[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PREVENTING FRAUD AND ABUSE OF PPP AND EIDL: AN UPDATE WITH THE SBA
OFFICE OF INSPECTOR GENERAL AND THE
GOVERNMENT ACCOUNTABILITY OFFICE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
OCTOBER 1, 2020
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-097
Available via the GPO Website: www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
41-471 WASHINGTON : 2021
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
KWEISI MFUME, Maryland
JUDY CHU, California
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
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
DAN BISHOP, North Carolina
Melissa Jung, Majority Staff Director
Justin Pelletier, Majority Deputy Staff Director and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Judy Chu.................................................... 1
Hon. Ross Spano.................................................. 3
WITNESSES
Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the
Inspector General, United States Small Business Administration,
Washington, DC................................................. 5
Mr. William Shear, Director, Financial Markets and Community
Investment, United States Government Accountability Office,
Washington, DC................................................. 6
APPENDIX
Prepared Statements:
Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the
Inspector General, United States Small Business
Administration, Washington, DC............................. 23
Mr. William Shear, Director, Financial Markets and Community
Investment, United States Government Accountability Office,
Washington, DC............................................. 28
Questions and Answers for the Record:
Questions from Hon. Judy Chu to Mr. Hannibal ``Mike'' Ware
and Responses from Mr. Hannibal ``Mike'' Ware.............. 45
Questions from Hon. Judy Chu to Mr. William Shear and
Responses from Mr. William Shear........................... 48
Additional Material for the Record:
NAFCU - National Association of Federally-Insured Credit
Unions..................................................... 51
PREVENTING FRAUD AND ABUSE OF PPP AND EIDL: AN UPDATE WITH THE SBA
OFFICE OF INSPECTOR GENERAL AND THE GOVERNMENT ACCOUNTABILITY OFFICE
----------
THURSDAY, OCTOBER 1, 2020
House of Representatives,
Committee on Small Business,
Subcommittee on Investigations,
Oversight, and Regulations,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:01 a.m., via
Webex, Rayburn House Office Building, Hon. Judy Chu [chairwoman
of the Subcommittee] presiding.
Present: Representatives Chu, Velazquez, Crow, Evans,
Craig, Burchett, and Spano.
Chairwoman CHU. Good morning. I call this hearing to order.
I thank everybody for joining us today both virtually and in
the hearing room. I would also like to thank the witnesses for
their participation in this important and timely oversight
hearing.
Before we begin, I would like to take this opportunity to
note some important requirements. Let me begin by saying that
standing House and Committee rules and practice will continue
to apply during hybrid proceedings. All members are reminded
that they are expected adhere to these standing rules,
including decorum. During the covered periods designated by the
Speaker, the Committee will operate in accordance with House
Resolution 965 and the subsequent guidance from the Rules
Committee in a manner that respects the rights of all members
to participate.
House regulations require members to be visible through a
video connection throughout the proceeding. So, please keep
your cameras on. Also, please remember to remain muted until
you are recognized to minimize background noise. If you must
participate in another proceeding, please exit this one and log
back in later.
In the event a member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available member of the same party and I
will recognize that member at the appropriate timeslot provided
they have returned to the proceedings. For those members
physically present in the Committee room today, we will also be
following the health and safety guidelines issued by the
attending physician. This includes social distancing and
especially the use of masks. I urge members and staff to wear
masks at all times while in the hearing room. I thank you in
advance for your commitment to a safe environment for all here
today.
The COVID-19 pandemic has fundamentally altered the way
American small businesses operate. Mandatory closures to
protect the public health has significantly impacted their
bottom line and visibility. To help small businesses weather
the pandemic, Congress has passed a series of legislative
packages. On March 6th, the Coronavirus Preparedness and
Response Supplemental Appropriations Act became law and
authorized SBA's Disaster Assistance Program to use available
funds to issue economic injury disaster loans, or EIDL, to
small businesses affected by the pandemic.
On March 27th, the CARES Act was signed into law and
created the Paycheck Protection Program, or PPP, and the
Economic Injury Disaster Loan emergency advance. And SBA acted
extremely quickly to implement these critical economic relief
programs in order to deliver emergency funding to small
business owners to keep them afloat.
Over the past 6 months, more than 5.2 million PPP loans and
approximately 3.5 million EIDL applications have been approved.
That is an incredible amount of Federal assistance to America's
small businesses. And I commend SBA's staff for creating the
infrastructure to set up these programs so quickly. SBA was
asked to undertake an enormously challenging task to
implementing these programs in just a few days. And this
Committee recognizes that some mistakes were expected. But the
Congress and the American people must have confidence that the
Administration is taking seriously their responsibility to
mitigate fraud and ensure that this assistance is available to
all eligible small businesses.
Today, I hope to learn more from the SBA Inspector General
and the Government Accountability Office about your findings
and discuss ways to improve the delivery of SBA services to
small businesses.
On July 28th, the SBA Office of Inspector General released
a report detailing potential incidents of fraud in the EIDL
program. Initial investigations found tens of millions of
dollars in duplicate loans and serious concerns about suspected
fraud, including instances of accounts established with stolen
identities and attempted award transfers to foreign accounts
and deposits into personal accounts that have no evidence of
business activity. And without swift action from SBA, these
fraudulent activities will only become more widespread as
Congress debates legislation to allocate more emergency
assistance as the economic impact of the pandemic stretches on.
I understand that SBA responded to this report by stating
they have internal controls in place to address these types of
fraud. Yet, recent reporting from the Project on Government
Oversight, or POGO, cast doubt on how effective these internal
controls are. The POGO report stated that anti-fraud policies
were not fully implemented during EIDL processing. Software was
not up to date and that SBA was struggling in mid-August to
handle fraudulent applications. As the Chairwoman of the
Investigations, Oversight, and Regulations Subcommittee, I am
concerned with these reports and hope we can have a
constructive discussion to address these findings today.
In addition to the IG's report, the GAO released reports on
August 31st and September 21st detailing concerns with SBA's
oversight of the PPP and their ability to collect and interpret
applicant data. The September report outlines extremely
concerning gaps in the availability of demographic information
and serious data reliability issues. The report also details
potential fraud that the SBA referred to both the IG and the
Department of Justice.
More than 40 fraud-related cases are currently under
investigation. Additionally, the report finds that SBA has
failed to adequately prepare borrowers and lenders for the PPP
forgiveness process. Demonstrating the seriousness of this
problem, last week SBA announced that they had received 96,000
forgiveness applications representing less than 2 percent of
the loans that were disbursed, but they still have not
processed a single one.
Perhaps most troubling to me are reports that GAO has had
difficulty even completing their audit objectives because SBA
has not been forthcoming with documentation and access to data.
Today, I would like to learn more about where SBA stands in
implementing internal fraud controls, where the deficiencies
lie, and what this Subcommittee can do to support SBA in their
efforts to prevent fraud in both EIDL and PPP.
Again, I want to thank the witnesses for participating both
virtually and in-person. And I now yield to the Ranking Member
Mr. Spano for his opening statement.
Mr. SPANO. Thank you, Madam Chairwoman, and thank you,
Chair Velazquez, for holding today's timely hearing to combat
the economic impact of the coronavirus pandemic. This Committee
has worked to create and optimize economic relief programs
administered by the SBA. Through bipartisan cooperation and
interagency negotiations, we created the Paycheck Protection
Program, or PPP. We revitalized the pre-existing Economic
Injury Disaster Loan Program, EIDL. I would like to take a
moment to thank everyone for their work. Both programs have
been a lifeline for our Nation's small businesses.
As of August the 8th 2020, the date that the program
reached its authorized deadline, the SBA had approved over 5.2
million loans totaling more than $525 billion. The average loan
size was around $100,000, and there were nearly 5,500
participating lenders. Florida small businesses received nearly
432,000 PPP loans for a total of more than 32 billion. And in
my district, Florida's 15th District, 10,254 businesses have
received $304 million loans in PPP funds. These loans have
helped small business owners keep the lights on and keep their
employees on the payroll.
I have talked with many small business owners since the
launch of the PPP, like Tom Powell, owner of Bolder Athletic
Wear in Plant City, Florida, a manufacturer of women's athletic
wear in my district. The loan was absolutely essential and
crucial for Mr. Powell's business because it provided the
critical capital necessary to retain his employees through the
retail closures.
In addition to creating the new PPP program, the CARES Act
and its subsequent legislation expanded the pre-existing EIDL
program administrated by the SBA's Disaster Loan program. And
as of September the 13th 2020, the SBA has approved 3.5 million
EIDL loans for approximately $190 billion, with an average loan
size of $53,000. The EIDL advance grant, which is not required
to be paid back, provided 6 million small businesses with $20
billion in grants. Florida small businesses had approximately
450,000 EIDL loans approved for nearly $20 billion.
With only the basic statistics, Congress cannot fully
measure the impact of these programs. That is for sure. We need
to ensure that loans went to the intended businesses and that
the loan proceeds were used properly. Fortunately, we have
fantastic allies in the SBA's Office of Inspector General and
the Government Accountability Office. Today, each office has
sent a representative, and we are grateful for that, to
represent their initial--or to present, I should say, their
initial reviews of PPP and EIDL. We look forward to working
together to make sure that taxpayer dollars are spent
appropriately and to reduce waste, fraud, and abuse in these
critical SBA relief programs.
And with that, Madam Chair, I yield back.
Chairwoman CHU. Thank you, Mr. Spano. The gentleman yields
back. And if other Subcommittee members have an opening
statement, we would ask that they be submitted for the record.
I would like to just take a moment to explain how this
hearing will proceed. Each witness will have 5 minutes to
testify and each member will have 5 minutes for questions.
Please ensure that your microphone is on when you begin
speaking and that you return to mute when finished.
I would now like to introduce our witnesses. Our first
witness is the Honorable Hannibal ``Mike'' Ware, Inspector
General of the SBA. Mr. Ware was sworn in as the Inspector
General in May 2018 and has been an effective leader in his
role and an asset to this Committee. He has 28 years of
experience in the IG community, rooting out fraud, waste, and
abuse in Federal programs. He has received numerous awards
throughout his career, including several awards from the
Counsel of the Inspectors General on Integrity and Efficiency
in recognition for his significant portfolio of oversight work.
Welcome, Mr. Ware.
Mr. WARE. Thank you, Chairwoman Chu.
Chairwoman CHU. Thank you. Our second witness is Mr.
William Shear, Director of Financial Markets and Community
Investment Team at the Government Accountability Office. He
leads GAO's work community and economic development, small
business, and SBA's COVID-19 response programs. Mr. Shear
joined GAO more than 20 years ago. He has a master's degree in
public policy and a Ph.D. in economics, both from the
University of Chicago. He also served as an adjunct faculty
member in the graduate program in city and regional planning in
the University of Pennsylvania. Welcome, Mr. Shear.
I would like to begin today's hearing by recognizing Mr.
Ware for 5 minutes.
STATEMENTS OF HANNIBAL ``MIKE'' WARE, INSPECTOR GENERAL, OFFICE
OF THE INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS
ADMINISTRATION; WILLIAM SHEAR, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY
OFFICE
STATEMENT OF HANNIBAL ``MIKE'' WARE
Mr. WARE. Chairwoman Chu, Ranking Member Spano and
distinguished members of the Subcommittee, thank you for
inviting me to speak with you today and for your continued
support of my office. Believe me when I say that. The men and
women of the Office of Inspector General have been working
diligently to provide oversight of SBA's pandemic response. I
am always proud to represent them publicly and to speak to you
about our important work.
I come before you today in the wake of a historic crisis
posed by the COVID-19 pandemic and an ensuing unprecedented
role for SBA to mitigate the damages to the Nation's economic
vitality. SBA is managing over a trillion dollars in lending
authority through PPP and the EIDL program. The speed and
lowered guardrails relative to eligibility verification
controls surrounding the PPP and the EIDL lending authorities
brought with it substantially increased risk. As indicated in
my written statement, we sought to inform SBA's efforts through
three White Paper reports offering lessons learned and known
risks to implementing PPP and EIDL based on prior oversight of
the Recovery Act and other disasters. At the same time, we
focused on preventing and deterring fraud by raising public
awareness of fraud schemes and scams.
At the outset, we initiated several reviews to include the
PPP and EIDL reviews. During the course of these reviews, we
had alarming findings causing us to issue a flash report on PPP
in May and a management alert on EIDL in July. As oversight
work carried on, we solidified our preliminary results and
identified additional findings.
On September 14th, we provided SBA leadership two draft
reports. One containing our findings related to SBA's
implementation of PPP and one containing findings of SBA's
initial disaster assistance response to COVID-19. Our review
standards require that we consider SBA's official comments
prior to issuing these reports in final. We anticipate
publishing these reports in mid-October, following the 30-day
review and comment period by SBA's leaders. As such, my
comments today regarding those findings must be considered
preliminary so we can account for SBA's official comments
before finalizing our reports.
Nonetheless, our findings are significant and speak to the
need for strengthening internal controls and for combatting
potential fraud in the programs. Our reports speak to
significant potential fraud in both PPP and EIDL. It is
remarked as potential only because we have not reviewed each
loan associated with the area of finding. However, the amount
of dollars we cite as being subject to potential fraud are not
based on projections. Rather, they are based on buckets of
loans meeting criteria for a weak internal control environment
where in many instances, we have active criminal investigations
of fraud to substantiate the concern.
Our office has received tens of thousands of complaints of
wrongdoing on our hotline. Hundreds of investigations involving
complaints of fraud have been initiated by my office and are
ongoing with noteworthy results being reported daily by the
United States Department of Justice, which has been a
tremendous partner.
Among these accomplishments was the first in the Nation
charges against individuals fraudulently seeking PPP loans,
which was announced on May 5th. More than 57 defendants have
been charged with PPP fraud since the CARES Act passage as
announced by the Department of Justice on September 10th. I
want to assure SBA's lending partners and the Nation's small
business owners that if they followed the guidelines and acted
in good faith, we are not focused on your actions. The findings
we report do not diminish the feat that the men and women of
SBA and their lending partners accomplished. At one point in
the crisis, it was reported that SBA performed as 14 years'
worth of lending in just 14 days. However, our oversight work
confirms SBA did not have sufficient controls to address risks
and provide assurance that PPP loans and EIDL grants and loans
were only being received by eligible recipients.
We will continue our efforts to keep the administrator and
this Congress currently and fully informed of our findings. We
are not alone in this effort. Programs of this magnitude
require a whole of government response. As a statutory member
of the Council of the Inspectors General on Integrity and
Efficiency Pandemic Response Accountability Committee, I am
working with my inspector general colleagues to leverage the
collective power of joint oversight efforts to increase
transparency of SBA's pandemic response. Rest assured the men
and women of my office understand that nothing short of the
public's trust is at stake, as well as the vitality of the
Nation's economy.
Thank you for the opportunity to speak to you today. I am
happy to answer any questions you may have of me.
Chairwoman CHU. Thank you, Mr. Ware. Mr. Shear, you are now
recognized for 5 minutes.
STATEMENT OF WILLIAM SHEAR
Mr. SHEAR. Thank you. I am pleased to be here this morning
to discuss our work on SBA's Paycheck Protection Program and
Economic Injury Disaster Loan Program. Through these programs,
SBA has made or guaranteed more than 14.5 million loans and
grants providing about $729 billion to help small businesses
adversely affected by COVID-19. In April 2020, SBA moved
quickly to implement PPP. Given the immediate need for these
loans, SBA worked to streamline the program so that lenders
could begin distributing these funds as soon as possible. For
example, lenders were permitted to rely on borrowers' self-
certifications for eligibility in use of loan proceeds. As a
result, there was significant risk that some fraudulent or
inflated applications were approved.
In our June report, we recommended that SBA develop and
implement plans to identify and respond to risk in PPP to
ensure program integrity, achieve program effectiveness, and
address potential fraud. According to Federal internal control
standards and GAO's fraud risk framework, managers and
executive branch agencies are responsible for managing fraud
risk and implementing practices for mitigating those risks.
When fraud risk can be identified and mitigated, fraud may be
less likely to occur.
In June 2020, we reported that reliance on applicants'
self-certifications can leave a program vulnerable to
exploitation by those who wish to circumvent eligibility
requirements or pursue criminal activity. Since May 2020, the
Department of Justice has publicly announced charges in more
than 50 fraud-related cases associated with PPP funds. In April
2020, SBA announced it would review all loans of more than $2
million to confirm borrower eligibility. And SBA officials
subsequently stated that they would review selected loans of
less than $2 million to determine, for example, whether the
borrower is entitled to loan forgiveness. However, SBA did not
provide details on how it would conduct either of these
reviews.
As of September 2020, SBA reported that it was working with
the Department of the Treasury and contractors to finalize the
plans for the reviews. Because SBA had limited time to
implement safeguards up front for loan approval, we believe
that planning and oversight by SBA to address risk in the PPP
program is crucial moving forward. We continue to be concerned
about the potential for fraud in PPP and are continuing to
conduct work on the program, including on internal controls and
fraud risk management.
SBA's efforts to expedite processing of economic injury
disaster loans such as the reliance on self-certification, may
have contributed to increased fraud risk in that program as
well. In July 2020, as Mike Ware just stated, SBA's Office of
Inspector General reported indicators of widespread potential
fraud, including thousands of fraud complaints, and found
deficiencies with SBA's internal controls. The Department of
Justice in conjunction with other Federal agencies, has also
taken actions to address potential fraud.
We continue to be concerned about the potential for fraud
in the EIDL program and are currently conducting work on the
program, including on internal controls and fraud risk
management. However, we have experienced delay in obtaining
data and information requested from SBA, including access to
application level EIDL data. We continue to take actions to
obtain records needed to move forward with our work.
Chairwoman Chu, Ranking Member Spano, and members of the
Subcommittee, this concludes my statement. I would be pleased
to respond to any questions you may have.
Chairwoman CHU. Thank you, Mr. Shear. We will begin the
questioning and I will begin by recognizing myself for 5
minutes.
Well, frankly, I am shocked by these findings. Our two main
loan and grant programs are EIDL and PPP and in both programs,
you have said that there are not the internal controls in
existence to prevent fraud. So, I have many questions. First, I
would like to start with Mike Ware, our Inspector General. And
just to summarize, you said that there was fraud and also that
there was a lack of internal controls. So, that for number one,
there were $250 million worth of loans in the EIDL program,
loans and grants in the EIDL program that were given despite
the fact that they were clearly ineligible. That is, no
business was eligible if they created their business after
January 1st of this year. And yet, loans were given in the
amount of 250 million, and grants, to these particular
businesses.
The second problem, the duplicate loans, I mean, there were
no internal controls. And as a result, duplicate loans in the
amount of 45.6 million were approved. And then, third, is the
shocking social media fraud schemes in which they use social
media to recruit applicants and then split the advanced money
with the ringleaders. And, in fact, there was advertising of
their ability to secure SBA money for clients to start
businesses and then the sharing of this money.
I am just astounded that these terrible acts took place
when legitimate deserving businesses could have used that help.
So, again, Inspector General Ware, in your report you stated
that despite the internal controls that SBA has claimed are in
place, fraud and the potential for fraud still exist in the
Economic Injury Disaster Loan or the EIDL program. Can you
identify the weak points in SBA's internal controls and how can
SBA improve these existing controls in the time ahead?
Mr. WARE. I certainly can. And I have identified those to
SBA's leadership. So, the challenge that SBA always has,
especially in their disaster lending program, is they have to
balance, balance is a key word here, the need of speeding aid
to people in desperate need while balancing against a proper
control environment.
In this instance, SBA's efforts to hurry capital to
businesses were at the expense of controls that would have
mitigated the risks of ineligible or fraudulent businesses
obtaining PPP or EIDL loans. And that's why we have the
problems that we have. The SBA said for themselves that to get
funds to eligible entities quickly, they lowered the guardrails
for the EIDL program specifically by removing or weakening of
controls. And we have found for a fact through thousands of
contacts from banks, tens of thousands of hotline complaints,
our own data analytics, that those actions increased fraud risk
significantly.
Now, again, they have that balance to deal with. One part
of the balancing act cannot be sacrificed for the other. And
the type of things that we were finding in terms of controls
lowered, of course, the self-certification part was one. But
the contractor that they got had some built-in controls, but
these things--the loan applications came in huge batches. So,
that batch process and the speed to get it out allowed a lot of
things to be missed. And then there were a lot of things, other
controls, that were not in place. Such as what happens after
the contractor says, okay, this is a legitimate bank account,
but they allowed on the back end the applicant to change the
bank account before the money was disbursed and there was no
control in place to at least doublecheck or make sure that
those were going to an eligible recipient.
Now, the Agency in these meetings especially on EIDL, they
have taken a lot of action already. And before the alert went
out, we had been meeting with them because we thought it was
critical that they knew this information and that they take
action immediately. So, they shored up the control where it
reverifies the bank account information every time it is
changed. And if they didn't find issues or the loan application
are only minor issues, then they would come to SBA in much
smaller batches. And then they now have a team lead approving
the batches and, I mean, they have done that.
Let me see what else. They have done quite a bit. They
found a logic issue with the system of control that they said
they had in place, where it wasn't identifying all the
duplicative information. And now they have addressed that
issue.
And now the big thing that they have put in place is that
they have began automatically declining loan applications where
the system identifies suspicious online activity. That wasn't
happening at all. For example, related applications by the same
bank accounts that are not the same person. Email addresses or
phone numbers in somebody else's name. Weird email addresses,
but like odd period location like mi.ke.wa.re, for example,
along with the regular mike.ware.
Now, that may force any legitimate applicants into the loan
application reconsideration process to allow for supporting
documentation before the applicant gets their loan approval.
And, yes, so, they have pivoted pretty quickly on
implementing the controls, I have to say. I don't know if the
time is up or not. But fraudsters are going to do what
fraudsters are going to do. And we have to continue to meet
with the Agency when we find new schemes so that they can pivot
quickly to mitigate a lot of the risks and to shore up their
controls. And I think that they have been pretty responsive to
that.
Chairwoman CHU. Well, thank you for that thorough answer.
And now, we have our Ranking Member Mr. Spano from Florida.
Mr. SPANO. Thank you, Madam Chair. The CARES Act set up an
intricate web of oversight mechanisms utilizing preexisting
offices and creating new ones like the Pandemic Response
Accountability Committee and the Office of the Special
Inspector General for Pandemic Recovery. My question is how do
your offices contribute to the larger pandemic oversight
system? If you could answer that first, Mr. Shear?
Mr. SHEAR. We have a major responsibility in the CARES Act.
And it was actually articulated to each of the affected
agencies in letters from the Comptroller General as far as our
role in overseeing CARES Act programs broadly, and the need for
us to report on a bimonthly--generally, a bimonthly basis to
the Congress on a wide variety of issues.
So, in contrast, I would just say that we focus on issues
just as my colleague Mike Ware does dealing with fraud risk and
things of that nature. But we deal with broader issues having
to do with the integrity of the programs. So, we do look at
responsiveness. We have issued reports in June, August, and
September that deal with a wide range of CARES Act programs.
And addressing them in a broad way and doing detailed audit
work.
Mr. SPANO. Mr. Ware, would you like to----
Mr. WARE. Sure.
Mr. SPANO.--respond to that?
Mr. WARE. Yeah, I will. And this is actually like one of
the questions that I was hoping that I would get mainly because
of the prominent role that I play on the PRAC. I am the audit
committee Chair on the PRAC. And we meet regularly like every
single week. I am a statutory member of that committee. So, in
our meetings, we work constantly to determine how we can help
the community and how we could move the whole of government
approach forward.
If you have noticed the press releases concerning our
investigative work, it is always joint. We have been working
with the FBI, FDIC, Federal Reserve Board, HHS. I mean, this
has been an all hands on deck approach to this oversight
because no single one of our offices could handle this alone
due to the magnitude of issues that we are finding.
Regarding Mr. Miller's new shop, he is just standing that
up. Him and I have had several one-on-one meetings particularly
to pass on certain things to my office that he is not able to
do at this time as he stands up his office. But we are all in
communication and all working in a collaborative manner to
ensure that the proper level of oversight is undertaken.
Mr. SPANO. Do you feel like you need any additional
guidance or clarity in terms of the roles that you are playing
respectively?
Mr. WARE. Sir, I do not. I believe that the act that stood
up, the PRAC as we refer to it as, was pretty clear. I do
believe that, well, you know what, in some teams we have
discussed quicker access to data for the PRAC. But I am pretty
sure that is something that the executive director----
Mr. SPANO. Mr. Shear, would you like to respond to that?
Mr. SHEAR. I think that the CARES Act--beyond just relying
on our access authority and our role generally as Congress'
watchdog--made it very clear that we had very expansive access
authority. We also had very expansive responsibilities and we,
led by our Comptroller General, Gene Dodaro, have gone on in
that direction. We generally have had very good cooperation
with the agencies that are included. So, it's an expansive role
and it very clearly states what our role is and what our
authorities are in terms of access to information.
Mr. SPANO. Thank you. Madam Chair, I yield the remainder of
my time.
Chairwoman CHU. Thank you. The gentleman's time has
expired, and the gentleman yields back. Now, the gentlelady
from New York, our Chairwoman, Nadia Velazquez is recognized
for 5 minutes.
Ms. VELAZQUEZ. Thank you, Chairwoman Chu, and Mr. Spano,
Ranking Member. This is a very important oversight
responsibility that we have in this Committee regarding the
CARES Act. So, Mr. Shear, we understand that you had issues and
problems accessing EIDL data from SBA. Why do you think that
happened?
Mr. SHEAR. We and I always try to avoid trying to say what
is going through people's minds, but what we can observe is a
situation that is not a cooperative one. We have experienced a
more cooperative environment with SBA dealing with other
matters, but not when it comes to CARES Act. As you know that
with PPP data----
Ms. VELAZQUEZ. Would you----
Mr. SHEAR. Yeah.
Ms. VELAZQUEZ. Excuse me, sir.
Mr. SHEAR. Sure.
Ms. VELAZQUEZ. Would you characterize the actions out of
the SBA as obstructionist?
Mr. SHEAR. There was obstruction when we were trying to
obtain loan-level PPP data. That went on for weeks. Getting
access to people to talk about how they were implementing PPP,
that went on for weeks. We still aren't getting a lot of
cooperation from SBA. And yet, they accuse us of not giving
them credit for what oversight they have in place when they
provide very little information and don't respond to what we
are asking. With EIDL, it is more extreme. We have asked, a
very long time ago, for application level EIDL data.
Ms. VELAZQUEZ. So, let me ask you. You know, it is clear
that you have expand authority and the comptroller general has
expand authority to demand and to have the access to the
information, to have access to the data. And so, I, myself,
have to call the administrator to ask her to expedite or to
allow for the comptroller general to have the information that
he was requesting.
He personally called me and I believe that even called the
Ranking Member. Can you imagine? It is our responsibility to
protect taxpayers' money and to make sure that the program is
implemented. And what we have seen is not only a case of fraud
and abuse committed in the EIDL and both the PPP, but
mismanagement probably the obstruction coming out of the SBA is
because they knew that they didn't take or implement the kind
of controls to prevent fraud and abuse.
So, what can we do? What can Congress can do to help you do
your job----
Mr. SHEAR. As you----
Ms. VELAZQUEZ.--going forward?
Mr. SHEAR. As you and----
Ms. VELAZQUEZ. Do you think that, for example, withholding
agency funding that that will be an option?
Mr. SHEAR. It is like this could be an option and I would
hope it wouldn't come down to that. But if you go back to the
issues that we had with just getting loan-level PPP data, I am
sure you and Ranking Member Chabot and other members of
Congress were surprised when Gene Dodaro, the Comptroller
General, was making personal calls to you seeking your support.
And we appreciate your support greatly. It is unfortunate it
was necessary.
With EIDL, it is not just data that we know should be
readily available. But there are certain things like
contracts--there is a tremendous delegation of authority to
contractors--where we are just asking for contracts and that is
very straightforward information to provide. So, we certainly
hope it doesn't have to go up to people at higher levels. We
are close to being at the stage where you might be hearing from
the Comptroller General again and the Administrator at SBA
might be hearing from the Comptroller General again. Our
general counsel will be reaching out to the general counsel at
SBA. It is an extreme situation.
Ms. VELAZQUEZ. So, the Agency is not collecting demographic
data that we have requested. And that was the intent and a
sense of the Senate when we passed the legislation. It is
clearly stated. And so, how difficult does that make your job
and our job in determining whether or not we are making sure
that the loans are going to deserving businesses? And
particularly, minority and businesses in underserved
communities?
Mr. SHEAR. This is an issue we have dealt with involving
numerous programs including now with PPP as far as demographic
data. And the SBA takes a certain view toward the authority to
collect data on race and ethnicity. And we have been dealing
with that. So, the workaround, I think, becomes for SBA and for
us is to geocode where we are not saying who are the borrowers,
for example, are they minority owned small businesses? But at
least what communities are they operating in. And that becomes
the best we can do with that situation.
Ms. VELAZQUEZ. Chairwoman, with your indulgence, I just
need to ask one more question. And if you consider that
necessary, please allot the same amount of time to the
minority.
There are 4,226 loans that went to businesses with over 500
employees. In your work, have you been able to examine whether
SBA has confirmed that these businesses employed the number of
employees stated in their application?
Mr. SHEAR. We are still at the stage and we have been
waiting for a meeting that is now scheduled for next week just
dealing with what we consider extreme data reliability issues,
which affects our ability to do work that is associated with
evaluating what Mike Ware was talking about, data analytics. It
is affecting our ability to evaluate who the programs are
serving. And we are trying to move forward on that, but we
aren't at that stage yet. And part of that is the extended
delays we get in dealing with SBA.
Ms. VELAZQUEZ. Thank you. I yield back.
Chairwoman CHU. Thank you. The gentlelady's time has
expired, and the gentlelady yields back.
Now, the gentleman from Tennessee, Mr. Burchett, is
recognized for 5 minutes.
Mr. BURCHETT. Thank you, Chairlady, and I appreciate the
panel. I guess my first question would be what is the--been the
economic impact of this? And I will open that up to anybody who
would care to answer that positive or negative, overall.
Mr. WARE. Will? Sorry, Will, you want to talk?
Mr. SHEAR. Please, Mike, go ahead.
Mr. WARE. Okay. By economic impact I think you are talking
about the economic impact of the fraud?
Mr. BURCHETT. No.
Mr. WARE. Okay.
Mr. BURCHETT. Of both sides of it. I would like to hear
both sides of it.
Mr. WARE. Oh, there is absolutely no doubt that this
program, both programs reach out to people who are definitely
in need. We know that for certain. But we also know for certain
that there is no assurance that all that money went to the
small businesses it was intended to go to. And this a fact. I
do believe that there is a balance that could be struck in
order to mitigate much of the risk of fraud and to shore up
vulnerabilities that both of us have identified for SBA.
But on the one side, I am telling you that SBA's employees
have worked long and hard to get this money into the hands of
people who badly needed it. Fraudsters do what fraudsters do.
We have identified many of the schemes. We have worked with the
Agency to mitigate much of that risk. So, I know that there is
a large part--there is no doubt that there is a large part that
have gone to ineligible and fraudulent recipients.
Mr. BURCHETT. Since we have identified those, are we going
to be--do you think it is in place? I am sorry to interrupt
you, but--and I like what you said about fraudsters are going
to fraud. I think that is a pretty accurate every time you do
something, some new plan or some horrible tragedy occurs in our
country, these dirtbags get out and take advantage of the
situation. But is something in place to go after these people?
And do you feel like we will go after them? Or are we just
going to say, ah, let it go?
Mr. WARE. No. So, like the Department of Justice, what is
it called, the press conference that we had just a few weeks
ago, we had it to note it to signify the 50th arrest made of
these type of these fraudsters. There are hundreds of
investigations already in process by my office. The FBI at our
press conference stated that they had over 500 investigations
initiated. And if you know how fraud works and fraud
investigations work, that normally doesn't take place until 12
to 18 months after these loans have gone out. The fact that we
have moved so very quickly to catch people has been pretty
remarkable. A great deal has to do with the Department of
Justice and their partnership with us and other law enforcement
entities. But we are on this and we are going to keep going.
Mr. BURCHETT. Good, I appreciate that. What I am afraid is
is that we move on to the next calamity in our country and we
forget about the working folks who didn't get the money they
should have because, again, as my favorite term, these dirtbags
got the money and they shouldn't have. And we have got
hardworking business folks, especially our smaller business in
our rural and our inner city areas will not receive that
funding. And thank you for your answer. Sir, I know you are
wanting to say something too as well, please?
Mr. SHEAR. I won't pull this out from the fraud issue, but
I am just saying who are the intended beneficiaries of this
program? And how is it serving these small businesses in the
communities they operate in over time? It was clear that PPP is
trying to both keep businesses in business and to allow
businesses to keep payroll. Where EIDL is a little bit more of
a focus on keeping businesses sustainable. So, they are
slightly different approaches. They serve slightly different
issues.
But let me take PPP. We have serious concerns about data
reliability having to do with jobs reported. But nonetheless,
it is clear that PPP has, as you know, the federal government
has spent a large amount of resources to support a large number
of small businesses that employ a lot of people. And so, it has
been a lifeline. So, we can observe that. And what also became
clear is that where originally it was an 8-week period before
forgiveness, it was recognized that the pandemic would continue
for a longer period of time and Congress made legislative
changes to expand that period.
What we don't know yet in terms of economic impact is
basically to what degree it has helped various segments of the
economy. And it is a very difficult question to answer and it
might not be possible until we have gone through much, if not
all of loan forgiveness. But there are a lot of questions over
the long haul where there are still uncertainties about what
will happen with the pandemic. There are still a lot of
questions of what the economic impact ultimately will be. But
it has certainly been a lifeline for a very large number of
small businesses.
Mr. BURCHETT. Right, as in my district. Chairlady, I have
gone over. But if you could issue my distaste of the fact that
this is such an important issue and we have so much--I have to
go to another committee, and we are marking up bills. But if
you could tell them to prioritize these things. Both parties do
it. This should be prioritized. We should not be scheduling
other meetings. We go hours during the day where nothing is
going on. Nothing, absolutely nothing. And they stack these
dadgum committees on top of each other. And it is a disservice
to you, as the Chairlady, and disrespectful to you and it is
disrespectful to the dadgum taxpayers. And I am going to talk
to my leadership, and I would hope that you would do the same
because this a very important issue. And I apologize that I
have to go to another committee. But I am very passionate about
this issue.
So, thank you, Ma'am, and always your courtesy to me and
friendship.
Ms. VELAZQUEZ. Thank you.
Chairwoman CHU. Well, thank you. And the gentleman's time
has expired. The gentleman yields back. And now, the gentleman
from Pennsylvania, Mr. Evans, is recognized for 5 minutes.
Mr. EVANS. Thank you, Madam Chairperson. Mr. Shear, SBA is
relying on heavy contractors to process EIDL applications. What
information has SBA provided to you of the contractual
responsibility of contractors or subcontractors and why such
important information for GAO works?
Mr. SHEAR. This is one of the areas we had a meeting with
SBA last Wednesday to discuss. So, just 8 days ago where there
at least was a meeting to talk about what we are requesting
from the Agency. So, that was a step forward. But there was no
timeline put on providing material. And in both of these
programs, but you asked with respect to EIDL, there is heavy
reliance on contractors. So, we just asked for the contracts
themselves. And that will lead to questions about what the
contractors are doing, but it will get us started.
In terms of information that should be readily available,
we are still waiting for a response. And as I said to
Chairwoman Velazquez, we are taking actions to push this
forward just like we did with PPP and access to PPP data. But
we are still seeking information from SBA on the contracts and
what the contractors are doing.
Mr. EVANS. Do you get any real sense of cooperation or not?
Mr. SHEAR. No. The cooperation has been poor. And I don't
like stating this, but we haven't had good cooperation in
conducting this work. There was some improvement when the
Agency then decided that they would provide us loan-level PPP
data. But it is not the usual cooperation that we have received
from SBA, and for that matter, other agencies with respect to
both of these programs.
Mr. EVANS. Mr. Ware, it is my understanding that SBA did
not put in internal controls in place for PPP and EIDL on the
front end of loans because of the speed in which the CARES Act
money needed to get to small businesses. Many businesses in my
district needed the money right away to stay afloat. Mr. Ware,
if Congress authorized additional--and the Chairwomen have
overall sort of asked you this, authorized additional funding,
can you be specific what you recommend Congress take to ensure
internal controls are placed at the beginning of the approval
process of the new loans?
Mr. WARE. Great, so, thanks for the question. I recommend
that Congress put in place just the need to have the type of
controls that at the very least, if an application falls into
the high risk where we know there is fraud buckets, where we
know there is rampant fraud buckets, it requires an automatic
second look to verify. So, the lowering of the guardrails needs
to come up particularly on those that fall in the high risk
areas. And those that have multiple loans and the same type of
NAICS code categories from the same IP addresses. Those that
have random email generator accounts. Those where the bank
accounts are changed after the approval process is over. Those
that are in the name of, for example, like prominent
politicians, prominent business leaders that we would all know
their names and other clearly ineligible entities. And the type
of controls that capture the ineligible entities. If the date
does not meet this or if the TIN does not meet this date, it is
automatically declined. Those upfront controls are necessary.
Mr. EVANS. Thank you, Madam Chair. I yield back the
balance.
Chairwoman CHU. Thank you. The gentleman's time has
expired. The gentleman yields back. And now the gentlelady from
Minnesota, Ms. Craig, is recognized for 5 minutes.
Ms. CRAIG. Thank you so much, Chairwoman Chu, and good
morning, everyone. Chairwoman and Ranking Member Spano, I am so
grateful we are having this hearing today. This issue is
incredibly important to me, the issue of fraud and improper
payments and government waste.
Since the beginning of the COVID pandemic, I have worked
hard. I know all of us have, to make sure that we are providing
the businesses in our community the absolute best of resources
and especially to those hard-hit small businesses through the
PPP program. You know, these fraudulent activities that have
now been incredibly well documented, it steals resources from
taxpayers, and it steals resources from the small businesses
who still need that help.
Improper payments are exactly why I introduced the Payment
Integrity Information Act, which I am proud that President
Trump signed this into law earlier this year. It strengthens
protections against improper payments in Federal programs. So,
currently, there are a number of resources and tools available
out there in the market developed to detect exactly the kind of
fraudulent activity that seems to have gotten through the SBA.
In fact, a division of Thomson Reuters located right in my
congressional district has that kind of technology and system.
So, in light of this, Mr. Ware, I have a first question for
you. Do you feel at this stage that SBA has the necessary tools
and resources and funding and oversight to be able to
accelerate your efforts to prevent fraud and waste? And if not,
what specifically do you need from our Subcommittee and the
U.S. Congress to put you in a better position to manage your
activity in this Agency?
Mr. WARE. Thank you. I am being told that I got a call from
the House that said that my camera is coming and going. I don't
know why I am looking at myself. So, I don't know what is going
on. So, I apologize.
So, when you ask about the resources, are you asking about
SBA OIG or are you asking about SBA proper the Agency?
Ms. CRAIG. I am asking more generally do you and the Agency
have what you need to be able to do better? Because, obviously,
if there is technology out there that can help you detect and
improve the accountability here. And I am asking is for an
active effort to make sure that that happens. Because, sadly,
this pandemic is not going away anytime soon. And I suspect
unless we are able to effectively suppress this virus in a way
that we clearly haven't been, we are going to have to continue
to ask SBA to do some very difficult things that, obviously, we
are not in a position to stop fraudulent activity at this
moment.
Mr. WARE. We are extremely fortunate that maybe what two
years ago Congress gave us additional money to stand up our
data analytics capability. And we are very fortunate that that
investment was made because that group is doing excellent work
in identifying fraud trends and quickly reporting out to the
Agency. As far as the Agency, well, I am still speaking about
my resources, right? We are coordinating with the PRAC and with
other law enforcement entities to approach this is a more whole
of government manner.
As far as the Agency, like I said earlier, they have taken
some steps. I will give you one of the steps in terms of their
resources. Initially, in that first report that we issued where
we were talking about all of these thousands of calls we were
getting from the banks saying, hey, guys there is fraud here.
We don't know what to do with this. We have stopped this. We
have held this money. How do we give the money back to the
government? This, that, and the other. We pulled everybody into
a meeting and initially what I required was a secondary review
that we were asking SBA to round up to make sure. Because
sometimes there are reasons why things happen and it could be
an eligible loan. They only had a couple of people assigned to
doing that. They grew that to immediately 25 people to do that.
And then I think it was 54, and now, I believe, that number is
even higher.
So, they have put the bodies necessary to have these
secondary reviews. We have not reviewed how that has gone on
yet. This is what has been reported to us. But in terms of
resources, I can't speak to what SBA has to do things. I just
know that they have moved things around to address and to
mitigate some of this fraud risk.
Ms. CRAIG. Thank you, Mr. Ware. It appears my time has
expired. So, I will yield back to the Chairwoman.
Chairwoman CHU. Thank you. The gentlelady's time has
expired, and she yields back.
And now we actually have time for a second round of
questions if anybody desires to do so. I believe the topic is
so important that I would like to go a second round. And so, I
will start by recognizing myself for 5 minutes.
Mr. Shear, I wanted to ask about the loan forgiveness
process. You described in your September report that SBA has
not provided clear guidance to lenders on the PPP loan
forgiveness process and as a result, SBA may be using
unreliable data to process loan forgiveness. And I would say
that the description that you provide describes a situation
that is at best fragmented. And that is the guidance comes on a
rolling basis. They are not specific review requirements for
lenders who are processing these applications, but as a result,
what we have is a situation where SBA has announced it has
received 96,000 forgiveness applications, but has yet to
process and approve one single one.
I mean, there are lots of businesses that are hanging on
the edges of their seats wondering if they are going to get
loan forgiveness. So, what specific steps should SBA take now
to improve the quality of this data and what can be done to
make sure that there is a loan forgiveness process that is
functional?
Mr. SHEAR. There has to be clear guidance and
responsibilities of who is responsible for what. And the role
of SBA's oversight of that process, you have banks that are
interested in certain types of safe harbor and that has always
been an issue. You have had reliance on borrower
certifications. And again, we were very receptive to the fact
that loans had to be gotten out very quickly, like immediately.
In our first report we made a pretty broad recommendation that
SBA needed certain controls in place and there has to be some
clarity for the participants in the program rather than this
rolling guidance.
So, there has to be clearer processes and procedures that
banks and borrowers can go on. And I say this especially with
respect to the smallest businesses that might not have the most
resources available for accounting and legal assistance. So,
there just has to be greater clarity.
And we need, again, we wish they would look at us as a
asset in terms of trying to improve the integrity of this
program. And that they would let us look like they let us do
with other programs in our experience at SBA and actually be in
a position to evaluate and to make recommendations for how
those processes can be improved.
Chairwoman CHU. Thank you, Mr. Shear. Now, I would like to
ask about the first phase of PPP being dominated by large
borrowers and even some publicly traded companies. SBA had
issued guidance to emphasize the economic necessity
requirements, but then this came after many larger companies,
even publicly traded companies, had already been approved. So,
first, how many publicly traded companies returned the money?
And what is the dollar amount that this represents? And how
would you suggest SBA prevent large companies from accessing a
program designed for America's smallest companies?
Mr. WARE. If that question is for me, I don't have the
exact figures. I definitely could get back to you within a very
short period of time on the exact figures. But in terms of what
happened there was how it was initially set up in terms of the
500 employees in a single place. And that allowed some of these
larger companies to get in within the confines of the law. Now,
so if you understand like the NAICS code that they use I
believe it is 72. You are considered small if the businesses
had fewer than 500 employees in one location. So, that
happened. So, if there is a shoring up of that to ensure--I
believe there was in the amended or the next act that came out.
But that is how they can ensure that these companies don't get
it. And like I said, I will get back to you with the exact
amount of companies and the exact amount of dollars.
Chairwoman CHU. My time has expired. But, yes, I am very,
very interested in that information. I think so many others
would be as well. So, please come back with that information.
I yield back and now the Ranking Member from Florida, Mr.
Spano, is recognized for 5 minutes.
Mr. SPANO. Thank you, Madam Chair. What is the percentage
of fraudulent loans approved in proportion to the 5.2 million
loans approved?
Mr. SHEAR. I will at least start with that. We don't know.
Just realize that we make a very big distinction between fraud
and the management of fraud risk and a lot of things we have
talked about in this hearing have been about data analytics and
other actions to look at fraud risk management. And so, we look
at that. We are not a law enforcement agency. But one of the
things that we emphasize is how do you prevent this? How do you
set up the fraud risk framework along the lines that we have--
actually, we have had a report now since 2015 spelling it out
that is widely used by agencies. How do you set it up? Because
the cost of setting up prevention right out of the starting
gate or even now when we are talking about what happens as we
proceed with loan forgiveness and other aspects of the program.
Prevention tends to be the most efficient thing to do.
Mr. SPANO. I get that and I apologize for interjecting. I
only have 5 minutes left.
Mr. SHEAR. Okay, I'm sorry.
Mr. SPANO. But here from the very beginning what has been
articulated as the balance that has to be struck between, in
this particular situation, getting money out quickly and
preventing against fraud. They are both important. We obviously
experienced personally how important that was when we were
getting in our congressional offices dozens and dozens of calls
from small businesses owners every day that said what in the
world are you doing? I have got to know what is going on. I
don't know whether to let my staff go. So, there was this
inexorable push to the SBA to get this stuff done quickly,
okay?
So, and the last thing I want is fraud. Don't want fraud.
But when we acknowledge that there are two competing interests
in this scenario, to get it out quickly and prevent fraud. It
seems to me that an important question we should ask and an
answer that we should have, if both are important, is how many
loans were fraudulent and how much of the over 525 billion
loans was extended was fraudulent? That will help us determine
how much, if any, additional measures should be taken to
prevent fraud in the future. Does that make sense?
Mr. SHEAR. Yes. Let me try to be brief on this. It will be
a long time until we know how much fraud there was in the
program and you can think of the adjudication of Department of
Justice and other law enforcement agencies. But part of our
emphasis has been--while we very much recognize that there was
a push to get loans out, but with the passage of time, it
becomes much more troubling when the fraud framework is not in
place to try to mitigate the risk of fraud existing in the
program----
Mr. SPANO. Yeah.
Mr. SHEAR.--and being practiced. And even more generally
improper payments occurring because of the lack of oversight.
At some point in time and we think that time has come and that
is what we are looking for is what has SBA put in place? So,
that is where our emphasis has been.
Mr. SPANO. Understood. What do you, if you know, what is
the statute of limitations for prosecution of fraud under the
CARES Act? I will let you answer that first.
Chairwoman CHU. No, well, if you want to make a question
for the record, I don't know it. Maybe Mike Ware does. But I
don't know, but if you make a question for the record, I would
be glad to respond.
Mr. SPANO. Mr. Ware, can you answer that question?
Mr. WARE. Great. I don't--it appears that it didn't specify
a particular amount of time in terms of it. Normally, we were
looking at 7 to 10 years that we are dealing with on these
fraud investigations. And these loans are going to perform in a
portfolio for decades. So, I mean, there will be a time to go
back and deal with this. But if I may, I don't know if we still
have time for me to----
Mr. SPANO. Yeah, I have 30 seconds.
Mr. WARE.--okay, quickly. So, the issue with this is that
in terms of the fraud framework that needs to be in place, we
know for a fact that there is fraud mainly because of the
thousands of calls in the hotline. Particularly having to do
with identity theft where people are finding out for the very
first time that their identities were stolen when they hear
from SBA that their loan payments are going to be deferred, and
they are like what loan payments? I have never had a loan from
SBA. This is routine. We are getting this, dozens every single
day. We are hearing some heartbreaking stories out there. And
all these things fall into the same buckets where we are
talking about this fraud environment.
Mr. SPANO. Thank you, Mr. Ware. And I know my time is up. I
would say it seems to me if the CARES Act didn't specify what
the appropriate statue of limitations is that is something that
we should follow-up on. I think that would give us the
opportunity to be able to plan long term for what the window of
time would be in which we need to go back after these folks.
Thank you, Madam Chair. I yield back.
Chairwoman CHU. Thank you. The gentleman's time has
expired, and the gentleman yields back. And now, our Chairwoman
from New York, Ms. Velazquez, is recognized for 5 minutes.
Ms. VELAZQUEZ. Thank you very much. Mr. Ware, I would like
to ask the same question that I asked Mr. Shear, but because of
technical difficulties I was unable to ask the same question to
you. And it is regarding the GAO's September report that shows
that 4,226 loans went to businesses with over 500 employees.
So, in your work, have you been able to examine whether or not
SBA has confirmed that these businesses employed the number of
employees stated in their application?
Mr. WARE. Have we confirmed of this?
Ms. VELAZQUEZ. Yes.
Mr. WARE. Yes, our work has confirmed that some of that did
take place. The thing is that I don't have the exact figures in
front of me. I definitely could get you that though. And I
already see that looking at the screen that the request for
that information already popped up.
Ms. VELAZQUEZ. So, several loans that were granted to
companies with over 500 employees, notwithstanding the rules
that they needed exemption for the lodging and food industry,
does your office plan to examine how these companies were
eligible to receive these loans?
Mr. WARE. Certainly. I believe that is covered in our
supplemental overview plan that we have publicly. And will be
definitely looking into that and its eligibility. As a matter
of fact, some of that will be reported publicly later in this
month.
Ms. VELAZQUEZ. Okay. And, Mr. Ware, in SBA's official
response to your report, Administrator Carranza stated that,
and I quote, ``Loan decisions are ultimately made by people,
namely, Loan Officers.'' During your investigation or in the
time since, have you reviewed whether there are adequate
training protocols in place for SBA loan officers?
Mr. WARE. Initially, no. Now, yes.
Ms. VELAZQUEZ. Okay. Because money was provided. Funding
was provided to the Agency to execute and implement the PPP and
EIDL programs.
Mr. Shear, in GAO's report in September, you stated that
the Department of Justice has publicly announced charges in
over 50 fraud-related cases related to the PPP. These cases
were referred to the DOJ by SBA, but the Agency has yet to
implement additional internal controls to mitigate risk. Can
you expound on the risk SBA is incurring by not implementing
internal controls for PPP? And what is your assessment as to
why they, to this point, after we enacted the first trench of
money, they have not been able to put in place a control
mechanism?
Mr. SHEAR. With the lack of information provided to us, we
presume that controls are not in place. We would hope that,
while I don't want to speak for the Inspector General, but I
would hope that they could view us in a more constructive way
in terms of helping to identify how you can create a better
control environment for this.
So, with the passage of time, again, right out of the gate,
we thought that something very serious was needed with the
limited upfront controls. And we just don't see it yet. We see
references on pages 8 and 9 of my written statement as far as
how they are going to use contractors, but we don't even have
contracts now. And as auditors, we asked the question what is
the Agency trying to hide? And there are just too many
questions that go unanswered.
Ms. VELAZQUEZ. Well, we just need to be on record, you
know, basically pointing out the attitude of this
Administration. You know, you could go out there and it just,
yes, we do not deny that the Agency must do everything they can
to put money into the hands of deserving businesses, but not at
the expense of compromising the fact that they have to take
every control or put in place every mechanism to make sure that
we avoid mismanagement, fraud, and abuse. And it is not
happening.
Chairwoman, thank you, I yield back.
Mr. WARE. Chairwoman, you are muted.
Chairwoman CHU. Thank you. The gentlelady yields back. And
now, the gentleman from Pennsylvania, Mr. Evans, is recognized
for 5 minutes.
Mr. EVANS. Thank you, Madam Chairperson. My issue is to Mr.
Shear again. Many lenders in my home city of Philadelphia have
expressed frustration with the piecemeal release of PPP rules.
Despite SBA issuing rules to PPP forgiveness, there is still
much confusion about the lender's role in the process. SBA is
supposed to send the forgiveness amount to the lenders no later
than 90 days from receipt of the lender's decision on loan
forgiveness. That means for any application submitted on August
the 10th, the first day SBA started accepting them, SBA has
little more than over a month to send the funds to the lender.
This is especially concerning because lenders already operate
on a tight margin. Mr. Shear, what do you believe SBA will be
able to do to meet this deadline? And if not able to meet the
90-day deadline for distribution of forgiveness funds, will it
dissuade lenders from participating in the PPP future?
Mr. SHEAR. I will first start with saying that SBA might
actually meet those deadlines. Our concern in meeting those
deadlines is that we are looking for some type of control
environment under which the forgiveness process will proceed.
But, SBA could meet the deadlines. It is the question of
whether it will protect the integrity of the program in how
they go about it.
So, now, if they don't meet those deadlines, then you are
creating more uncertainty for the lenders. We have spent a lot
of time talking to lenders and their trade groups and the
concerns with the rolling guidance, I will call it, and just
changes in the program and the whole question of how much
lenders will be held harmless based on certifications by
borrowers. The situation keeps changing. So, we are very
cognizant of the strain that this has put on lenders and you
could say they are being compensated for it, but in a sense,
they are being compensated for something that wasn't clear to
them when they started participating in the program. They may
not have known what their responsibilities would be. So, I hope
that is responsive to your question.
Mr. EVANS. Madam Chair, thank you. I yield back the balance
of my time.
Chairwoman CHU. Thank you. The gentleman yields back. And
now, I would like to make a closing statement.
I would like to thank our witnesses for joining us both
virtually and in person to share their important testimony
today. The oversight work of the OIG and GAO is vital to
ensuring that we root out instances of fraud and abuse and
spend America's tax dollars wisely especially since our small
businesses need so much help. Your work helps inform the
Subcommittee on existing problems within the SBA's COVID-19
programs and gives us insight into these issues as they unfold
in real time.
It is my hope that considering what we learned today that
the SBA will fully cooperate with the GAO and the OIG to
improve these programs for our Nation's small businesses. Our
witnesses today showed that with proper input and cooperation,
it can be done. I look forward to continuing our oversight
efforts with all of you as partners.
I 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 before the Committee,
we are adjourned.
Mr. SHEAR. Thank you very much.
[Whereupon, at 11:22 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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