I mean, I went in there when I
first got there and looked at all of them, there was stuff
there that was still language when I was there in 2001 that no
longer was there.
So by putting those measures in there now, it is, you know,
a notice, if you don't meet these, I think we will look at
areas of how do we--we are going to hold them more accountable.
On the performance matrix, as Mr. Ware mentioned, you know,
I will say that we do now a quarterly audit in that sense. So
now we look at what they have submitted into EDMIS and make
sure that it is all apples to apples. And before, no one used
to do that.
Mr. SPANO. All right. So let me just interrupt you in for a
second, if you don't mind. I apologize. I have only got a
minute and 11 seconds left.
So my understanding is that now you are incorporating the
ability to be able to hold them accountable under the new
cooperative agreement.
What are the provisions, what can you do under the
cooperative agreement?
Mr. GUTIERREZ. I think there are measures of holding them
at the end of the year for the new fiscal year 2020, if they
don't meet all the systems, to really look at something
seriously of really how effective we can--should this program
really be viable, in that sense, or what are other measures to
continue having that volunteer base across the country but with
an organization that will meet all the needs.
Mr. SPANO. Okay. So it sounds to me what the--the hammer
is, is, well, we may not use you in the future.
But my question is, and I would suggest, maybe, you have
your attorneys look at very specifically what is it that we can
do during the term of an agreement to enforce compliance. Not
just say, well, when we are done with this cooperative
agreement, we may not--there has got to be something more than
that, would be my suggestion.
Thank you.
Mr. GUTIERREZ. Definitely. We will take that into
consideration.
Mr. SPANO. I yield back.
Chairwoman CHU. Thank you.
And now the gentleman from Pennsylvania is recognized, Mr.
Evans.
Mr. EVANS. Thank you, Madam Chair.
Mr. Guchella, did I get that right?
Mr. GUTIERREZ. Gutierrez.
Mr. EVANS. Gutierrez. I apologize.
It is my understanding that the Office of Entrepreneurship
at the SBA oversees the SCORE program, and the Office of Grant
Management awards the cooperative agreement to SCORE and also
monitors it to adhere to the terms and conditions of the
agreement.
Does the lack of leadership at SBA restrict your ability to
work within the agency's organization structure to resolve and
close out the inspector general's recommendations?
Mr. GUTIERREZ. I would say, as I mentioned earlier, that
two-step process verification now, with my head of the Office
of Entrepreneur Education, where the reimbursement comes in
from the quarterly basis from SCORE, before it goes to grants
management for processing, now I have the head of that office
also reviewing and signing off on it.
So that is an additional layer of internal controls that I
am implementing in that aspect to make sure that whatever goes
to the Office of Grants Management to be ready to be signed off
by them to payment, that we--I am holding my team accountable
as well.
Mr. EVANS. Can you please explain specific steps that it
will take to ensure there will be effective coordination
between the office--what was that, what you just were
describing to me there?
Mr. GUTIERREZ. Yes, sir, that is what I was describing.
That was not--in the past, that process of two-step
verification and internal controls had not been implemented
before.
Mr. EVANS. From where you are now and after just listening
to the inspector general, how long do you think it will take
you to respond to these recommendations and make this happen?
Mr. GUTIERREZ. I think--I am not going to put words in Mr.
Ware's mouth, but I know that him and I had--he knows that when
I mean something, I am going follow through on it.
And in the matter of that year of wiping out 90 percent of
all the IG findings--and on these, three were already done. We
have several ones that we will be closing very shortly. So we
have put certain dates in for each of them that we agreed upon
between us and Mr. Ware's team. But obviously, the sooner the
better on all of them. And I wouldn't be surprised, with my
great team, that we will get that done.
Mr. EVANS. I think Mr. Ware wanted to comment on it.
Mr. WARE. Yeah. To your question--I think your question had
to do with how to--the absence of leadership----
Mr. EVANS. Correct.
Mr. WARE. Right. And the way that our process works
internally, Mr. Gutierrez and his team works directly with our
assistant inspector general for audits, her director and their
team, to resolve the--when it--the only way it gets to the top
is when there are issues, when you don't have a willing
partner, to--who is really interested in implementing the
recommendations and seeing change. And the audit team has a
short meeting on the way over here that they found this to be
the case with Mr. Gutierrez and his team since he has gotten
here.
Mr. EVANS. I would like to go back and the same question I
asked to Mr. Ware. If you had--in your view, what can Congress
do to ensure the program is operated effectively? I heard the
recommendations was made about the STEP program, building some
things specifically.
Do you have any other thoughts, comments on that?
Mr. GUTIERREZ. Yes. You know, again, putting in the
performance matrix--and actually, we included more for the
SCORE foundation--the SCORE Association and holding them more
on the performance matrix. And they assured me--before, in the
past, when I got there, it was done always on a year lag. But
we will in fiscal year 2020 be able to, on a quarterly basis,
look at the numbers and hold them accountable for all.
And so, for me, putting those measures in place and holding
everybody accountable, on all three resource partners, like I
mentioned, are close to $200 million, and they weren't held
accountable for meeting their numbers. And they are, and they
know it, that they will be under my leadership at OED.
Mr. EVANS. Madam Chair, I will return the balance of my
time, and I thank you very much.
Chairwoman CHU. Thank you. The gentleman yields back.
And now the gentlelady from Minnesota, Ms. Craig, is
recognized for 5 minutes.
Ms. CRAIG. Thank you so much, Chairwoman.
And I apologize, I was a bit late. So if you got the answer
to these questions before I do, my apologies in advance.
I worked for a Fortune 500 company and obviously had a
board of directors. We had a foundation, et cetera. And I was
really interested in this topic of SCORE--the SCORE program and
the foundation, having identical board of directors, its
leadership, its foundation, et cetera, et cetera.
Is this--how unusual is this arrangement, and sort of how
do we make sure that there is proper oversight?
Mr. GUTIERREZ. Great question, ma'am. Certainly, for me--I
will tell you, in my personal experience running national
nonprofits in the private sector, I was very always cognizant
of that, because you always want to have a line--a separation,
a line as it relates to a 501(c)(6) and a 501(c)(3).
Given the nature that a 501(c)(3), in terms of their
mission statements and what the IRS expects them to provide in
terms of their resources, right? I--it is a very gray area that
I am not really--we are not really--we can't control the
foundation. Let's make that clear. What we can control is the
association and the grant.
We are entertaining and looking at ways to put some
additional language in there that really should clarify and--
the fact of having a CEO for a 501(c)(6) and a 501(c)(3), the
same CEO, that is not good optics, it is not good ways of
really effectively managing two nonprofit organizations.
Ms. CRAIG. So I guess more specifically and as followup,
are you going to recommend that the board of directors and your
foundation not serve on each of those programs specifically?
Mr. GUTIERREZ. We are limited in terms of what we can hold
accountable on the 501--the association, but not on the
foundation. That is something that is separate from and we have
no oversight on that one. But we certainly are--would be
encouraged if the board of directors and the Chairmen look at
ways to really have a line of separation going on in the
future, given the IG report.
Ms. CRAIG. Thank you very much for that.
The topic of compensation also caught my attention. I was
head of the compensation committee of a private, again, Fortune
500 company.
And so can I just ask you about the at-risk portion of
this? Can you explain a little bit more to me about, you know,
what the regulations governing executive compensation and
detail what specific steps SBA plans to take to make sure that
all compensation is reasonable and appropriate?
Mr. GUTIERREZ. Yes, ma'am. Certainly, we mentioned a little
bit earlier that it is one of the things that we are going to
put into the terms and conditions in the funding announcement,
is--so we are all on the same level playing field in terms of
as it relates to what kind of formula, what is their
methodology that they are coming on.
Because I was very bothered and concerned that it was very
top heavy. And it needs to be fair and equitable for the entire
23 employees that they have. Certainly, I mean, we all to want
to strive and give incentives for everybody on the team to do
their best for an organization. But certainly, I think that
having the right formula and understanding it and the right
expectations of what we deem as excessive and unexcessive, we
will be writing those guidelines for them for fiscal year 2020.
Ms. CRAIG. Thank you so much.
And, Madam Chairwoman, I yield back.
Chairwoman CHU. Thank you. The gentlelady yields back.
And we want to thank all the witnesses for taking time out
of their schedules to be with us today.
Let me thank Mr. Ware for shining a bright light on the
systemic issues that need to be addressed at the SBA. It is my
hope that your work will lead to programmatic changes that will
strengthen accountability and restore confidence in SCORE.
Sunshine is said to be the best disinfectant, and we can now
begin the process of rebuilding the public's trust.
And that falls to you, Mr. Gutierrez. Without permanent
leadership at the helm of SBA, the full responsibility of
closing out the inspector general's recommendations will be
within your purview. I strongly recommend that you take the
necessary steps to ensure that every penny of every Federal
dollar appropriated is well spent and accounted for. We owe it
to the American taxpayers to be good agents of their hard-
earned dollars. And we need to ensure that SBA's counseling and
training programs are operating effectively and efficiently for
the 30 million small business owners and aspiring entrepreneurs
throughout the country.
I would ask unanimous consent that members have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
And if there is no further business to come before the
committee, we are adjourned.
Thank you.
[Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
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