[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                      UPDATE ON SBA'S PANDEMIC RESPONSE 
                                PROGRAMS

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             APRIL 20, 2021

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                              
                               

            Small Business Committee Document Number 117-008
             Available via the GPO Website: www.govinfo.gov             
             
                              __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
44-271                       WASHINGTON : 2021                     
          
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                          JARED GOLDEN, Maine
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                         KWEISI MFUME, Maryland
                        DEAN PHILLIPS, Minnesota
                         MARIE NEWMAN, Illinois
                       CAROLYN BOURDEAUX, Georgia
                          JUDY CHU, California
                       DWIGHT EVANS, Pennsylvania
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                          ANDY KIM, New Jersey
                         ANGIE CRAIG, Minnesota
              BLAINE LUETKEMEYER, Missouri, Ranking Member
                         ROGER WILLIAMS, Texas
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        DAN MEUSER, Pennsylvania
                        CLAUDIA TENNEY, New York
                       ANDREW GARBARINO, New York
                         YOUNG KIM, California
                         BETH VAN DUYNE, Texas
                         BYRON DONALDS, Florida
                         MARIA SALAZAR, Florida
                      SCOTT FITZGERALD, Wisconsin

                 Melissa Jung, Majority Staff Director
            Ellen Harrington, Majority Deputy Staff Director
                     David Planning, Staff Director
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Nydia Velazquez.............................................     1
Hon. Blaine Luetkemeyer..........................................     3

                               WITNESSES

Mr. William Shear, Director, Financial Markets and Community 
  Investment, United States Government Accountability Office, 
  Washington, DC.................................................     5
Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the 
  Inspector General, United States Small Business Administration, 
  Washington, DC.................................................     6

                                APPENDIX

Prepared Statements:
    Mr. William Shear, Director, Financial Markets and Community 
      Investment, United States Government Accountability Office, 
      Washington, DC.............................................    36
    Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the 
      Inspector General, United States Small Business 
      Administration, Washington, DC.............................    58
Questions and Answers for the Record:
    Question from Hon. Fitzgerald to Mr. Hannibal ``Mike'' Ware 
      and Answer from Mr. Hannibal ``Mike'' Ware.................    72
Additional Material for the Record:
    CUNA - Credit Union National Association.....................    73
    EIDL Validations and Internal Controls.......................    75
    NAFCU - National Association of Federally-Insured Credit 
      Unions.....................................................    79
    PPP & EIDL Oversight Info....................................    81

 
               UPDATE ON SBA'S PANDEMIC RESPONSE PROGRAMS

                              ----------                              


                        TUESDAY, APRIL 20, 2021

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:02 a.m., in Room 
2360, Rayburn House Office Building. Hon. Nydia Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Crow, Davids, Phillips, 
Newman, Bourdeaux, Chu, Evans, Delgado, Houlahan, Kim of New 
Jersey, Craig, Schneider, Luetkemeyer, Williams, Hagedorn, 
Stauber, Meuser, Tenney, Kim of California, Van Duyne, Donalds, 
Salazar, and Fitzerald.
    Chairwoman VELAZQUEZ. Good morning. I call this hearing to 
order.
    Without objection, the Chair is authorized to declare a 
recess at any time.
    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 to 
adhere to these standing rules, including decorum.
    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 have to 
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 
will recognize that Member at the next appropriate time slot 
provided they have returned to the proceeding.
    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. That includes 
social distancing and especially the use of masks. Members and 
staff are expected to wear a mask at all times while in the 
hearing room, and I thank you in advance for your commitment to 
a safe environment for all here today.
    The COVID-19 pandemic sparked a once-in-a-lifetime crisis 
for American small businesses. The pandemic hit small firms the 
hardest, resulting in the most significant reduction in 
business ownership in U.S. history. Facing an unprecedented 
wave of small business closures, Congress acted by creating 
economic relief programs to help businesses stay afloat through 
the crisis.
    Since the passage of the CARES Act, the SBA has approved 
9.9 million PPP loans worth $762 billion, 3.77 million EIDL 
loans for approximately $195 billion and has disbursed 5.8 
million EIDL advances amounting to $20 billion. This was a tall 
order for a small agency like SBA. It administered more aid 
during the COVID crisis than it had for all other disasters 
combined during its 67-year history.
    I commend the SBA's staff who have worked diligently around 
the clock, often 7 days a week for over a year now. Their 
dedication and work, while not perfect, have made a difference 
in the lives of millions of small business owners and workers. 
Now is the time to continue this Committee's work to take a 
hard look at this effort and learn lessons for the future. I 
hope to examine the problems uncovered by our nation's 
watchdogs and hear about SBA's efforts to address them.
    Since the inception of the pandemic, the Government 
Accountability Office and SBA's Office of the Inspector General 
have combined to release 16 reports calling attention to SBA's 
management of these programs. In fact, just last month, GAO 
added PPP and EIDL to its annual ``High-Risk List,'' 
identifying the economic relief program as being at high risk 
for waste, fraud, and abuse. These reports are sobering and a 
call for action.
    To that end, in the last Congress, I worked closely with 
then Ranking Member Steve Chabot and the Members of this 
Committee to conduct a robust oversight of the SBA. We held 
hearings with the administrator and other high-level officials 
in charge of the economic relief programs. We sent letters to 
the agency, placed numerous calls, and requested countless 
briefings.
    We were relentless in our pursuit of making sure these 
programs were working effectively for America's small 
businesses. It is my hope that in this Congress the Committee 
can put our partisan differences aside and work together to 
support the new administration to deliver much needed economic 
assistance to America's small businesses.
    It is important to note that the administration inherited a 
number of open recommendations from GAO and the IG. In the 
first couple of months in office, the Biden administration has 
heeded those recommendations and made it a priority to restore 
program integrity in PPP and EIDL.
    The agency implemented a long review plan, maximizing 
program integrity. In 2021, before issuing an SBA loan number, 
the agency began conducting front-end compliance checks on new 
First Draw PPP and Second Draw PPP applications using a 
modified version of the automated screening tool and 
information from the Department of Treasury Do Not Pay lists.
    I applaud the new administration for taking these concerns 
seriously and acting quickly to prevent emergency loans from 
going to bad actors. As I always say, if something is not 
perfect, let's see what we can do to make it better.
    I want to thank Mr. Ware and Mr. Shear for joining us here 
today and I now yield to the Ranking Member for his opening 
statement.
    Mr. LUETKEMEYER. Thank you, Madam Chair. And good morning 
to all, and a special thank you to Mr. Shear and Mr. Ware for 
taking time to speak with us today.
    The COVID-19 pandemic has thrown never-before-seen 
obstacles in front of every American, especially our Nation's 
small businesses. From the devastating state and local 
shutdowns to the struggle to find access to sufficient capital 
and employees to helps survive, our country has never faced a 
disruptive problem like this.
    Regardless of who has held the gavel over the years, 
Congress, and specifically this Committee, has long held the 
view that small businesses are vital to the health of this 
Nation's economy and security. The Small Business Act of 1953 
and the Small Business Investment Act of 1958 established that 
the U.S. Small Business Administration's function is to aid, 
counsel, assist, protect insofar as possible the interests of 
all small business concerns.
    This continues to hold true today nearly 70 years later.
    Equally important to these roles is the need of the SBA to 
maintain vigorous oversight of its own programs. Unfortunately, 
we have seen numerous blunders--and I use that term very 
politely--as the SBA has neglected to be good stewards of our 
constituents' tax dollars. Over the course of the last year we 
have seen countless stories of how the Paycheck Protection 
program, Economic Injury Disaster Loan program (EIDL), and the 
EIDL advances have benefitted small businesses, kept employees 
on their payroll, and helped pay their mortgage, rent, and 
utilities. Without these critical programs, more of our 
country's smallest firms would have been closed permanently and 
millions of employees would have been out of work. That is the 
good news.
    The bad news is that the SBA has mismanaged these programs 
and opened them up to unprecedented levels of waste, fraud, and 
abuse, limiting their effectiveness and previously squandering 
taxpayer dollars that could help our economy move forward. This 
is unacceptable.
    We will hear from the SBA's Inspector General and Federal 
Government's watchdog, the Government Accountability Office 
during this hearing citing specific examples of troubling 
failures by the SBA in administering these lifesaving programs. 
Those of us on this side of the aisle have been working 
diligently to help rectify these problems. Over the initial 
months of the 117th Congress, Small Business Committee 
Republicans offered numerous constructive amendments to 
President Biden's COVID Relief Bill that moved through Congress 
via the reconciliation process.
    More specifically, we offered amendments that would enhance 
and improve the oversight of SBA's COVID programs. For example, 
we offered amendments that would significantly increase the 
appropriation for SBA's Office of Inspector General to expand 
oversight of the SBA programs, specifically calling on the 
administrator to closely examine waste, fraud, and abuse within 
the EIDL programs.
    And while my colleagues on the other side of the aisle had 
many kind things to say about most of our ideas at the time, 
not one Democrat voted for any of our amendments. Perhaps after 
this hearing and the subsequent events that have taken place at 
the SBA, my friends on this side of the aisle will come to the 
table and actually work with us on these serious issues. Do we 
really need another OIG alert detailing the impending doom of 
another congressionally-mandated SBA program like the one 
published hours before the Shuttered Venue Operators Grant 
program went live and quickly crashed? Nobody should want that 
level of dysfunction to occur again. The SBA had more than 3 
months to pull this program together and they could not do it.
    Small business owners have been waiting a long time for 
these funds to get out the door and we want those who qualify 
to get the money as expeditiously as possible, but the 
necessary safeguards need to be in place for all SBA programs 
before American taxpayer dollars are disbursed.
    In addition to the SVOG program, we are still waiting for 
the majority of details, like the specific launch date, for the 
Restaurant Revitalization Fund Program contained in President 
Biden's partisan $1.9 trillion COVID package. We tried adding 
more money and oversight protections to this important program 
during reconciliation markup, but again, the Democrats chose to 
go without this in a similar partisan manner.
    I hope that all my friends across the aisle can agree that 
we cannot afford another bungled rollout of the restaurant 
program like we saw in the Shuttered Venue. We need to be 
accurately pursing legislative vehicles to ensure that this 
dysfunction does not occur again.
    Moving forward, the Committee must focus on these three 
areas. First, we need to prioritize eliminating existing fraud 
within these programs. Second, we need to delay implementation 
of all new programs until the SBA has the oversight controls in 
place to protect against waste, fraud, and abuse. And third, we 
need to take a hard look at restructuring the SBA as a whole. 
Should they be a direct lender? That is a question that needs 
to be answered.
    I thank the Chairwoman for calling this timely hearing, and 
I yield back.
    Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer. The 
gentleman yields back.
    If Committee Members have an opening statement prepared, we 
will ask that they be submitted for the record.
    I would like to take a moment to explain how this hearing 
will proceed. Each witness gets 5 minutes to provide a 
statement, and each Committee Member will have 5 minutes for 
questions. Please ensure that your mic is on when you begin 
speaking and you return to mute when finished.
    With that, I would like to introduce our witnesses.
    Our first witness is Mr. Bill Shear. Mr. Shear is the 
director in GAO's Financial Markets and Community Investment 
Team. He leads GAO in addressing the SBA Community and Economic 
Development programs and Native American Housing issues. As 
part of his portfolio, he oversees evaluations of SBA 
contracting, disaster assistance, credit and counseling 
programs. He has a master's degree in Public Policy and a Ph.D. 
in Economics, both from the University of Chicago. Welcome, Mr. 
Shear.
    Our second witness is the Honorable Hannibal ``Mike'' Ware, 
Inspector General of the SBA. Mr. Ware was sworn in as the 
Inspector General in May of 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. Welcome, Mr. Ware.
    Mr. Shear, you are now recognized for 5 minutes.

 STATEMENTS OF WILLIAM SHEAR, DIRECTOR, FINANCIAL MARKETS AND 
 COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY 
 OFFICE; HANNIBAL ``MIKE'' WARE, INSPECTOR GENERAL, OFFICE OF 
      THE INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS 
                         ADMINISTRATION

                   STATEMENT OF WILLIAM SHEAR

    Mr. SHEAR. Thank you. Chairwoman Velazquez, Ranking Member 
Luetkemeyer, and members of the Committee, I am pleased to be 
here this morning to discuss our work on SBA's Paycheck 
Protection Program and the Economic Injury Disaster Loan 
program.
    SBA has made or guaranteed about 19 million loans and 
grants through these programs, providing about $970 billion to 
help small businesses adversely affected by COVID-19.
    In April 2020, SBA moved quickly on these programs to help 
small businesses survive during the pandemic. SBA initially put 
limited controls in place, leaving both programs susceptible to 
program integrity issues, improper payments, and fraud.
    Since June 2020, we have made eight recommendations to SBA 
to improve the programs. In addition, we included these 
programs as a new area on our high-risk list in March 2021 
because of their potential for fraud, significant program 
integrity risk, and need for much-improved program management 
and better oversight.
    We also cited the results of SBA's most recent financial 
statement audit in which the auditor issued a disclaimer of 
opinion on SBA's financial statements because SBA was unable to 
provide adequate documentation to support a significant number 
of transactions and account balances related to PPP and EIDL.
    Further, as we reported multiple times, SBA's failure to 
provide us with data and documentation in a timely manner 
impeded efforts to ensure transparency and accountability for 
the programs. However, I am glad to report that we have 
received a significant amount of information and data from SBA 
and its contractors over the past 2-1/2 months. Here, I will 
quickly summarize steps SBA has begun to take to address 
initial deficiencies.
    In June 2020, we recommended that SBA develop plans to 
respond to PPP risk to ensure program integrity, achieve 
program effectiveness, and address potential fraud. SBA has 
developed a loan review process and added upfront verifications 
before it approves new loans.
    In November of 2020, we recommended that SBA expeditiously 
estimate improper payments for PPP and report estimates in 
error rates. SBA has now developed a plan for testing needed to 
estimate improper payments.
    In January 2021, we recommended that SBA conduct portfolio-
level analyses to detect potentially ineligible applications. 
SBA has not announced plans to implement this recommendation.
    In March 2021, we recommended that SBA implement a 
comprehensive oversight plan for EIDL to ensure program 
integrity. SBA agreed to implement such a plan.
    In March 2021, we made four recommendations, two for each 
program, for SBA to conduct a formal assessment and develop a 
strategy to manage fraud risk for each program. SBA said it 
would work to complete fraud risk assessments for both programs 
and continually monitor fraud risk.
    We continue to review information SBA recently provided, 
including data on PPP loan forgiveness and details on the PPP 
and EIDL loan review processes. In addition, we have obtained 
additional information from a survey of PPP participating 
lenders, interviews with SBA's PPP contractors, and written 
responses to questions provided by SBA's EIDL contractor and 
subcontractors.
    This concludes my statement. I would be pleased to respond 
to any questions you may have.
    Chairwoman VELAZQUEZ. Thank you, Mr. Shear.
    Mr. Ware, you are now recognized for 5 minutes.

              STATEMENT OF HANNIBAL ``MIKE'' WARE

    Mr. WARE. Good morning. Chairwoman Velazquez, Ranking 
Member Luetkemeyer, and distinguished members of the Committee, 
thank you for inviting me to speak with you today and for your 
continued support of my office.
    I come before you today in the midst of a historic 
challenge to the Nation, a challenge in which SBA has a pivotal 
and unprecedented role in stabilizing the U.S. economy. The men 
and women in my office 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. We share in the Nation's grief for those lost in the 
pandemic and are keenly aware that nothing short of the 
public's trust is at stake in our oversight efforts.
    SBA's [inaudible] trillion in lending authority through the 
PPP and the EIDL programs with the most recent tranche of 
lending authority being contained within the American Rescue 
Plan Act (ARPA).
    As with OIG, the men and women of SBA have been running at 
a sprinter's pace; however, the race we are running has been 
more of a marathon. Nonetheless, we have sought to have an 
aggressive and focused approach to our oversight to ensure our 
work is properly calibrated and relevant. Congress recognized 
that the oversight required of the pandemic response was 
outsized for existing oversight resources [inaudible] 
government to include my office. We have received three 
supplemental appropriations to increase our oversight capacity. 
Initially, we focused on the recruitment of a mix of auditors, 
analysts, and criminal investigators to provide immediate and 
timely insight into these programs.
    In December, we received funding directed to oversight of 
the EIDL program that seeks to address the rampant fraud 
identified by my office. These funds are being used to increase 
our investigative staff and enhance our data analytics 
capacity.
    We received our most recent supplemental increase a couple 
of weeks ago, and those funds will be used to further increase 
our investigative capacity to combat fraud. Fraud 
investigations will be a decades-long effort due to the 
performance of these loans within SBA's portfolios and the 
statute of limitations on fraud. Our office will have 
approximately 40 percent more staff onboard after our hiring 
surges for EIDL and ARPA conclude than we had before March of 
2020.
    Even still, we recognized from the beginning that the level 
of oversight required would take a whole of government 
approach. We partner with law enforcement entities across 
government and join multiple taskforces to multiply our reach. 
Since the outset of the pandemic response, our strategy has 
been to prevent and deter fraud, waste, and abuse, and to 
identify and combat instances of the same.
    The first step was the issuance of three reports sharing 
risks and lessons learned from our past oversight work. 
Principally, that most closely related, which is of the 
American Recovery and Reinvestment Act of 2009. These reports, 
as well as a fraud and scam alert were published before SBA 
made the first PPP and EIDL loans. Recognizing the speed at 
which lending was occurring in both these programs, we 
developed innovative report products to provide timely insight 
to our stakeholders. Our first flash report was published just 
a little over 30 days of PPP's implementation.
    Our next report will come out in July, which found 
significant deficiencies in internal controls and rampant fraud 
within the EIDL program. We have issued 13 reports on SBA's 
pandemic response oversight with two more near issuance. Most 
recently, we issued a management alert on serious concerns 
about SBA's control environment and the tracking of performance 
results in the Shuttered Venue Operators Grant Program prior to 
the program launch.
    In light of having to plan a program under tight 
constraints, it is imperative that SBA design the program in a 
way that provides for a balanced audit risk framework, 
consistent application of Federal regulations for grant 
management, clearly defined performance goals and adequate 
resources to effectively administer the program.
    While our audit work was ongoing, our criminal 
investigators were aggressively pursuing fraud. On May 5, that 
is a little over a month after the first PPP loans, the first 
in the Nation fraud charges were announced against an 
individual fraudulently seeking a PPP loan. We have since 
initiated over 420 investigations, and together with our law 
enforcement partners, the Department of Justice has announced 
over 100 indictments against individuals committing fraud 
against the PPP and EIDL programs.
    We have received over 150,000 complaints on our hotline 
since March of last year. This is over 150 years' worth of 
complaints when compared to prior years. We have sought and 
obtained assistance from the Pandemic Response Accountability 
Committee (PRAC), the catalogue complaints being received 
outside of our online complaint submission system, and we are 
employing data analytics to further triage these efforts.
    I look forward to discussing our most recently published 
works surrounding implementation of PPP, EIDL, and SVOG. Thank 
you for the opportunity to speak to you today. I am happy to 
answer any questions you may have of me.
    Chairwoman VELAZQUEZ. Thank you, Mr. Ware.
    I will begin recognizing myself for 5 minutes.
    Mr. Ware, the Biden administration has taken steps to 
restore program integrity, including implementing front end 
compliance checks on PPP loans. What other steps have been 
taken by the new administration to improve program integrity? 
Also, how effective will these steps be?
    You are muted.
    Mr. WARE. Yes. I had to figure out the mute button.
    Thank you. Thank you for that question.
    This administration has implemented quite a bit of front-
end controls to include addressing our recommendations that 
have to do with IP address deconfliction, checking on those 
accounts that have at the last second changed the bank account 
information, and many of the other controls that we asked them 
to put in place, specifically with our December memo to the 
administrator.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. WARE. Yes.
    Chairwoman VELAZQUEZ. Mr. Shear and Mr. Ware, has the new 
administration been responsive to your requests? Has SBA, under 
the leadership of President Biden and Administrator Guzman 
increased the level of cooperation and transparency? Has the 
new administration been more forthcoming with information?
    Mr. SHEAR. Yes. Definitely. As in my written statement and 
my oral statement, since the beginning of February, in terms of 
access to people, having in-depth discussions with SBA 
officials and their contractors, in terms of providing us data 
and information, providing us details about the oversight plans 
particularly for PPP, I am glad to report that it has become 
much better.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. Ware?
    Mr. WARE. I also agree. I did not have many of the problems 
that GAO encountered, but this administration has been very 
upfront, very transparent, very interested in implementing the 
recommendations, or at least taking steps to move in that 
direction, and very interested in hearing what the Office of 
Inspector General has to say.
    Chairwoman VELAZQUEZ. I would like to submit for the record 
a list of improvements to SBA programs that have been made by 
the Biden administration.
    Without objection, so ordered.
    Mr. Shear and Mr. Ware, were the loans mentioned in your 
report made during the last administration or since March 16th 
when the new administrator was sworn in?
    Mr. Shear?
    Mr. SHEAR. The loans that we are referring to are over a 
period that goes into the beginning of 2021. But for the most 
part it was loans over the period during the previous 
administration.
    Chairwoman VELAZQUEZ. Mr. Ware?
    Mr. WARE. Pretty much the same. Like, we started from 
before the first loan even went out. So that work is still 
ongoing, but the majority of our work informs what happened in 
the past in order to set up what is to happen in the future.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. Ware, your office issued a management alert on April 7, 
2021, the night before the launch of the Shuttered Venue 
program citing a number of concerns but you missed the main 
issue, the technical issues that throttled the system on the 
day of the launch. What happened on your end and why did you 
not flag these concerns earlier?
    Mr. WARE. Thank you for that.
    So, a management alert or advisory, the purpose of it is to 
present interim engagement results or share information as 
quickly as we can during a broad scope review. So we are 
assessing the program and we saw this at the onset of the 
program and thought let's stop and get this information in 
their hands right now while they still had time to improve the 
control environment. At that time we had not yet got to those 
controls.
    Chairwoman VELAZQUEZ. Mr. Ware, is it not customary to 
alert Congress and the agency of such concerns in a timely 
manner?
    Mr. WARE. It is. But the alert, right, is a part of a 
broader scope review. So in terms of alerting timely, this is 
what we alerted timely on. This is what we had known for 
certain at the time in the review. So the review on this 
program is still ongoing. These were the concerns that we 
thought we should raise immediately.
    Chairwoman VELAZQUEZ. Thank you. My time has expired.
    Now I recognize the Ranking Member, Mr. Luetkemeyer, for 5 
minutes.
    Mr. LUETKEMEYER. Thank you, Madam Chair.
    I think we need to sort of set the stage a little bit here 
with regards to what we are talking about this morning from a 
standpoint that the PPP program was implemented in a very, very 
quick fashion. In a way that we knew we had our economy at 
risk. We had jobs at risk. Businesses at risk. And we knew that 
this was probably not the perfect way of going about dispensing 
those dollars and get them out in a hurry. And I think SBA did 
a great job of getting those dollars out the door and in the 
hands of folks who needed it.
    I think the numbers have come back with some concerns about 
some of these loans. As a former regulator, I can tell you that 
whenever you are looking at a loan file and you see something 
that there is an I dotted or T not crossed in there you kick it 
out for what they call a technical exception. In discussing 
this issue with some of the IG and GAO folks, I think that is 
where we are with some of this stuff that is in these reports.
    That being said, there has been some documented fraud in 
there as well, and I think that is the concern that I have is 
that we make sure we go back and recover those dollars. Make 
sure that there is an effort made to stop those folks from 
getting at those dollars and setting up the new programs, which 
are the EIDL program here with a recharge of money, as well as 
the restaurant program and the venue program, make sure those 
programs are set up so that this does not happen again. And 
this is my concern this morning from the standpoint that the 
EIDL program, and to quote Mr. Ware, you called it rampant 
fraud in the EIDL program with regards to identity theft. This 
program was not that big compared to the amount of money that 
is going out with regards to identity theft.
    Have you seen any kind of controls put in place by the SBA 
with regards to identity theft? Because I think the Shuttered 
Venue program was going to be operated very similar to, if I am 
not mistaken, the way that the EIDL program is. So have you 
seen them put anything in place that could be considered 
protection against that kind of activity? Mr. Ware?
    Mr. WARE. Yes. Actually, I have. Yes. Actually, we have. 
SBA, and in particular, the Office of Disaster Assistance--
since we are talking about EIDL, they have been at the table 
quickly implementing the upfront controls. At least they are 
stated; we have not tested them as yet. We trust that they are 
doing it but we always verify. The alert on Shuttered Venues, 
for example, never addressed the upfront controls for fraud. 
That we found that they had in place, at least what we had 
asked them to implement. What we were talking about was 
relative to measuring the program and having enough people to 
actually oversee the program on the backend so that we know 
that the program met its intended purpose.
    Mr. LUETKEMEYER. Well, with regards to that, according to 
you two all's reports, there was not that much identity theft 
of a problem in the PPP program comparatively to the EIDL 
program. So it begs the question, the difference between the 
EIDL program and PPP program is that the banks basically were 
the ones that went through the program and got these dollars 
out the door. And they have a ``know your customer'' law in 
place to make sure that they know who the person is who is 
contacting them, the business that they are working with, and 
yet in the EIDL program, those sort of safeguards had not been 
in place. And maybe they are now, but it would seem to me and 
to beg the question, if SBA is going to stop that sort of 
fraud, they need to change the way that they do lending and let 
the lending be direct as it was in the PPP program or they 
become just a guarantor of the loan versus the actual lender of 
those dollars.
    And so I guess my question to you is, are you satisfied 
that the controls in place are such that you would not want to 
see perhaps a third party actually get those dollars out the 
door so there is another level of safeguards in place, 
especially when the banks are there and used to I dotting and T 
crossing, collecting information, collecting forms and doing it 
in a very efficient manner? Would you consider that something 
that we need to be taking a look at?
    Mr. WARE. My oversight is to the criteria based on the way 
that the programs are set up. In order for me to say that I 
would be satisfied with the controls, we would have to test the 
controls, which we have not done yet.
    Mr. LUETKEMEYER. Okay.
    Mr. WARE. We believe in what we have recommended to SBA and 
we believe that if properly implemented it would stem the tide 
of fraud in these programs.
    Mr. LUETKEMEYER. Excuse me, Mr. Ware. I would like for Mr. 
Shear to get in on the question.
    What would be your opinion on that?
    Mr. SHEAR. I would agree with Mr. Ware that the mechanisms 
from the programs are different. With respect to PPP and the 
role of the banks, there is some information that comes out of 
it. We have suspicious activity reports that are used with that 
type of arrangement but banks also made suspicious activity 
reports on EIDL as well but they are of a different nature. So 
there is some control in place, ``know your customer'' type of 
controls that also affects who was able to get in and get the 
loans from the banks. So there are certain tradeoffs here in 
terms of who is being served. So there is a mechanism there 
through, as you say, through banks. But just like Mr. Ware 
said, we have not tested controls and we are looking for the 
details now on the oversight of the banks themselves and we are 
going through the information which is quite extensive that we 
have been getting to look at what the oversight of the banks 
is.
    Mr. LUETKEMEYER. Okay. Thank you very much. I yield back.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentleman from Colorado, Mr. Crow, 
Chairman of the Committee on Innovation, Entrepreneurship and 
Workforce Development, for 5 minutes.
    Mr. CROW. Thank you, Chairwoman. Thank you to the witnesses 
for coming here today.
    Mr. Ware, I have a question regarding data and the 
integrity of data. Last year it was discovered that the Miter 
system that the database had significantly data disparities. So 
just as one example, the zip codes and the congressional data, 
the district data did not match up. And the SBA itself had 
found we were doing 500 PPP loans over the $150,000 threshold, 
that 111 of those did not match the state code for the loan. So 
it was nearly a 22 percent disparity. We actually did our own 
analysis in our office and found significant loans that had 
been allocated to other districts that actually occurred within 
our district, hundreds of loans, in fact, and had our staff do 
that.
    So did you all see that same disparity in your review? And 
have you been able to track any trends as to whether or not 
that data disparity is getting cleaned up?
    Mr. WARE. Thank you very much.
    Yes, we actually found the very same thing in terms of our 
data analytics unit. It kept reporting that some of the data is 
dirty. That is the term that they use. It is not good. But I 
know that they were able to work with SBA to rectify some of 
those challenges, which means that SBA is able to clean the 
data once they know that it is incorrect. So I know it is 
something that they are working on. They are working on making 
sure that they have clean data.
    Mr. CROW. Can you give me some sense, I mean, I always kind 
of bristle at this notion, they are like, oh, we are working on 
it. And the problem for us is I am sitting here and we all 
represent districts. And I literally want to know what loans 
have been given in my district. Like, I want to know where 
those loans went, what the loan numbers are, and I just do not 
have trust right now that I understand that. That any one of us 
sitting here today can pull that data up and trust that data 
and actually understand what is going on in our own 
communities. So can you give me some sense as to when we can 
have that trust and a date by which we can say this is the 
data, this is what is going on in our community?
    Mr. WARE. So, as you know, that data belongs to SBA, not to 
SBA-OIG. So I know that question would be best posed to the 
program, which is SBA. I could tell you that when we look at 
the data----
    Mr. CROW. No, Mr. Ware, you are the watchdog of SBA, right? 
So I am asking you as the watchdog, the person that is charged 
with internal oversight, what you think the timeline is for 
when they are going to clean this up.
    Mr. WARE. Like I was saying, as I am not on the program 
side of things, I cannot give you a definitive date on which 
they would clean their data up. What I can tell you----
    Mr. CROW. I am not asking for a definitive date, Mr. Ware. 
I am sorry, I am not asking for a definitive date. Can you give 
me an estimate as to the glide path that they are on to 
cleaning this up? Are we talking about a week? Are we talking 
about a year? Are we talking about somewhere in between? Can 
you give me any sense as to where they are at?
    Mr. WARE. It is real difficult for me to give you a sense 
of where they are at in that. What I could tell you is this; 
what my office reviews, we clean to make sure that the data 
that we are putting out in our reports is indeed accurate.
    Mr. CROW. Okay. I understand. That does not help us, 
unfortunately.
    Mr. WARE. Right.
    Mr. CROW. It does not help us. And you can tell I am 
frustrated because we do not even know what is going on or have 
trust in the data fully in our own communities because the data 
is dirty, as you say. And we need answers to when it is going 
to be clean.
    So I think I made my point here. This needs to be fixed and 
we would expect you to push hard and we would like better 
answers from somebody as to when this is going to be fixed.
    Madam Chair, I yield back.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    The gentleman from Texas, Mr. Williams, Vice Ranking Member 
of the Committee is recognized for 5 minutes.
    Mr. WILLIAMS. Thank you, Madam Chair.
    On April 8, small business across the country were 
devastated to see the Shuttered Venue Operator Grant portal 
shut down within 2 hours of launching, and I was the Republican 
lead on the House side so I am very disturbed on what I see. 
These businesses have already suffered enough economic injury 
while waiting 4 months for this program to be open.
    So Mr. Ware, you mentioned in your testimony that you have 
serious concerns about the SBA's control environment over SVOG 
program, Save Our Stages program. Can you elaborate on specific 
internal controls that need to be implemented within the SBA 
regarding waste and fraud within the SVOG program, and are you 
confident that the changes outlined in your initial report will 
be solved by the time the application portal reopens? We have 
businesses across the country that are closing every day 
because this was approved into law on December 8th and we are 
still not there yet. So what can we do to fix that?
    Mr. WARE. Thank you for your question.
    First off, the alert that we put out raised the attention 
of serious concerns with the control environment and the 
tracking of performance results. We need them to reduce or 
eliminate risk by implementing controls to address the misuse 
to Federal funds. In this case it was the way that they wanted 
to go about identifying the vulnerabilities commensurate with 
the expected volume of applications that they were going to 
get. We wanted them to clearly establish 2 CFR 200 criteria for 
the program to ensure compliance. It is important for me to 
point out that this is a grant program, not a lending program. 
Grant programs come with specific rules and regulations that 
need to be followed in order to determine the impact of program 
funds. We did not feel that they had sufficient resources 
available to implement or oversee the program from the onset. 
Relative to the fraud risk side of it, this did not address 
that because we found that they had implemented the 
recommendations that we had been given all along in terms of 
what checks should be in place to mitigate the risk of fraud.
    Mr. WILLIAMS. Okay. I spoke with Administrator Guzman the 
other day after the OIG report, and it seems like they are 
claiming the report was released prematurely as a result of 
miscommunication and that many of the concerns had already been 
addressed. So even if that is true, it raises serious concerns 
about the agency's ability to carry out similar programs in the 
future if they cannot even get on the same page with their 
communications with the Office of Inspector General.
    So Mr. Ware, what improvements need to be made to solve 
these communications issues so we can have confidence that all 
the programs being run out of the SBA are doing so with the 
proper levels of oversight? And again, I remind you, many, many 
people are waiting to get on these programs to save their 
businesses.
    Mr. WARE. Right. This is a little surprising to me, kind of 
news to me, catches me a little bit off guard. Internally, 
before we release anything there are quite a bit of meetings 
that are taking place between our audit teams and the program 
staff. And even in those, not necessarily a communication 
issue. It was an understanding of what we mean by you have to 
establish criteria that is different because this is a grant 
program and not a lending program. And that we did not think 
that you could shut off certain requirements of CFR 200 that 
governs these programs. So that was the main thing.
    But relative to communication, the administrator is new. We 
are building our relationship. Right now I think that is off to 
a much better start, especially after this was issued. We now 
have stated rules of engagement for how we go forward to make 
sure that they----
    Mr. WILLIAMS. Okay.
    Mr. WARE.--do not feel like there is a communication issue.
    Mr. WILLIAMS. All right. Let me move on to another 
question.
    I recently sent a letter to the Small Business 
Administration expressing concerns about the outstanding PPP 
loan forgiveness application past the 90-day deadline. The 
inaction and lack of communication coming out of the agency on 
these outstanding loans are keeping financial institution 
businesses in the dark. The result is that hardworking 
Americans are stuck holding enormous liabilities. It prevents 
them from investing in business growth as we recover from 
COVID.
    So Mr. Shear, quickly, what steps do we need to be taking 
with the SBA so we can clear this backlog of PPP loans waiting 
to be forgiven?
    Mr. SHEAR. Part of it is consistent with putting in the 
right internal controls that pay attention to what are the 
elements that are slowing down the forgiveness decisions, such 
as when flags go up. I will call it flags of potential fraud. 
When flags go up, is there a disciplined approach of 
determining which flags are more important than others are? So 
I think that these are the types of things that we are looking 
for in that program.
    Now that we have PPP forgiveness data, we are really 
analyzing it in depth to try to see how rampant these problems 
are. So I do not have an answer to your question yet as far as 
whether it is isolated or whether there is a large magnitude to 
this.
    Mr. WILLIAMS. I yield my time back.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    The gentlelady from Kansas, Ms. Davids, Chairwoman of the 
Subcommittee on Economic Growth, Tax, and Capital Access is 
recognized for 5 minutes.
    Ms. DAVIDS. Thank you, Chairwoman. And thank you to you and 
to the Ranking Member for holding this hearing today. And of 
course, to Mr. Shear and Mr. Ware for your critical oversight 
work.
    As of earlier this month, the SBA had approved over 13 
million loans totaling approximately $964 billion through the 
Paycheck Protection Program and the EIDL Program. And these 
programs have been absolutely essential lifelines to small 
businesses across the country, and we know there is more to be 
done to support our small businesses until the end of this 
pandemic.
    But part of that support definitely has to include the 
exact thing we have been talking about so much today, ensuring 
the integrity of the programs, of preventing further fraud and 
abuse from frankly wasting taxpayer dollars. And I know the 
Office of Inspector General and the GAO reports have 
highlighted persistent fraud in both the PPP and EIDL programs.
    In the Kansas 3rd, which I represent, a local newspaper was 
able to share some information about 35 cases of relatively 
easy-to-identify fraud in just one of the counties in our 
district. And that was mostly fake farming enterprises in a 
largely suburban and residential area. And in addition to 
wasting taxpayer dollars, these cases are, of course, 
defrauding innocent people through identity theft and it is 
obviously urgent and critical that SBA is able to root out this 
type of fraud really quickly. I know I have urged, and I know 
others have, too, for the SBA to adopt the OIG recommendations 
that we have already seen so that the victims of identity theft 
are not held at fault.
    Mr. Ware, I would love to ask you my first question. In 
your testimony, you mentioned the ongoing review of SBA's 
response to allegations of identity theft. And I know the 
Chairwoman kind of touched on this a little bit ago. But can 
you give us an assessment? I know you indicated that there is 
some new frontend controls, but can you give us a sense of how 
the SBA is handling these types of cases?
    Mr. WARE. In terms of identity theft?
    Ms. DAVIDS. Yeah, identity theft, particularly as it 
relates to PPP and EIDL. Or the EIDL is the one that seems to 
have the most impact in the district that I represent based on 
the data we have.
    Mr. WARE. Correct. Well, we have an ongoing review right 
now. As a matter of fact, that report, I think the response 
from SBA to this report is due today if I am not mistaken--I 
think it was the 20th--and will be issued shortly thereafter 
provided they do not ask for an extension being that the 
administrator is new. But in that, we are reporting publicly on 
what SBA has done to address what is happening with identity 
theft because, like you, we have heard countless stories and 
complaints involving identity theft.
    And just so we are clear, SBA-OIG does not have principal 
jurisdiction on investigations involving identity theft. That 
belongs to the Federal Trade Commission. But we have a direct 
link on our hotline page in hopes of helping victims. We share 
those complaints with SBA so they can take appropriate actions, 
and we view this as a significant matter for SBA to address, 
one that is tied to internal controls within the programs. So 
it is something that we are taking very seriously and many of 
our active investigations have to do with this identity theft 
issue.
    Ms. DAVIDS. Yeah. So that is helpful context. I am curious 
if you are able to give any kind of indication about, now that 
the EIDL loan repayments have been delayed by another year, 
some of those victims of identity theft are going to have other 
parts of their lives disrupted. Do you know if SBA, or have you 
made recommendations about how SBA might be able to reduce down 
or solve that issue so that people who have been the victim of 
identity theft through these EIDL loans are not negatively 
impacted in a bunch of other aspects of their lives?
    Mr. WARE. Right. We have provided recommendations. The 
thing is, it is still in draft so it is not a completed work 
that I can speak about publicly.
    Ms. DAVIDS. Okay.
    Mr. WARE. Like in this setting.
    Ms. DAVIDS. Yeah, so actually, so we will follow up with 
you based on your answers today. Thank you so much.
    Chairwoman, I yield back.
    Mr. WARE. Thank you.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    The gentleman from Minnesota, Mr. Hagedorn, is recognized 
for 5 minutes.
    Mr. HAGEDORN. Thank you, Chair. I appreciate this 
opportunity. And thanks to the witnesses.
    Mr. Ware, I think you have been around government a little 
while and you kind of realize that this was quite an avalanche 
of lending that was going on by SBA through their partnerships 
with financial institutions and others. And quite something 
that the Congress and the president could get a bill enacted 
and then 7 days later they would actually have regulations on 
the books in order to move the program along. Usually I think 
regulations like that would take 3 to 6 months, maybe even 
longer.
    So I understand there are going to be some issues. We do 
not want any of that. But in looking at your testimony, it 
seems to be a big difference here between the Paycheck 
Protection Program and whatever monies might have gone out the 
door that were not supposed to be. And then compare that with 
the EIDL program. And you know, Congressman Luetkemeyer, our 
ranking Republican member was making the point that, boy, the 
EIDL program had substantially less money and yet there seems 
to be a lot of issues.
    In your testimony you account for about $75 billion that 
may have been inappropriately sent to ineligible businesses, 
but those numbers are from back in July of last year; right?
    Mr. WARE. Yes. The numbers at that time were from back 
then.
    Mr. HAGEDORN. So since then have you been able to update 
those or do we have some idea that this is way less than it was 
before or they have reclaimed some of those monies on all these 
other things?
    Mr. WARE. That is a good question. We have been working 
diligently, of course, to claw back money that has gone to 
folks that it should not have gone to. I think we are up to a 
total between us and SBA, our partners, $1.9 billion. We are 
continuing to move along those lines. We do have updated 
figures. I just do not have them at my fingertips right here.
    Mr. HAGEDORN. All right.
    Mr. WARE. It would take me a couple.
    Mr. HAGEDORN. I mean, it looks here, this looks terrible 
but hopefully there is something that accounts for that and the 
problem is not this big. But it seems to me again that where 
you had lenders, financial institutions and others working with 
customers where they have to know their customers, there was 
not as big of an issue, as big of a problem. But then we get in 
to where the government is dealing with these folks directly 
there is all this identity theft and so forth.
    So what was the most serious broad scheme that they had 
targeting these EIDL loans? What is your experience on that?
    Mr. WARE. Before that there are two important things to 
point out here. When we were providing context as to what was 
going on in terms of fraud, the Office of Capital Access deals 
with PPP. They were very quick to implement controls that we 
thought were missing, very, very quick. And we know that is a 
big reason why there was a lot less that we found in that area. 
ODA took a much longer time to implement. That is a fact.
    Secondly, in terms of identity theft, we are starting to 
see more of it raise its ugly head on the PPP side with the 
bringing on of the Schedule Cs. And so, I mean, we are still at 
the very beginning of this. We are starting to see the trends 
start to take shape. And so it might turn out to be a different 
story a little bit later. But you asked about the schemes; 
right?
    Mr. HAGEDORN. Yeah. What is the role of the most prevalent 
scheme?
    Mr. WARE. One of the most prevalent schemes, particularly 
for the EIDL Advance program was where people were being 
contacted by, I do not know, fraudsters who would say the 
government is giving out free money and all you have to do is 
have us sign up for you and SBA will give you a check for up to 
$10,000 and it will be deposited into your account and you just 
have to pay us out a portion of it. And that is what we were 
seeing with the multiple IP address hits. It would be like one 
computer handling all this for maybe 200, 300, 400 different 
loans and just really bombarding base controls with that.
    Mr. HAGEDORN. So people were literally just handing over 
their basic information to the fraudsters and then they were 
going ahead and making those applications and taking the money. 
Should the government have not figured out some way that all 
these things were coming from the same addresses? I mean, were 
there not any controls that were in place before this started 
out?
    Mr. WARE. That argument that we were faced with was, well, 
multiple loans came from a single IP address doesn't mean it is 
fraud. And I would say maybe there might be a real reason for 
it but until you check you would not know.
    Mr. HAGEDORN. You might want to look into that; right? 
Yeah. Check into it.
    I do not know how much time I have. I am not seeing the 
computer. If I have just another minute----
    Mr. PHILLIPS. Mr. Hagedorn, your time has expired.
    Mr. HAGEDORN. Okay. I yield back then. Thank you.
    Mr. PHILLIPS. All right. The gentleman yields back.
    And now I recognize myself for 5 minutes.
    I want to thank our witnesses for being here today, and I 
believe I speak for all of my colleagues on this Committee when 
I say we are deeply troubled by the reports of rampant fraud 
and abuse within the PPP and EIDL programs. Congress 
established these facilities to be a vital lifeline to American 
businesses in their darkest hour and now we are bringing some 
much needed sunlight as a disinfectant for corruption.
    I am also troubled by the frenzied environment that gave 
birth to the programs with all their shortcomings, and I would 
hope today's hearing stands as a lesson to those of us in 
Congress to return to regular order, and those of us in the 
administration, to exercise the very highest standards of 
ethics in implementing and enforcing the law which ought to be 
amongst our highest priorities.
    Mr. Ware, on February 2nd, the Biden administration 
published a fact sheet detailing new measures to prevent fraud 
in the PPP and EIDL programs. These measures provided that loan 
guarantee approval would now be contingent on passing SBA fraud 
checks, Treasury's Do Not Pay database, and public records. 
While implementing these checks at the late stage has somewhat 
slowed the processing of loan applications, these safeguards 
could have been implemented from the very beginning. In fact, 
on the day that lenders began processing applications for PPP 
loans last year, you issued a white paper outlining lessons 
learned from previous stimulus loan programs. In that document 
you warned that ``increased loan volume, loan amounts, and 
expedited loan processing timeframes may make it more difficult 
for the SBA to identify red flags in loan applications.'' You 
urged the agency to put sufficient controls in place then. Did 
administrative officials at the agency heed your warnings at 
that time, sir?
    Mr. WARE. At that time, no.
    Mr. PHILLIPS. Okay. And when it became clear that the set 
up of EIDL, which is directly processed by SBA loan officers 
also made it particularly susceptible to abuse, you issued a 
July report containing another warning of ``potentially rampant 
fraud'' in that program as well. Is that correct?
    Mr. WARE. This is correct.
    Mr. PHILLIPS. And then last month, the Justice Department 
unveiled charges against a former Florida tax collector who 
allegedly bribed an SBA loan officer to ``use her access to the 
SBA's computer systems and her access to EIDLs to manipulate 
the status of EIDLs to trigger the system to extend funding'' 
for the benefit of the defendant.
    Mr. Ware, this is not the first instance of questionable 
behavior by agency employees. So please elaborate, if you 
would, on why these activities did not trigger red flags in the 
loan system, and please speak to the OIG report that you issued 
in October of 2020 concerning SBA employees and contractors who 
were involved in inappropriately influencing loan approval.
    Mr. WARE. Well, the control that you are speaking about was 
not in place to begin with and that was one of the controls 
that we were talking about, hey, you have to implement these 
controls. I mean, we were at the table on several instances 
speaking about this even before the reports were out saying 
this is a serious issue and there are certain things that need 
to be implemented. But as I was saying before, it was not I 
guess the best way to say it. It was not always taken as 
seriously. So there was always a justification trying to be 
made that there could be a valid reason for why we were seeing 
what we were seeing, although we had already made dozens of 
arrests up to that point using the same red flag indicators.
    Mr. PHILLIPS. Okay. On the subject of taking things 
seriously, Mr. Ware, if you could just spend a moment and speak 
about your knowledge of the staffing challenges at SBA given 
the workforce needed to administer programs of this scale and 
any recommendations that you have to ensure that employees are 
thoroughly vetted moving forward.
    Mr. WARE. Right. Well, relative to that, as you know, 
especially in the disaster area, SBA has the authority to very, 
very quickly ramp up and they did that. Our issue was where the 
ramping up was taking place. So we wanted them to put more 
people to address the red flags. More people to check why is 
there 200 loans from a single IP address. Why did all these 
loans have a changed bank account? We wanted them to assign 
folks there and they did. They actually, they did that and that 
was one of the things that they did rather quickly once they 
decided that they would review the red flag areas because many 
of them had to be cleared. So I believe they went from four 
people to 40 to 250. The numbers probably are not exact but I 
am pretty positive they are close in terms of how big they 
moved on that.
    Relative to that, we have long recommended the importance 
of not only staffing up but properly training and vetting 
folks. There are multiple reports with that as a 
recommendation.
    Mr. PHILLIPS. All right. Thank you, sir. Duly noted.
    My time is expired. And now I recognize my fellow gentleman 
from Minnesota, Mr. Stauber, for 5 minutes.
    Mr. STAUBER. Thank you very much, Mr. Chair. And to the 
witnesses, thanks for being here today.
    Mr. Ware, a couple of questions. Of all the recommendations 
OIG has made in the various reports over this last year, how 
many recommendations has the SBA adopted?
    Mr. WARE. That is a good question. I actually have it 
somewhere. I am trying to scroll quickly to find the exact 
number. But I do know that I could get you the number. But they 
have moved to implement recommendations.
    We have closed, of the almost I think 24 of them, we have 
closed six. And are reviewing information necessary to close 
others. We do know that they have shown us documentation that 
several of the others, they have addressed them. And to be 
quite honest, they are moving expeditiously to implement the 
recommendations.
    Mr. STAUBER. And Mr. Ware----
    Mr. WARE. They are at least addressing them even if they 
have not had the time to fully put them in place.
    Mr. STAUBER. Mr. Ware, what has the SBA signaled to you as 
their reason for not implementing more of the recommendations 
that you have just suggested?
    Mr. WARE. SBA, we have resolved all but one recommendation 
with SBA. I know you are going to ask me which one that is. I 
do not know the exact one that is. Oh, the one that they did 
not resolve is one that they agree with but they have a 
different way that they would like to address the cause of that 
recommendation, which was fine with us. But we have resolved 
just about all of them. They are not saying that they are not 
going to implement them. Some just take a longer time than 
others. The more critical ones they have moved on.
    Mr. STAUBER. Thank you, Mr. Ware.
    And then one last question for Mr. Ware. How would you rate 
or describe the SBA's ability to prevent new fraudulent 
behavior in the existing pandemic response programs as it 
stands right now?
    Mr. WARE. I would rate it much stronger than it was at the 
beginning. I believe that we have all, SBA included, learned a 
lot of lessons from where we were in the past months and that 
SBA is intent, at least on what they have presented to us, they 
are intent on making sure that the same errors do not happen 
again. It is our intent to measure it in terms of where we were 
before, what got through and where we were, where we are now in 
terms of what has been prevented.
    Mr. STAUBER. And Mr. Ware, if you could, could you provide 
that information to the Committee?
    Mr. WARE. Yes. Actually, I have it at my fingertips. I 
mean, it is right here. I have it.
    Mr. STAUBER. Thank you very much.
    Mr. Shear, a question for you is, in your opinion, what is 
the most important recommendation either the OIG or the GAO has 
made that has yet to be adopted to the SBA?
    Mr. SHEAR. I will speak to the eight recommendations that 
we have made and they are all still open. And what I want to 
emphasize, because four of them deal with fraud risk management 
is that where Mr. Ware has a very important role to play in 
terms of being part of law enforcement, our focus is on 
preventative controls. So what you put in place.
    So we have four recommendations that were made in our March 
report that have to do with really developing a disciplined 
approach, creating clear responsibility and authority in a unit 
within SBA to carry out those four recommendations. They mirror 
each other, two for EIDL and two for PPP. So I would probably 
put those at the top. But then in terms of our role, again, and 
I will emphasize that we coordinate with the IG, and we do 
different things. And we are not conducting fraud 
investigations as a part of law enforcement, but just to back 
up to what we said originally with PPP, that you just needed an 
approach that would ensure the integrity of the programs that 
eligible businesses are participating in. That it is meeting, 
more broadly, it is meeting the intent of the programs. And so 
that is a more global approach. So I do not want to forget 
about what I call the more global recommendation we made, but 
the four in particular that we made, dealing with fraud risk 
management I think are probably at the top of the list.
    Mr. STAUBER. Thank you, Mr. Shear. And I see my time has 
expired. Back to you, Mr. Chair. Thank you.
    Mr. PHILLIPS. The gentleman yields back.
    The gentlelady from Illinois, Ms. Newman, is recognized for 
5 minutes.
    Ms. NEWMAN. Thank you, Mr. Chair. And thank you to 
Chairwoman Velazquez and Ranking Member for this hearing. It 
has been very helpful.
    So we have talked a lot about granular things today, Mr. 
Shear and Mr. Ware, and I really appreciate that. So let me 
start by saying that this program was huge and complicated to 
start out with for the SBA. Given that we had to move very 
quickly, it is not surprising that there were challenges in 
2020. Throughout the year of 2020, many of these challenges 
were identified and not corrected frequently. So I am glad we 
are finally getting to a point.
    And so I have the same question for both of you. I will 
start with Mr. Shear because it probably is more GAO than it is 
for Mr. Ware.
    So it looks to me that while we have all these very 
significant and severe granular problems, there is a higher 
level management problem, that the structure of the SBA needs 
to change. It appears they come in four buckets. There is fraud 
and litigation issues. That there are categorization review 
analysis and assessment and data integrity issues. It sounds 
like there are workforce issues. So given that there are four 
very systematic issues and they are very large buckets with 
very granular problems in them it would appear that we need to 
look at the structure of the SBA from an organizational 
standpoint and really make some recommendations there so the 
move forward is working better.
    So can you speak to that, Mr. Shear?
    Mr. SHEAR. Thank you for the question.
    What I think that it really focuses on, some of the reasons 
why we put SBA, these programs on our high-risk list. And so 
when we think of, one of the things I was encouraged by, 
basically starting with the transition team was how would we, 
meaning SBA, would get ourselves off of the high-risk list? 
When we said we planned to put these programs on the list, the 
list came out March 2nd. And we look for certain elements there 
and it starts with leadership and it involves rigorous 
strategic planning and just a plan for how do you get from A to 
B with all of these things? And so it involves assessment. It 
involves commitment of resources. So for example, among the 
things we are looking at now is SBA did not have the resources 
for these programs and we are actually looking now at the use 
of the supplemental appropriations. We are talking about $3.4 
billion for administrative expenses and we are saying how were 
those funds used? So it was a lot of contractors. And then you 
start getting into issues of contractor oversight, and we are 
trying to get more information about what is SBA doing to 
oversee the contractors who are overseeing these programs? So 
there are some basic structural issues there that I think you 
raise a very good point.
    The other issue I will point to is that SBA has had an 
office for a number of years called the Office of Continuous 
Operations and Risk Management. And when we first drafted our 
recommendations around fraud risk management, we directed it to 
having that office take the lead. Give it the responsibility 
and the authority to lead these efforts. And with that they 
said, well, now we also have a fraud risk council but both of 
them seem to be kind of--one had become kind of an informal 
body and the other one was an informal body that was just kind 
of put together. There is no clear responsibility to carry this 
out, and authority to carry it out. So this is also a 
structural type of issue.
    So those are the parts of what we have done that I think 
pertain most closely to the very good question you asked.
    Ms. NEWMAN. So let me follow that up, and I appreciate your 
answer. And it is complex; right? But what is the plan? If I 
was looking at this problem I would say that it looks like we 
need, if it was an organization, an executive VP of fraud and 
risk management. You know, that we need to look at workforce 
issue from an HR standpoint. Do we have the right folks that 
are assessing these things? And then from an information 
systems standpoint, do we need to have a CTO and CIO change? So 
for me, who is looking at that broader organizational 
structural problem? It may not be you, Mr. Shear, and that is 
okay. That is A-okay with me. But we need someone to look at 
it.
    If Mr. Shear could just respond.
    Mr. SHEAR. Thank you. We had concerns way before the 
pandemic, in 2015, that there were certain structural problems 
in just how SBA carries out its mission and we did what we call 
a general management review where we just looked from soup to 
nuts, looking across the agency. And we made a number of 
recommendations, and those recommendations were actually 
implemented. Part of it had to do with enterprise risk 
management and the risk management office that I just referred 
to. There are certain things that are in place that could have 
been teed up for this and probably still have to be teed up to 
implement our recommendations. So there are structural issues 
here and what we are looking for with respect to these two 
programs is what has to be done to really resolve fraud risk 
management for these programs, and some of these actions will 
probably end up leading to some structural change in the 
agency.
    One of the things that I am very encouraged by, and I will 
just refer to one more thing if you can bear with me on this, 
is that last week I participated in a meeting between the 
Comptroller General, Gene Dodaro and Administrator Guzman and 
her chief of staff. And it was a very constructive meeting. It 
was like, we are seeing some positive signs that Administrator 
Guzman is stepping up, and certainly the transparency in 
working with us has improved. So we hope this leads to changes 
but it is like some of the changes as you bring up will 
probably be structural. Our focus is on what is really needed 
with respect to these programs? And some of them will probably 
require some structural change, if nothing else, to make it 
clear who is the authority on fraud risk management.
    Mr. PHILLIPS. All right. The gentlelady's time has expired.
    Ms. NEWMAN. Thank you.
    Mr. PHILLIPS. We have to move on.
    The gentleman from Pennsylvania, Mr. Meuser, is recognized 
for 5 minutes.
    Mr. MEUSER. Thank you, Chairman. And thank you, Mr. Shear. 
Thank you, Mr. Ware for appearing with us here today.
    So just to add to some perspectives, compared to the 
average of 65,000 disaster loans, EIDL loans a year as of 
April, the SBA has approved more than 3.77 million during the 
COVID time period, EIDL loans totaling more than $200 billion. 
That is 60 times more than normal. The ratios are the same in 
Pennsylvania.
    In testimony, it was referenced that the SBA lowered the 
guardrails, Mr. Ware, lowered the guardrails, relaxed internal 
controls to get funds to struggling businesses but that led to 
increases in potential fraud in EIDL. As well, Mr. Ware, your 
initial report found that the SBA issued $14.3 billion in 
potentially fraudulent EIDLs to accounts that differed from the 
original bank account listed on the application, $62.7 billion 
to multiple EIDL applicants using the same business and contact 
information, and $1.1 billion in EIDLs and advanced grants to 
potentially ineligible businesses. That is $78 billion out of 
$200 billion, so almost 40 percent was potentially fraud? Is 
that right? That is pretty staggering. Are those numbers 
correct?
    Mr. WARE. Yes. That is what we were saying.
    Mr. MEUSER. Okay. Yeah, I know. But I just kind of wanted 
to put it in perspective. Forty percent. So in a private 
lending institution, if that were to occur, I think we would 
all agree that they would be out of business, many people would 
be fired, there would be investigations. So that is just 
staggering.
    Does the SBA model itself for fraud controls after private 
lenders? Mr. Ware, can you comment on that?
    Mr. WARE. Not----
    Mr. MEUSER. No? Well, maybe you should.
    Mr. WARE. That is a good question. Normally, a good 
question for the program office how exactly they model 
themselves because there are a couple of different ways of 
looking at it. But one of the things relative to context that 
must be placed here is that the 40 percent was in terms of 
potential fraud. Right? Meaning that we could not look at all 
of them in that time to determine whether or not fraud was 
actually occurring. What we were asking SBA to do though was 
because these things are under these red flags, the same red 
flags that we are conducting our criminal investigations on, 
the same ones that we have arrested many people on, are the 
same ones. These are the indicators. These are what is showing 
up and that you need to pay attention to.
    Mr. MEUSER. All right. Well, despite all of these numerous 
reports of fraud, the SBA in April raised the loan limit for 
the COVID-19 EIDL program from 6 months of economic injury with 
a maximum loan amount of $150,000 up to 24 months of economic 
injury with a maximum loan of $500,000.
    Can either one of you comment as to why that would be done 
with all this potential fraud taking place?
    Mr. WARE. If I may.
    Mr. MEUSER. Sure.
    Mr. WARE. From ODA's perspective it would be that they have 
instituted the controls that we have recommended. Meaning that 
they would feel we have not yet verified that the control 
environment is a lot stronger than it was at the beginning, so 
that they would be able to act on the flags and stop people 
from getting into the program who should not be in the program.
    Mr. MEUSER. All right. Well, we certainly hope, you are not 
necessarily to blame but somebody is and we certainly hope that 
you will do the things that we are discussing here to correct 
this horrible problem.
    I just want to shift gears here a little bit. Can you 
comment, can either of you comment on the issues EIDL loans 
have created for secured lenders? Secured lenders by the EIDL 
have been very much crowded out. Secured lenders are 
subordinate to the EIDL loans. The EIDL loans replace other 
credit lines so as secured lenders cannot use the EIDL for 
collateral. It has damaged the industry. And in the end, what 
is more important is that it will damage that small business 
over time. Just quickly, will this be addressed? Is this being 
considered by you all? And would you state to me whether or not 
you could meet with the secured finance network to try to 
address and resolve this problem?
    Mr. WARE. Bill, should I go?
    Mr. SHEAR. No, I will go first.
    Mr. WARE. Okay.
    Mr. SHEAR. We have focused a lot on the question of a 
secondary market with PPP, and so we have interacted with the 
financial community on that. It has not risen to being an issue 
with EIDL but we could look into the question that you have. We 
could look at that.
    Mr. MEUSER. Could you meet with them?
    Mr. SHEAR. We meet with trade associations, and what is 
important for us is to make sure that we are doing that in an 
objective way in terms of who we meet with but I would think 
so.
    Mr. MEUSER. Of course. That is great. Thank you.
    Mr. Chairman, thank you. I yield back.
    Mr. PHILLIPS. Thank you. The gentleman's time is expired.
    And I just ask members and our witnesses to try and be 
respectful of the 5 minute rule.
    With that, the gentlelady from Georgia, Ms. Bourdeaux, is 
recognized for 5 minutes.
    Ms. BOURDEAUX. Okay. Thank you so much. And I very much 
appreciate our two witnesses here.
    Obviously, these are huge programs and have really been 
very important in shoring up our business community throughout 
the crisis, but at the same time it is very, very important to 
make sure that we are good stewards of taxpayer dollars. That 
this is being spent wisely and well.
    A lot of questions have already been covered about how we 
make sure that we put the safeguards in place as we open some 
of these new programs up and try to make sure that we are 
cautious on that front and the money is going to the people who 
need it and into the right spots.
    One issue, and I know we kind of touched on this in some of 
the other questions but just to ask Mr. Shear about this 
because I think Mr. Ware has touched on this, and it is about 
the targeting of the Restaurant Revitalization Fund. And we 
know that when we initially launched the Paycheck Protection 
Program it was not really getting to some of the underserved 
markets as best we could see, and based on the current guidance 
issued so far, are you confident that we will be able to 
resolve this issue and make sure that we get the Restaurant 
Revitalization Fund to some of the smaller minority-owned 
businesses across the country?
    Mr. SHEAR. I will start out by saying that a lot of our 
focus on both PPP and EIDL is in terms of what are 
characteristics of the borrowers who are getting these loans? 
So this is something that has been a close focus of ours, and 
as we initiate work on the restaurant program, we will be 
looking at that as well. So it is important to see who the 
program is serving. It has to do with what is the intent of the 
program and looking at who is being served by the program. So 
we will be taking a close look at that.
    Ms. BOURDEAUX. Okay. We have this 21-day prioritization 
period. What is your take on how effective that is going to be 
in making sure that we get to the right people?
    Mr. SHEAR. We are auditing in real time and we are going to 
soon begin work on the Shuttered Venue and the restaurant 
program. So the idea is we are auditing in real time but we are 
going to be looking at who actually is being served by the 
program, so I think we will get some indication as far as how 
well it has worked in terms of serving its intended impact.
    Ms. BOURDEAUX. Okay. All right. Well, just turning to one 
more other issue that we have really been watching or trying to 
see, although the data really is challenging as you all have 
noted. And I guess this is a question for Mr. Ware or Mr. Shear 
which is, we have a lot of businesses relying on the PPP loan 
forgiveness. And I was wondering if you all have discovered any 
reasons for concern with respect to access to loan forgiveness 
among small business owners? And what standards are in place to 
ensure that potentially fraudulent PPP loans are not given but 
while ensuring that the small mom and pop businesses can still 
access that loan forgiveness?
    Mr. WARE. If I may, we are currently conducting an 
evaluation of the loan review process. And the objective of 
that was to assess SBA's process for reviewing the loans for 
eligibility and forgiveness. It is in the early stages and it 
is designed to set the foundation for a series of projects on 
SBA's forgiveness of loans under the PPP eligibility. So it is 
in our 2021 oversight plan, and we will be able to give you 
real concrete answers on this as soon as that work is wrapped 
up.
    Ms. BOURDEAUX. Okay, great. Thank you.
    Mr. Shear, do you have anything to add to that?
    Mr. SHEAR. We look very seriously at the recommendations 
having to do with thinking strategically about fraud risk 
management because it is not a matter of putting in controls 
that can slow down the process or can make it difficult for 
those who are eligible and are being served by the program to 
get forgiveness. But the idea of coming up with a strategic 
approach that says, what flags can we pay attention to, do we 
have to pay attention to, and which flags are of lesser 
concern? So it is really to come up with an approach that we 
are looking for.
    Ms. BOURDEAUX. Okay. Thank you so much. And I yield back 
the balance of my time.
    Mr. PHILLIPS. The gentlelady yields back.
    And now the gentlelady from New York, Ms. Tenney, is 
recognized for 5 minutes.
    Ms. TENNEY. Thank you, Mr. Chairman. I want to thank 
Chairwoman Velazquez and Ranking Member Luetkemeyer for holding 
this important meeting.
    Our district was saved, basically, by the PPP program and 
we are really excited that it was an opportunity to keep some 
of our small business community alive. Ninety-four percent of 
the jobs in our district are created by these small businesses, 
so it was a vitally important issue, which is why I am so 
disheartened by this fraud, abuse, and waste number that has 
come up, particularly with the PPP program which really 
affected us more.
    And I wanted to address my first question to Mr. Shear. I 
know that you had said in your testimony that SBA's failure to 
provide the data and documentation on PPP and also on the 
Economic Development Disaster Loan program in a timely manner 
impacted efforts to ensure the transparency and accountability 
of the programs which I guess has apparently happened.
    What would you do, and I know you have somewhat answered 
this question, but if you could answer in another way, could 
you tell me what you would do to correct the way that SBA could 
change its practices to get that data to you more efficiently 
and quickly in the future so that we could make these loans and 
avoid these sort of astounding fraud numbers that we are 
seeing? And maybe a best practices guideline. Could you address 
that quickly, sir, please?
    Mr. SHEAR. There are two parts to it. One was, when we 
refer to the lack of transparency and the uncooperative nature 
of the agency with us, it was getting to the very notion of 
just like not that they were inefficient in terms of getting us 
data and information; it was not providing us data and 
information. It was, I hate to say it but quite intentional.
    So to get to the question is, how can they get information 
to us more quickly? We are always working with them to try to 
get information more quickly and we are certainly doing it now 
in that there are a lot of outstanding items that we work 
through with them. We are very busy interacting with them, 
interacting with leadership at SBA and interacting with the 
Office of General Counsel in terms of trying to improve the 
process to get us the information that we seek. And there 
certainly have been improvements.
    Ms. TENNEY. That is interesting that you say that you think 
they maybe intentionally did not give you the information. What 
reason would they be trying to hide the information from you or 
what would you attribute your opinion that they were 
intentionally trying to keep the information from you?
    Mr. SHEAR. This is one where I do not want to really state 
an intent because the idea is it is getting into people's minds 
as far as why was SBA not being cooperative? It was not from 
lack of effort from our side, and certainly, there were efforts 
made, not just by my teams but also by our General Counsel, by 
the Comptroller General, by Members of Congress. So I really do 
not want to comment on what the mindset was that led to the 
lack of cooperation. But there certainly was a lack of 
cooperation and it did impede transparency.
    Ms. TENNEY. Would you recommend that those people not 
continue to work in that regulatory agency and that we replace 
them? Because obviously this is obstructionist in some ways. 
Meeting the needs that the taxpayers are expecting with these 
programs.
    Mr. SHEAR. It was clear that this involved officials at 
very senior levels. So with the changes that have occurred now 
you have certainly new people in the associated administrator 
type of positions and general counsel position. We have a new 
Administrator. So it is a different environment.
    Ms. TENNEY. Do you think that any of that intentional, as 
you put it, do you think that has anything to do with the 
massive amount of fraud that we have discussed, like the 3.6 
billion alone for the PPP program where potentially ineligible 
recipients receive that money? Is that something that you think 
there was some kind of underhanded behavior on their part?
    Mr. SHEAR. I do not want to make the connection to saying 
that the reason we see so much potential fraud in this program 
and so much fraud risk is because of the behavior that reduced 
the level of transparency and our inability to really audit the 
programs in a rigorous manner. But what I will state to you is 
that under normal conditions, and I will say this with SBA in 
terms of their normal programs and things like that, I would 
like to think that the cooperation leads to improvement of the 
operations of the agency. And that was an opportunity that was 
delayed by the lack of cooperation with us. The ability to have 
us take a look at how they are doing things and to make 
recommendations for improvement and act on those 
recommendations. So I am making a more general point.
    Mr. PHILLIPS. The gentlelady's time has expired.
    Ms. TENNEY. Can you say that you have a similar issue with 
the Treasury with the Do Not Pay business center?
    Mr. PHILLIPS. Ms. Tenney?
    Ms. TENNEY. Am I out of time?
    Mr. PHILLIPS. Yeah, your time is expired. I am sorry.
    Ms. TENNEY. Okay. Thank you. Thank you.
    Mr. PHILLIPS. Now, the gentlelady from California, Ms. Chu, 
is recognized for 5 minutes.
    Ms. CHU. Thank you.
    Mr. Ware, you provided such valuable testimony to the 
Oversight Subcommittee hearing that I chaired in October. After 
our hearing last fall, SBA strongly disagreed with the Office 
of Inspector General's findings on the level of fraud risk in 
the EIDL program and asserted that the agency had a robust 
system with internal controls. However, the third-party audit 
of SBA's 2020 finances found that despite this internal control 
system, SBA's loan officers were never formally trained to 
address flagged applications. So approvals on potentially 
fraudulent loans and rents continued.
    Well, today we have a new administration at SBA that is 
disbursing the targeted EIDL funds that have been appropriated 
by the American Rescue Plan. So Mr. Ware, you were saying that 
now SBA has implemented internal controls. But I want to know 
what the highest priority steps are that SBA can take today to 
improve the security of the EIDL grant and loan program, 
considering that these grants are being made as we speak, right 
now?
    Mr. WARE. Thank you. The highest priority as we would see 
it is actually some of the things that they said that they 
addressed. And we have some indication that they have. And that 
is reinstituting the rule of two where two people would review 
the loan, whereas they would stop the amount of batch 
processing that they would do. Those were big weaknesses in 
their system that allowed a lot of things to sneak through. 
Those are two of the biggest ones that come to mind quite 
quickly. They are doing the IP address checks. They are doing 
the bank account checks. I know that is a major part of it.
    Ms. CHU. So is it just implementation of the controls that 
are there now?
    Mr. WARE. Right. I believe that, well, the controls that 
were completely absent.
    Ms. CHU. Yes.
    Mr. WARE. Right. The implementation of those should 
actually help quite a bit.
    Ms. CHU. Okay, thanks.
    Mr. WARE. And I have got to tell you, it is a different 
environment in terms of cooperativeness and in terms of 
listening and in terms of sitting down to come up with what the 
best way is to address the fraud risk.
    Ms. CHU. So it sounds like they have implemented the 
suggestions, every single one of the suggestions you have 
talked about?
    Mr. WARE. Well, they have stated that they have. We have 
not yet tested them.
    Ms. CHU. Oh.
    Mr. WARE. Some we definitely can see that they have. 
Others, we certainly have not tested as yet.
    Ms. CHU. Okay. Mr. Ware, also, there is another issue. It 
has been almost a year since you participated in an oversight 
forum to discuss the findings of your flash report following 
the program launch. And during that forum you told me that last 
year SBA issued no guidance to lenders describing how they 
should prioritize underserved borrowers and have taken almost 
no steps to collect data on loan disbursements meaning that it 
would be nearly impossible to evaluate whether the program was 
reaching underserved businesses. And that is an important issue 
to me. Congress is great at set asides for community financial 
institutions in order to reach these underserved businesses--
data collection reporting we could never know how effective the 
programs would be at reaching underserved markets or how we can 
improve the outreach.
    So since under the last administration the agency failed to 
act on your recommendations, can you describe what specific 
steps the SBA can take now to backfill the demographic data on 
PPP recipients?
    Mr. WARE. Well, although publicly they disagree, they 
actually did make some changes to the forms. They did some 
changes to way that they are going to be measuring. So that was 
done even under the last administration to make sure that they 
could capture going forward. But what happened in the past, 
basically, it happened. So there is no way to capture that 
initial part of it. But going forward that was something that 
they did move to correct.
    Ms. CHU. And how about now in terms of the data collection?
    Mr. WARE. In terms of data collection, well, if you just 
use the Restaurant Revitalization program as an example, you 
are doing it in the pilot to make sure that they get to the 
people they are supposed to get to up front and to be able to 
take a deep breath and assess the effectiveness. I think that 
is a major step forward. And we will be reviewing that pilot 
program.
    Mr. PHILLIPS. The gentlelady's time has expired.
    And now the gentlelady from California, Ms. Kim, is 
recognized for 5 minutes.
    Ms. YOUNG KIM. Thank you, Chairman. I also want to thank 
the Committee for holding this important hearing to discuss the 
oversight of the SBA's COVID-19 programs.
    We have heard a lot about the deficiencies that were found 
through the GAO and IG report and I think we all agree that PPP 
and the EIDL program have helped countless small businesses. It 
certainly did in my 39th District. However, in order to explore 
the PPP and the EIDL continues to provide assistance 
[inaudible] taxpayer money, SBA [inaudible] better job 
complying with GAO and Inspector General recommendations. The 
purpose of this hearing is to let them know that we are 
watching and they are on notice.
    But SBA should also take note of the oversight deficiencies 
of the PPP program to ensure that other programs do not face 
the same problems.
    So Mr. Ware, to your knowledge, does the SBA have the right 
oversight capabilities in place for the [inaudible] program and 
the Restaurant Revitalization Fund program?
    Mr. WARE. What I can say is this: Based on what SBA has 
provided to our office, it is apparent, number one, that they 
are taking it very, very seriously. And number two, on the 
surface, that they have built in a control structure that would 
address all of our recommendations and that should, on the 
surface because we have not yet tested them, it should mitigate 
a lot of the fraud risk that we saw in the beginning.
    Ms. YOUNG KIM. So when do you plan on doing a follow-up 
inspection?
    Mr. WARE. Well, for example, on the Restaurant 
Revitalization program, we will be conducting a review of the 
implementation of the pilot, for example. At that time we will 
be able to talk more clearly and succinctly about what controls 
were in place, what the controls achieved, and whether or not 
they met the intent of the act.
    Ms. YOUNG KIM. Mr. Ware, you mentioned the importance of 
data analytics. So how does data analytics help? Can you 
provide some examples?
    Mr. WARE. Sure. Well, it has basically transformed the way 
we do business. When you have that many loans to review, when 
you have that many hotline complaints, when you have that many 
referrals from the agency to the tune of almost like 15,000 a 
week, the only way that you could focus your attention on what 
needs to be focused on is through the use of data analytics, 
through the use of trend analysis to see where the problems are 
located so that we can assign our investigative staff to pursue 
it. Or so that we can assign our audit staff to give a more 
global look in terms of what is going on in these programs. 
Where the fraud is so that we can move. It is the only thing 
that has not crippled us. We would have been crippled had it 
not been for data analytics.
    Ms. YOUNG KIM. That is fine. I will yield the balance of my 
time. Thank you.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    The gentleman from Pennsylvania, Mr. Evans, is recognized 
for 5 minutes.
    You need to unmute.
    Mr. EVANS. Thank you. Thank you, Madam Chair. Thank you 
also for this hearing.
    I would like to ask a question, Madam Chair, to Mr. Shear 
and Mr. Ware. The question I would like to ask is, if you had 
to give the SBA a grade for handling of the programs during the 
pandemic, what grade would you give it and why?
    Mr. WARE. Bill? I would like to see how you tackle that 
one.
    Mr. SHEAR. Okay. I will give it a try.
    It is a great question and it makes me think of my former 
days as a college professor. It is just like how do you grade 
students. And on this one, we were very accepting when SBA 
said, going back to last April, we had to get the loans out 
quickly, there was a pressing need to get the loans out 
quickly. And so at any rate, they got the loans out very 
quickly but then when you look at just the problems with 
administering the program and moving forward and putting the 
types of oversight in place that was so necessary and just the 
lack of cooperation with us rather than trying to use us as a 
tool to try to identify improvements that could be made in the 
program, it is a poor record. And so these are some of the 
things that are associated with why we have these programs on 
our high risk list.
    Mr. WARE. The role of an Inspector General is to assist our 
agencies in being the best agencies that they can be in terms 
of efficiency and effectiveness. As we all know, SBA was 
charged with setting up a program in a matter of days. They got 
14 years' worth of lending out in 14 days basically. And we 
were along on the ride with them from the very beginning in 
terms of the three white papers that we put out and in terms of 
coming to the table and what needed to be set up from the very 
beginning. I do not know what grade I would give but I know had 
those been heeded it would be a much larger success story. I 
cannot give a letter grade.
    Mr. EVANS. Is that the same deal with Mr. Ware? Can you 
give one to you or you would rather not to?
    Mr. WARE. No, that was me.
    Mr. EVANS. Mr. Shear. I mean, Mr. Shear.
    Mr. WARE. Oh, yeah, yeah, sorry.
    Mr. SHEAR. I would just say that personally, my focus is 
more on this long period of time where there was the lack of 
transparency, the lack of cooperation and where there was not a 
demonstration basically that, for example, with PPP, that the 
loan review process being in place, the lack of information 
there. So I am not going to give, you know, I do not want to 
give an exact letter grade but it would not be an A. So, but I 
really, I really do not want to give it a letter grade. It is 
not something that we are in the business of doing.
    Mr. EVANS. Mr. Ware, is that what you are saying, too? You 
do not want to give it a grade neither?
    Mr. WARE. Yes. I am saying that it is clear that SBA worked 
hard. And I am here. I know how hard these employees have 
worked. And they helped Americans in need. The only thing is in 
terms of our assurance, or anyone's assurance that the money 
went to only the eligible. So, no letter grade.
    Mr. EVANS. I thank both of you. I yield back the balance of 
my time, Madam Chair. Thank you.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    The gentlelady from Texas, Ms. Van Duyne, is recognized for 
5 minutes.
    Ms. VAN DUYNE. Thank you very much, Madam Chair. And to the 
Ranking Member for holding this necessary hearing.
    Each of today's testimonies have referenced that amidst 
billion of dollars of fraud and identity theft and its pandemic 
relief programs, that the SBA has failed to provide necessary 
data and documentation on the PPP and EIDL in a timely manner. 
I have got to tell you. I listened to a lot of blame game going 
on today and it is frustrating. We have people who are being 
blamed in leadership that are no longer here to defend 
themselves. I know that SBA was a $17 billion agency that was 
expected to put out over a trillion dollars in a matter of 
months. I am not here to defend them but I think what we need 
to do, instead of playing the blame game on the last 
administration that I know elected officials were the ones who 
were pushing that to make sure that that money got out, for 
good reason. Governments shut down these businesses and made 
them insoluble in a number of cases and we needed to help them 
as soon as we could. But I am looking moving forward. What are 
the steps that we are going to take as we are coming out with 
more money to add to these programs, as we are coming out with 
more programs of the new administration. Moving forward, what 
are we doing to make sure that we will be in a position where 
this fraud is not rampant, where we are having more controls 
given the fact that we have had a number of months now to get 
up to speed?
    So with that, regarding the lack of data and documentation, 
my question to both of you is, what information is still 
outstanding and who can provide it? Are we expecting a time 
period that we are going to look and work with the new 
administration to say this is actually the numbers that we 
looked at? I am sure that data exists. How do we get to it?
    Mr. Ware, go ahead and go first.
    Mr. WARE. Should I go first? Okay.
    My issue was a lot different from GAO's, my experience was. 
All right? I had access for the most part to the data that I 
wanted. And I had access to the leadership. I sat at the table 
with the leadership on numerous occasions. As a matter of fact, 
every week the administrator and I had a standing meeting every 
week where we would go over these things. So I did not have 
that same experience. And I do not have anything that is 
necessarily outstanding that would prevent us from providing 
the type of fast information that the agency can use to make 
sure that they are putting out these programs the way they are 
supposed to.
    Ms. VAN DUYNE. Mr. Shear?
    Mr. SHEAR. Our focus is on looking at how SBA is acting to 
implement our eight open recommendations. So that is a big 
focus of ours and a lot of that is that we are being provided 
information and we know that these recommendations are not 
something that it is just a matter of giving us information, 
that SBA will have to make some fundamental changes. And I 
think that they are showing a responsiveness to realize that 
certain changes have to be made in how these programs are 
operated.
    As far as what we are doing is that our next step, we have 
had these bimonthly reports that are GAO-wide under the CARES 
Act, and we are going to quarterly reports. And then we are 
going to have three standalone reports this summer that will 
focus on for PPP one report looking at who has been served by 
the program and the lenders and borrowers that have been 
participating in the program. On PPP, what I have been talking 
about today has to do with internal controls and looking at the 
forgiveness process. So we are analyzing a lot of data. We are 
analyzing a lot of information. We are getting cooperation on 
that. We are still seeking a fair amount of information on the 
oversight structure for the EIDL program but we are going to be 
reporting on the EIDL program in a standalone report that is 
going to be both on who has been served by the program and 
looking at questions as far as how is the agency implementing 
our recommendations. And in doing that, now that we have a lot 
more information----
    Ms. VAN DUYNE. Understand, I have got 5 minutes and I have 
got a ton more questions so if you could just make your answer 
a little bit more----
    Mr. SHEAR. I will just say we are probably going to have 
more recommendations----
    Ms. VAN DUYNE. Okay.
    Mr. SHEAR.--now that we have more detailed information on 
what the agency is doing.
    Ms. VAN DUYNE. Okay. So we are going to see a lot more 
reports coming out. But you have got two new programs that are 
going to come out now, the Shuttered Venue and the Restaurant 
Revitalization Fund, which are, again, new programs under the 
new administration, their own challenges. You have already 
noted that some of these have had horrendous launches. So do 
you believe that the SBA has put in place enough controls to 
limit the susceptibility to waste, fraud, and abuse for the new 
programs?
    Chairwoman VELAZQUEZ. Time has expired but I will let him 
answer the question. Go ahead.
    Mr. WARE. Okay. In response to the question, what we have 
been presented with to date demonstrates that they are very 
alert and attentive to the issues that were in place before and 
intent on making sure that it is not there. They have set up a 
control environment to address these issues.
    Ms. VAN DUYNE. Okay. Well, I----
    Mr. WARE. We have not tested it yet.
    Ms. VAN DUYNE. Okay. I look forward to working with 
Chairman Phillips to hold a hearing in the near future on some 
of these issues with the OIG's office, GAO's office and SBA. I 
know that we have got the SBA administrator coming in at our 
next hearing but I really look forward on our Oversight, 
Investigations, and Regulations Subcommittee on pulling 
together a hearing. So thank you very much.
    Chairwoman VELAZQUEZ. The gentlelady's time has expired.
    The gentlelady from Minnesota, Ms. Craig, is recognized for 
5 minutes.
    Ms. CRAIG. Thank you so much, Chairwoman, and thank you in 
particular for holding this hearing today.
    Mr. Ware and Mr. Shear, thank you for being here, and for 
keeping this Committee updated and well-informed on the SBA's 
pandemic response. I know that this has been a significant 
challenge for the Small Business administration over the last 
just over a year now and we appreciate the work that the SBA 
and its employees have undergone to make sure that our small 
businesses, as many as possible, could survive this public 
health crisis.
    It is clear from testimony today though that there have 
been some internal controls that are lacking, and action in the 
SBA has resulted in several issues that ultimately harm the 
people that we are trying to help, those small business owners. 
While the SBA should certainly work toward corrective actions 
based on its experience over the last year, we have an 
opportunity to proactively add more internal controls and 
address these issues as we stand up new programs such as the 
Shuttered Venue Operator's Grant and the Restaurant 
Revitalization Fund.
    So Representative Van Duyne in her questioning here just a 
moment ago touched on this at the end but I know she was out of 
time and you did not get to really expand upon this, but our 
hardest hit small businesses have been waiting for this 
assistance for months and we must ensure these funds to get our 
small business owners the money and not spammers.
    So Mr. Ware, you noted in your testimony serious concerns 
with the control and tracking of the Shuttered Venue Operators 
Grant program that requires immediate action and attention. 
Could you please provide an update on that work that you are 
doing with the SBA to strengthen and launch this program? And 
more specifically, have there been similar conversations, and 
do you believe that the work you are doing for the Shuttered 
Venue program will suffice as you launch the Restaurant 
Revitalization Fund?
    Mr. WARE. So maybe I will start backwards. So on the 
Restaurant program, like I said, it is very evident that they 
are intent on establishing a control structure that would 
ensure that fraud risk is mitigated in a major way. I believe 
they have done the same thing on the shuttered venue programs. 
Those programs, they have shown us the control structures for 
both of them that go a long way in addressing many, if not all 
of our concerns. The issue that I reported on with the 
Shuttered Venue had to do with what happens for the people that 
get in the right way. Is there proper guidance? Is there any 
way for you to monitor what those funds are actually going to 
be used for? Because it is a grant program. It is not a lending 
program. There are specific rules contained in the 2 CFR 200. 
And so that was the issue that we thought was critical, that 
they had to have the control structure on the inside to make 
sure that we are able to know what the program results were.
    Ms. CRAIG. Fantastic. Well, I also serve on the Oversight 
Subcommittee, and we will look forward to continuing to receive 
your information and I look forward to Chairman Phillips 
continuing that dialogue.
    And with that, Madam Chairwoman, I am going to yield back.
    Chairwoman VELAZQUEZ. She yielded back. I am sorry. Thank 
you. The gentlelady yields back.
    The gentlelady from Florida is recognized, Ms. Salazar, for 
5 minutes.
    Ms. SALAZAR. Thank you, Madam Chairman. And thank you very 
much, Mr. Ware, for your role as Inspector General which is 
vital to do a good job. And myself, as well as my constituents 
thank you for your hard work.
    And I have a few questions which I know they are going to 
be a little bit uncomfortable but I wanted to just ask you if 
you the last year the SBA received $3.6 billion in salary and 
administrative costs, the Inspector General office received $70 
million, and it received $50 million extra for audits. But 
after all this money that I just explained and I just told you 
right now, still, $82 billion between PPP and EIDL was not used 
properly. Eighty-two billion dollars. So where were you guys? 
Were you guys asleep? You had, I am going to repeat, $3.6 
billion in salaries and administrative costs, $70 million for 
the Inspector General Office, and $50 million for audits.
    Mr. WARE. I am not sure if you realize, I am the Inspector 
General, so I did not get those funds that you are talking 
about. My budget is generally $21 million and it is for audits, 
investigations, and things of that nature. We were far from 
asleep. We have been----
    Ms. SALAZAR. Well, wait a minute. Were you not in charge? 
Were you not the----
    Mr. WARE.--issues of this before the first loan went out 
the door.
    Ms. SALAZAR. Let me just interrupt you in a minute. Were 
you not in charge of making sure that whatever monies the SBA 
was receiving was properly used?
    Mr. WARE. I am the Inspector General. My job is to make 
sure that I point out instances of fraud, waste, and abuse. 
That is the role of an IG.
    Ms. SALAZAR. Correct. So when $82 billion were being----
    Mr. WARE. Correct. And that is what we did----
    Ms. SALAZAR.--dilapidated. Yes, tell me. So where were you?
    Mr. WARE. We were the ones who reported on the money that 
is being misused. We are the ones conducting the criminal 
investigations to make sure criminals are brought to justice. 
That is our role. I think there is confusion between the role 
of the Inspector General and the role of the administrator.
    Ms. SALAZAR. And I am sorry my ignorance. And it is true. 
Let's suppose that I am ignorant and I am very sorry, but then, 
what then can we do with your help in order to make sure that 
those people that did not use these monies properly are going 
to be held responsible?
    Mr. WARE. That is my role. To date, we have over 460 
criminal investigations going on. We have already recovered, 
along with SBA, over $1.9 billion. This is what we do. And we 
have been the ones that have been recommending from the very 
beginning the proper control environment that needs to be in 
place up front so that I do not have as many criminal 
investigations to run on the back end.
    Ms. SALAZAR. All right. So then you did your job and I 
commend you for that. So then who do we have to go to right now 
in order to ask that person these questions? Somebody has to be 
responsible and that is what I am trying to find out and you 
are the person that needs to tell us.
    Mr. WARE. I believe at this point where we are currently, 
we are in an environment where the control environment is 
greatly shrinking. We are in an environment where we have 
partnered across the entire government to include FBI, Social 
Security Administration, Secret Service, FDIC, everyone, the 
PRAC working groups, all of us are looking into this at this 
time.
    Ms. SALAZAR. All right. So then please keep advising us as 
to where we need to look at in order to make sure that we do 
not have another $82 billion wasted.
    Mr. WARE. Thank you.
    Ms. SALAZAR. I yield back.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    With that we conclude our important oversight hearing. Let 
me thank our witnesses for joining us today.
    Your oversight of SBA is a critical tool for Congress as we 
seek to limit instances of fraud, waste, and abuse in agency 
programs. PPP and EIDL have been vital lifelines for the 
millions of small businesses that have been devastated by the 
pandemic. However, it is clear that these programs' 
unprecedented size and scope, in addition to the speed in which 
the agency processed these loans have opened them up for fraud. 
The steps SBA has been taking to mitigate fraud are 
encouraging. However, your testimony today has made it clear 
that more work needs to be done. This Committee must remain 
diligent and work to root out instances of fraud, waste, and 
abuse. To address the problems that we have heard about today, 
we must conduct this oversight in a fair, bipartisan manner.
    I look forward to working with Committee Members to ensure 
that money goes to the small businesses that truly need it and 
that taxpayers' dollars are protected.
    I will ask unanimous consent that Members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    If there is no further business to come before the 
Committee, we are adjourned. Thank you.
    [Whereupon, at 12:02 p.m., the Committee was adjourned.]
                            
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