palmetto family council. watch live coverage starting at 7 p.m. eastern on c-span, online on c-span.org or listen free on the c-span radio app. >> brookings institution vice president darrell west as gus's his book turning point -- darrell west discusses his book. >> is not just one revolution taking place. -- it is not just one revolution taking place. it is the growing ubiquity of technology and all of our lives. and every sector. in domestic applications as well as national defense. i think that is the unusual aspect of this period. their smoked -- there's so much

change taking place on widespread scale. we are all struggling to deal with it. >> darrell west on the communicators on c-span. >> next, a look into ways to prevent waste and fraud by business loans. >> good morning. i call this hearing to order.

without objection, the chair is authorized to declare a recess. let me begin by saying that standing house and committee rules will continue to apply during hybrid proceedings. all members are reminded that they are expected to adhere to today's standing rules. househouse regulations require members to be visual throughout the meeting, so please keep your cameras on and also remember to remain muted. 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 prevents 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, provided they have returned to the proceeding. those members present in the committee room today we'll also be following the health and safety guidelines issued by the attending physician. that includes social distancing, a special use of masks. members and staff are expected to wear masks 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. so 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 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 4.2 -- 9.9 million pp loans, 3.77 million eidl loans for approximately 195 billion, and has dispersed by .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 seven 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 robust oversight of the sba. we held hearings with the administrator and other high levels 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. and 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's important to note that the new administration inherited a number of open recommendations from gao and the ig. and, 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 loan 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. but as i always say, if something isn't perfect, let's see what we can do to make it better. i want to thank mr. ware for joining here today and i know you to the ranking member for his opening statement.

>> thank you, madam chairwoman. 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 unforeseen obstacles in front of every american social nations small business. the devastating scale local shutdowns to the struggle to find access to sufficient capital and please don't survive, our country stonefaced a disruptive problem like this. regardless of who withheld the gavel, condescends to say this could have long held the view that small businesses are vital to help of this nation's economy and security. small business act of 1953 and small business investment act of 1958 established that the u.s. small business administration function is to aid, counsel, assist, protect, as far as possible the interest of all small business concerns. this continues to all true today nearly 70 years later. equally important is the need of the sp to maintain vigorous

oversight of its own programs. we've seen numerous blunders and it is that turn term lightly as s.b. has neglected to be good stewards of tax dollars. over the course of last two weeks in countless stories about the paycheck protection program, economic injury disaster loan program, eidl, and the eidl advances have benefited small businesses am kept employed on the payroll and help pay the mortgage rate or utilities. without these programs more of our country's most firms within close permanently and millions of employees within been out of work. that's the good news. the bad news is that the sba has mismanaged these programs and opened them up to and present levels of waste, fraud, and abuse limiting their effectiveness of squandering, squandering taxpayer dollars that could help our economy move forward here this is unacceptable. we will hear from the sba's inspector general and federal government watchdog gao during this hearing site-specific samples of troubling failures by

the sba in administering these life-saving programs. those of us on this type of them have been working to help rectify these problems. over the initial months of the one of 17 congress, republicans offered amendments to president biden's will relief bill that moves through congress by the reconciliation process. more specifically offered amendments that would have been approved oversight of sba's covid programs. for example, we offered amendments that would increase the appropriation of sba's office of inspector general. for business to expand oversight, , specifically callig on administered to close examine waste, fraud, and abuse within the eidl programs. while my colleagues on other side i'll have many kind things to say that most of our ideas at the time not one democrat voted for any of our amendments. perhaps after the string sets when defensive taken place at the sba my friends on and decided i'll will come to the table and work with us on the series issues or do we really need and another oig alert?

like the one published hours before the grants program with life and quickly crashed? nobody should want that level of dysfunction to occur again. the sp had more than three months to fold is broken together and they couldn't 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 with the necessary safeguards in place for all sba programs before american taxpayer dollars are dispersed. in addition to the program, we are waiting for majority of details i can specific launch date for the restaurant revitalization program contained in president biden's partisan $1.9 trillion covid package. we tried adding more money and protections during reconciliation markup but again the democrats chose to go without this in a similar parson manner. with all my friends across yellow agree we cannot afford another bungled rollout of the restaurant broken like we saw it we need to be pursuing legislative vehicles to ensure

this, this function does not occur again. moving forward the committee must focus on these three areas. first we need to prioritize eliminating waste fraud -- existing fraud, a limited income prioritizing -- existing fraud within his programs. second we need to delay implementation on the programs until sba has a oversight controls in place to protect against waste, fraud, and abuse and third take a hard look at restructuring sp as a whole. i i thank the chairwoman for calling college. and i yield back. >> thank you, mr. luetkemeyer. the gentleman yields back. committee members have an opening center prepared, we'll ask that the submitted for the record. i would like to take a moment to explain how this hearing will proceed. each witness will have five minutes to provide a statement and each committee member will have five 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 eyewitnesses. 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 issue. as part of his portfolio he oversees evaluations of sba contracting disaster assistance, credit and transfer programs. he has a masters degree in public public policy and a phd in economics both from the university of chicago. welcome, mr. hsu. our second witness is the honorable hannibal mike ware, inspector general of the sba. mr. ware was sworn in as inspector general in may 2018 and it's been a respected leader in his role and to us on this

committee. he is 28 years of of experience in the ig community rooting out fraud, waste, and abuse in federal programs. welcome, mr. ware. mr. shear, you are not recognized for five minutes. >> thank you. chairwoman velazquez, ranking member luetkemeyer, and members of the committee, i am pleased to be here this morning to discuss work on sba's paycheck protection program and economic injury disaster loan program. sbs made -- guaranteed about 19 million loans and grants through to these programs providing about $970 billion to help small businesses adversely affected by covid-19. in april 2020 sba moves quickly on his programs to help small businesses survive during the pandemic. sba initially put limited controls in place, leaving both programs susceptible to program integrity issues and proper 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 a high risk list in march 2021 because of the 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 opinion on sba's financial statements because sba was unable to provide adequate documentation to support significant number of transactions related to ppp and eidl. further, as we reported multiple times, sba's failed to provide us with data and documentation in a timely manner impeded efforts to ensure transparency and accountability for the programs. however, i'm glad to report we have received a significant amount of information and data from sba and its contractors over the past two and half

months. here i will quickly summarize steps sba has begun to take to address initial deficiencies. in june 2020 we recommended sba develop plans to respond to ppp risks to ensure program integrity, but she program effectiveness and address potential fraud. sba has developed an loan review process and edit upfront verifications before it approves new loans. in november of 2020 we recommended sba expeditiously estimate improper payment for ppp and report estimates and 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 analysis to detect potentially ineligible applications. sba has not and has played it with this recommendation. in march 2021 we recommended sba

implement a comprehensive oversight plan for eidl to ensure program integrity as the 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 risks for each program. sba said it would work to complete fraud risk assessment 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 you 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. >> thank you, mr. shear. mr. ware, url recognized for five minutes. >> -- you are not -- good morning, chairwoman alaska's, ranking member luetkemeyer and establishment 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, children which sba has pivotal and a president role in stabilizing just economy. a minute when at my office have been working tillage is to provide oversight of sba's pandemic response and while i've how to speak you about our important work. we share in a nation grief of those laws lost independene keenly aware -- and oversight efforts. sba's managing overwintering dollars lending authority to the ppp and eidl programs, the most recent "a beginner's guide to america: for the immigrant and the curious" of authority being contained within the american rescue plan act.

as with oig them and women of sba have been running at a sprinters pace in the race we are running a bit more fun. nonetheless we sought to have an aggressive and focus approach to her oversight to ensure our work is properly calibrated and relevant. congress recognize the oversight required of the pandemic response is outsized to include my office we received three supplemental appropriations to increase oversight capacity. initially we focus on recruitment of the mix of auditors and analyst and criminal investigators to provide immediate and time insight into these programs. in december and we received funding directly to oversight of the program that seeks to address the rampant fraud identified by my office. these funds are being used to increase our investigator staff and enhance our daily analytics capacity to we received our most recent supplemental increase a couple weeks ago and those funds will be used to further increase our investigative capacity to combat fraud. rot investigation will be a

decades-long effort into the performance of these loads within sba's portfolios and the statute of limitations of fraud. our office will have proximally 40% more staff on board after our hiring then we had before march of 2020. even still be recognized from the beginning the level of oversight required with a couple of government approach. we partner with law enforcement entities across government entering multiple task forces to multiply our reach. since the outset of pandemic response our strategy has been to prevent and deter fraud, waste, abuse and identify combat instances of the same. the first step was issuance of -- lessons learned from a past oversight work. principally that most closely related to reinvestment act of -- these reports as follows fraud and scams that were published before sba's may the first ppp and eidl loans. recognizing the speed at which lending with a curry in both his

programs we develop innovative report products to provide timely insight to our stakeholders. our first report was published a little over 30 days at ppps implementation period our next report would come out in july without significant deficiencies in internal controls and rampant fraud within the program. we have issued 13 reports and sps pandemic response oversight with two more near issuance. we issued a management alert on series concern the sba's controlled environment and tracking performs results. in light of having to plan the program on constraints this impaired sba designed the program in a way that provides for a balanced audit risk framework, insisting of regulations for grant management, clearly defined performance goals and adequate resources to effectively administer the program. while the audit work was ongoing criminal investigators were aggressively pursuing fraud.

on may 5, a little over a month after the first ppp look in the first in the nation fraud charges were announced against an individual module he seeking a ppp loan. we have since initiated 420 investigation and together with our law enforcement partners, department of justice we have announced over 100 indictments. we have received over 150,000 complaints on a hot night since march of last year. this is over 150 years worth of complaints with compared to prior years. we have sought and obtained assistance from -- outside of her online complaint system where furthering these efforts. i look forward to discussing our most recent published works about implementation of ppp, eidl, and sbo g. thanks for adapting to speak you today. i'm happy to answer any questions you may have of me. >> thank you, mr. ware. i will begin recognizing myself

for five minutes. mr. ware, the biden administration has taken steps to restore programs integrity, including implementing front into compliance checks on ppp loans. what other steps have been taken by the new administration to improve programs integrity and that effectively with the steps the? you are muted. >> yes. i had to dig up the mute button. thank you. thank you for that question. this administration implemented quite a bit of front end controls to include addressing our recommendations that have to do with ip address deconflictio deconfliction, checking on those accounts that have at the last second changed the bank account information, and many of the

other controls that were asked him to put in place, specifically with our december memo to the administrator. >> thank you. >> yes. >> mr. shear and mr. ware, has the new administration been responsive to your requests? has sba under the leadership of president biden and administrative guzman increase the level of cooperation and transparency? have a new administration been more forthcoming with information? >> yes, definitely. as in the written statement, in my oral statement, since the beginning of february in terms of access to people having in-depth discussions with s.b. officials and the contractors in terms of providing information, providing us details about the

oversight plans for, particularly for ppp, it's been dash on client report it's much better. >> thank you. 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. >> 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, mr. ware, where the loans mentioned in your report made during the last administration or since march 16

when the new administration, administrator was sworn in? >> the loans that we are referrg to is over a period that goes into, i think it is to the beginning of 2021. but for the most part it was loans over the period during the previous administration. >> mr. ware? >> as much of the same. we started from before the first loan even went out, so the work is still ongoing but the majority of our work influenced what happens in order come in order to set up what's to happen in the future. >> thank you. mr. ware, your office issued a management alert on april 7, 2021, the night before the loan

-- program, citing a number of concerns. but you missed the main issue, the tactical issues on the day of the lodge. what happened on your end and why did you not like this concern earlier? >> thank you for that. so management or advisory from the purpose of it is to present interim engagement results or sure information as quickly as we can during a broad scope review -- share -- we're assessing the program and we saw this at the onset of the program, i thought let's stop and get this information right now while they still had time to improve the controlled environment at the time we had not yet got those controls. >> so, mr. ware, is in its customary to alert congress and the agency of such concern in a timely manner?

>> it is, but this, the alert, right, is a part of a broader scope review. so in terms of alert and highly, this is what we alerted time in olympic 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. >> thank you. my time has expired and now i recognize the ranking member mre minutes. >> thank you, madam chair. i think we need to sort of set the stage here with regard to what were talking about this morning from the standpoint that ppp program was implemented in a very, very quick fashion in a way that we knew we had our economy at risk come had jobs at risk, businesses at risk, and we knew this was probably not the perfect with way of going t dispensing those dollars.

i think sba did a great job getting those dollars out the door and in the hands of folks who needed it. the numbers that come back with some concerns about some of these loans, as far as regulator i can tell you that whenever you're looking at a loan file come when you see something that there's -- you to get up for the call tactical exception. i think in discussing this with some of the ig and gao folks that's we are with some of the folks that in these reports. that being said there's been some documented fraud in there as well and i think that's the concern that i have come is that we make sure we go back and recover those dollars, make sure there's an effort made to stop those folks from getting at those dollars, and setting up the new programs which eidl program with a recharge of money as well as the restaurant and the venue program to make sure those programs set doesn't happen again. this is my concern this morning.

the standpoint that of them and the quote mr. ware, you called it rampant fraud in an program with regards to identity theft. this program is not that big compared to the amount of money that's 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 shared venue program will be operated very similar to if i'm not mistaken the way he eidl program is. have you seen the put anything in place that could be considered protection against that kind of activity? >> yes. actually i have, yes. actually we have. ..

that we found that they had at least what we asked them to implement. what we were talking about is relative to measuring the program and having enough people to oversee the program on the back end, so we know the program met its intended purpose. >> with regards to that, according to your reports, there was not that much identity theft , a problem in the ppp program compared. so it begs the question, the difference between the programs is the banks were basically the

ones that went through the program and got these dollars out the door. have a customer law in place so they know who the person is who is contacting them and the businesses they're working with. in the eidl program, if sba is going to stop that sort of fraud they need to change the way they do lending and let the lending be direct as it was in the ppp program where they are a garantor of the loan. are you satisfied that the controls nr place you wouldn't want to see a third party actually get toes dollars out the door so there's another level of safeguards in place, especially when the banks are there and used to i dotting and t crossing and doing it in an

efficient manner? would you consider that something we need to take a look at? >> my oversight is to the criteria based on the way that the programs are set up. in order for me to say that, that i would be satisfied with the controls, we would have to test the controls, which we haven't done yet. we believe in what we have recommended to sba and we believe that that if properly implemented, it would stem the tide. >> i would like to get another question. what would be your opinion on that? >> i would agree with mr. ware that the mechanism 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 and the use of that type of arrangement, but they

also made suspicious activity reports on eidl as well, but it's a different nature. so there's 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 bank. so, you know, there's certain trade-offs here in terms of who is being served. so, there is a mechanism there through, you know, if you say that through banks, but just like mr. ware said, we haven't, you know, tested controls and we're looking for the details now on the oversight of the banks themselves and we're going through the information, which is quite extensive that we've been getting to look at what the oversight of the banks is. >> thank you very much, i yield back. >> the gentleman yields back. now we recognize the gentleman from colorado, the committee on

innovation and entrepreneurship and worker development for five minutes. >> thank you, chairwoman, thank you to the witnesses for coming here today. and i have a question regarding data and the integrity of data. last year it was discovered that the data base had significant data disparity and so this is one example, the zip codes in the congressional data, district data did not match up and the fda itself has found we're doing 500ppp loans over the $150 threshold did not match for the loans, nearly 22% disparity. we actually did our own analysis in our office and found significant loans that had been allocated within our

district, hundreds, in fact. did you all see the same disparity in your review and have you been able to track any trends whether or not that data disparity is getting cleaned up? >> thank you very much. yes, we actually found the very same thing in terms of our data analytics unit. and some of the data is dirty, a term that they use, it's not good. but i know that they were able to work with sba to rectify some of the challenges that means that sba is able to clean the data once they know that it's incorrect. so i know it's something that they're working on. they're working on making sure that they have clean data. >> can you give me some sense-- i know they kind of bristle of the notion, hey, we're working

on it. the problem for us. i'm sitting here in the 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 don't have trust right now that i understand it. that any one of us sitting here today can pull that data up and trust that data and should understand what's going on in our own communities. can you give me some sense as to when they are we going to-- when we'll have that and a date by which we can say this is the data going on in our community? >> right, so, as you know, that data belongs to sba not to sba oig. i know that question will be best posed to the program, which is sba. i could tell you that when we-- >> no, no, mr. ware. you're the watchdog of sba, i'm

asking you as the watchdog charged with personal oversight, what you think the timeline is when when they're going to clean this up. >> like i was saying, i'm 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 is-- >> i'm not asking for a definitive date. i'm sorry, i don't mean to-- i'm not asking for a definitive date. can you give me an estimate to the glide path they are on cleaning this up. are we talking about a week, talking about a year, talking about some point in between? can you give me any sense as to where they're at? >> it's really difficult for me to give you a sense where they're at or not. what i can tell you is this. what my office reviews, we clean to make sure that the data that we're putting out in our reports is indeed accurate. >> okay.

and i understand. that's not-- that doesn't help us, unfortunately. it doesn't help us and you can tell i'm frustrated because we don't even know what's going on or have trust in the data fully in our own communities because the data is dirty, as you say. and you know, we need answers as to when it's going to be clean so i think i've made my point here. this needs to be fixed and we'd 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. >> the gentleman yields back. the gentleman from texas, mr. williams, vice-ranking member. >> thank you, madam chair. april 8th, businesses were

devastated to see the grant portal shutdown within hours of launching and i'm lead so i'm disturbed what i've seen. these businesses have suffered economic injury while waiting four months for this program to be opened. so, mr. ware, you mentioned in your testimony that you have serious concern over sba's program over the sabre program. can you look at the controls regarding waste and fraud in the spog program and that it will be solved by the time the application portal reopened? we have businesses across the country closing every day because this has prolonged from september 8th and we're still not there yet. what can we do to fix that? >> thank you for your question. first off the alerts 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 of the federal funds. in this case, it was the way that they wanted to go by identifying the vulnerabilities, commensurate with applications they were going to get. we wanted them to clearly establish to cfr to the program to assure compliance. it's 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 the program. and we didn't feel they had sufficient resources to implement or oversee the program from the onset. relative to the fraud risk part 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. >> okay. i spoke with administer 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 that they cannot get on the same page of communications with their office of inspector general. so, mr. ware, what improvements need to be made to solve the communications issues so we can have confidence so the programs being run are 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. >> right. >> this is a little surprising to me, kind of news for me and

catches me a little bit off guard. internally before we release anything, there are quite a bit taking place between our other teams and the program staff and even in those, not necessarily the communication issue, it was understanding of what we mean by you have to establish criteria that's given because this is a grant program and not a lending program. and that we didn't think that you could shut off certain requirements of cfr-200 that governs these programs. that's the main thing. relative to communication, that the inspector knew we're building our relationship and right now, back off to a very-- to a much better start, especially after this was

issued. we now have stated rules of engagement to make sure that they don't feel the communication. >> let me move onto other question. i recent sent a letter to the small business administration about the understanding of ppp loan forgiveness past the 90-day deadline. the lack of communication coming out of the agency on these, americans are holding large amounts in investments as we recover from covid. quickly, what do we have to do at the sba so we can clear the loans waiting to be for given. >> it's consistent with the controls what are the elements that are kind of slowing down the forgiveness decisions. such as are they really--

when flags go up, basically, i'll call it flags of potential fraud, is that when flags go up, is there a disciplined approach of determining which flags are more important than others so i think these are the types of things that we're looking for in that program. now that we have ppp forgiveness data, we are an analyzing it in depth to try to see how rampant these problems are. so i don't have an answer to your question yet, as far as whether it's isolated or whether there's, you know, whether there's a large magnitude to this. >> i yield my time back. >> the gentleman yields back. and the chairwoman of the subcommittee on economic growth and tax and capital active is recognized for my five minutes. >> 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. earlier this month. the fda approved over 13 million loans approximately 964 billion through the paycheck program and the eidl program. and we need there's more to be done to support our small businesses until the end of this pandemic. but part of that support has to include exactly what we've been talking about today, ensuring the integrity of the programs, of preventing further fraud and abuse from frankly wasting taxpayer dollars. i know the office of inspector general and the gao reports highlighted persistent fraud in the ppp and the eidl program and the kansas third 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. you know, in addition to wasting taxpayer dollars, these cases are, of course, putting innocent through identity theft and it's urgent and critical that sba is able to root out this type of fraud really quickly and i know i've urged and i know others have, too, for the sba to adopt the oig recommendations that we've seen so the victims of identity theft are not held at fault. and mr. ware, i would love to ask you my first question. in your testimony, you mentioned ongoing review of

sba's response to allegations to identity theft and i know that the chairwoman kind of touched on this a little bit ago, but can you give us an assessment? i know you indicated there's some new firm in control, but can you give us a sense of how the sba is handling these types of cases? >> in terms of identity theft? >> yeah, identity theft and particularly as 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. >> correct, we will, we have an ongoing review right now. matter of fact, that report, i think the response from sba to this report is due today, if i'm not mistaken, i think it's

the 20th and will be issued shortly thereafter, if provided they don't ask for an extension being that the administrator is new, but in that, we are reporting publicly on what sba has done to address, address what's happening with identity theft. but like you, we've heard countless stories and involving identity theft and just so we're clear. sba oig doesn't have principal investigations and that belongs to the federal trade commission, but we have a direct link on our hotline hoping to help victims and we share the communities so they can take appropriate actions and we view this as a significant matter for the sba to address, one that's tied to internal controls within the programs. and so, it's something that we're taking very seriously and many of our active investigations have to do with this identity theft issue.

>> yeah, and so that's helpful context. i'm curious if you're able to give any kind of indication about now that eidl, the eidl payments 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, you know, people who have been the victim of identity theft in these eidl loans aren't negatively impacted in other aspects of their lives? >> we have provided recommendation. the thing is, it's still in draft. so it's not a completed work that i could speak about. >> okay. >> like in this setting. >> yeah, so that's-- so we'll follow-up with you,

based on the-- your answers today. thank you so much, chairwoman, i'll yield back. >> the gentle lady yields back. and the gentleman from minnesota is recognized for five minutes. >> thank you, chair. i appreciate this, this opportunity and thanks for the witnesses. mr. ware, you know, i think you've been around government a little while and you kind of realize that this is quite a avl avalanche of lending going on through the sba and financial institutions and others and that the president could get a bill enacted and seven days later actually have regulations on the books to move the program along. usually i think regulations like that would take three to six months, maybe longer. i understand there are going to be some issues, we don't want any issues with that. looking at your testimony, there seems to be a big difference between paycheck protection program and monies

out the door that weren't supposed to be and compared that with the eidl program. and our ranking republican member was making the point that, boy, the eidl program had substantially less money and yet seems to be a lot of issues. in your testimony, you account for about 75 billion dollars that may have been inappropriately sent to ineligible businesses, but those numbers are back from july of last year, right? >> yes, the numbers at that time was from back then. >> so sense then have you been able to update those or do we have some idea that there's way less than before? or they've reclaimed some of the monies or all of these other things? >> that's a good question. we have been working diligently, of course, to claw back money that's gone to folks

that it shouldn't have gone to. he think it's up to us, 1.9 billion. we're continuing to move along the lines. we do have updated figures. i just don't have them at my fingertips here. >> it looks terrible, but you know, hopefully there's something that accounts for that and the problem. and it seems to me where you had lenders, financial institutions and others working with customers, where they have to know their customers, there wasn't as big of an issue, as big of a problem, but then we get into where the government's dealing with these folks directly, there's all of this identity theft and so forth. so, what was the most, you know, serious broad scheme that they had targeting these eidl loans? what's your experience on that? >> before that, there's two important things to point out here. when we were providing context

what's going on in terms of fraud, cap access dealing with ppp. they were very quick to implement controls that we thought were missing, very, very quick and we know that's a big reason there was a lot less that we found this that area. oda took much longer time to implement. that's a fact. secondly, in terms of identity theft, we're starting to see more of it raise its ugly head on the ppp side with bringing on of the schedule c's. and so, i mean, we're still at the very beginning of this, we're starting to see the trend start to take shape and so it might turn out to be a different story a little bit later, but you asked about the scheme. >> and what's the most prevalent scheme. >> yeah, sure. >> one of the most prevalent schemes, particularly for the

eidl advance program was where people were being contacted by, i don't 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 want to pay us out a portion of it and that's where we were seeing a multiple ip address hit and 200, 300, 400 different loans and just really bombarding controls with that. >> 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. shouldn't the government have figured out some way that all of these things were coming from the same addresses? i mean, weren't there any controls that were in place before this started out? >> the argument that we are

faced with was well, not because somebody had multiple-- the loans-- multiple loans came from a single ip address means it's fraud. maybe there might be a real reason for it, but until you checked you wouldn't know. >> might want to look into that, right, check into it. i don't know how much time i have, i'm not seeing the computer. if i have just another minute. >> your time has expired. >> okay. well, i yield back then, thank you. >> the gentleman yields back and now i recognize myself for five 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 to be a lifeline to american businesses in their darkest hour and we're bringing sunlight to the corruption.

and the birth with the programs, with the shortcomings, i would hope the hearings stand as a lessen to congress to return to regular order and those in the administration to have the highest standards in implementing the law highest priorities. mr. ware on february 2nd, the biden administration published a fact sheet for prevent fraud in the ppp and eidl program and now contingent on passing fraud test and data base and public records. implementation has somewhat slowed the applications the safeguards could have been implemented from the beginning. on the day that lenders began processing for ppp loans last year, you issued a white paper outlining lessons learned from previous stimulus loan programs and increased loan volume, loan amounts and expedited loan

programs. and you urged them to put sufficient controls in then. did administrative officials at the agency heed your warnings at that time, sir? >> at that time, no. >> okay. and when it became here that the setup of eidl which was directly processed by sba loan officers made it susceptible to abuse, you would could be tan another warning of potentially rampant fraud, end quote, in that program as well, is that correct? >> this is correct. >> and then last month, the justice department unveiled charges against the former florida tax collector who allegedly bribed a sba loan officer to use access to the sba computer systems and to eidls to manipulate the status of eidls to trigger the system to extend funding, end quote

for the benefit of the defendant. mr. ware, this is not the first by employees and why this did not trigger red flags in the system and please explain the report in 2020 employees and contractors involved in inappropriately influencing loan approval. >> well, the controls that you're speaking about was not in place to begin with and that was one of the controls that we were talking about. you have to implement these controls. i mean, we were at the table on several distances speaking about this even before the reports were out saying that this is a serious issue and there are certain things that need to be implemented, but as i was saying before, it wasn't, it wasn't -- i guess the best way to say it, it wasn't always

taken as seriously. so there was always a justification trying to be made that there could be a valid reason for why we are eseeing what we're seeing. although we had already made dozens of arrests up to that point, using the same retroactive data. >> on the subject that's 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 work force needed to administer this scale and any recommendations that you have to ensure that employees are thoroughly vetted moving forward? >> 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 of these loans have a changed bank account? we wanted them to -- and 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 area because many of them had to be cleared. so i believe they went from four people to 40 to 250. the numbers probably aren't exact, but i'm pretty positive they're close in terms of how big they moved on that. relative to that, we have long recommended the importance of not only staffing up properly, training, and vetting folks. there's multiple reports for that with a recommendation. >> thank you, sir, duly noted.

my time expired. >> thank you, mr. chair. to the witnesses for being here today. mr. ware, a couple of questions. of all the recommendations oig has made in the various reports over the last year, how many recommendations has the sba adopted? >> that's a good question. i actually have it somewhere. i'd have to scroll quickly, to get the number. i do-- or i could get you the number. the recommendation, 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 are--

they've addressed them and to be quite honest, they are moving expeditiously to implement the recommendation. >> mr. -- >> and they're addressing them, even if they haven't had time to fully put them in place. >> mr. ware, what does the sba signal to you for their reason not for implementing more of the recommendations that you have just suggested? >> sba, we have resolved all, but one recommendation with sba and then you ask which one that is? i don't know the exact one that is. oh, the one that they didn't 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. i mean, all of them. they're not saying that they're not going to implement. some take longer time than

others. the more critical ones, they have moved on. >> 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 and it stands right now. >> i would rate it much stronger than at the beginning. i believe we all, sba included, learned a lot of lessons from where we were in the past months and that the sba is intent, at least on what they're presented to us, they're intent on making sure that the same errors don't happen again. it is our intent to measure it in terms of where we were before, what got through and where we were, and where we are now in terms of what's been prevented. >> and mr. ware, if you could, could you provide that information to the committee? >> yes. actually, i have it on my

fingertips. it's right here. >> 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 had aadopted yet to be made to the sba. >> i'll speak to the eight recommendations all still open. i want to emphasize, four deal with fraud rink 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 preventive control. 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 report in a unit within sba to carry out those four recommendations and they mirror each other, two for eidl and two for ppp. so i'd probably put those at the top. then in terms of our role, again, and i'll emphasize that, we coordinate with the ig and we do different things and we're not conducting fraud investigations 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, that it's meeting the, you know, more broadly, it's meeting the intent of the programs and so, that is a more global one, so, i don't want to forget about

what i call the more global recommendation that we made, but the to your -- four that we made with management are probably top of the list. thank you, my time has expired. thank you, mr. chairman. [inaudible] >> thank you, mr. chair and thank you to chairman velazquez and ranking member for this hearing, it's been very helpful. so we've talked a lot about granular things today, mr. shear and mr. ware and i appreciate that. let me start by saying this program was huge and complicated to start out with support sba. given we had to move quickly it's not surprising there were challenges in 2020. throughout the year 2020, many of these challenges were identified and not corrected frequently. so i'm glad we're finally

getting to a point. the same question for both of you. i'm going to start with mr. shear, probably more gao than with mr. wear, but it looks to me while we have all of these very significant and severe granular programs, this is a higher level management problem that the structure of the sba needs to change. it appears it comes in four buckets. there are categorization, review assessment and integrity data issues. it sounds like there are work force issues. given that there are four very systematic issues and they are very large buckets with large problems in that, it would appear we need to look at an organizational standpoint and doing some recommendations there. so the move forward is working better. so, can you speak to that,

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 get ourselves off of the high risk team, high risk list. when we said we planned to put the programs on the list, it was the list came out in march. second, and we look for certain elements there and it starts with leadership and it involves regular strategic planning and to 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're looking

at now, is sba did not have the resources for these programs and we're actually looking now at the use of the supplemental appropriations here, 3.4 billion for administrative expenses and we think how were those funds used, so it was a lot of contractors and so then, you start getting into issues of contractor oversight and we're trying to get more information about what is sba doing to oversee the contractors everseeing these programs so there are some basic structural issues there that i think you raise a very good point. the other one now pointed to is that the sba had an office for a number of years called the office of continuous operations in risk management and when we were first drafted our recommendations around fraud risk management, we directed it

to having that office take the lead. give them the responsibility to lead those efforts and now we also have a fraud risk council and one had become kind of informal body and the other was an informal body that was kind of put together. there's no clear responsibility and to carry this out. and authority to carry it out. so this is a structural type of issue and those are parts of what we've done that i think pertain most closely to the very good question you asked. >> so let me follow that up and i appreciate your answer and it is complex, right? but what is the plan? what is the plan to create? for me, if i was looking at this problem i would say that it looks like that we need a -- if it was an organization, an executive vp of fraud and risk

management, you know, that we need to look at a work force issue from an hr standpoint. do we have the right folks that are assessing these things and from an information statement do we need to have a cto and a cio change? so for me, who is looking at that broader organizational structural? it may not be you, that's a-okay, but we need someone to look at it, if i can have one. if i can have mr. shear respond. >> we had concerns way before the pandemic, 2015 that there were certain structural programs and just how sba carries out its mission and we did what we call a general management review where we look from soup to nuts working across the agency and we made a number of recommendations and those recommendations were actually implemented. part of it had to do with enterprise management and this management office that i just remembered to. there are certain things that

are in place that could have been kind of teed up for this and probably still have to be teed up for our recommendations so there are structural -- there are structural issues here and what we're looking for is with respect to these two programs, what has to be done to fully resolve for these programs and some of them will probably end up leading to some structural change in the agency. one of the things that i'm very encouraged of and i'll just refer to one more thing, if i can bear with me on this, was that last week, i participated in a meeting between the comptroller general, and administrator guzman and her chief of staff. a constructive meeting.

we're seeing some signs that administer guzman is stepping up and the transparency working with us is improved. so we hope this leads to changes, but it's like some of the changes as you bring up will probably be structural and our focus on is what is really needed with respect to these programs and some of them will probably require some structural changes, if nothing else, to make it clear to is the authority on this. >> the gentle lady's time expired and we have to move on. now the gentleman from pennsylvania is recognized. >> thank you, mr. chairman, thank you mr. ware for appearing today. and to add for perspectives, compared to the average of disaster eidl loans, as of april 3.77 million during the

covid time period, eidl loans totalling more than $200 billion. that's 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 eidl to account the difference 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 dollars in eidls in advanced grants to potentially ineligible businesses. that's $78 billion out of 200 billion so almost 40% was

potentially fraud? is that right? that's pretty staggering. are those-- >> and that's -- yeah, i know, but i just kind of want to put it in perspective. 40%. so, in a private lending institution, if that were to occur, i think we'd all agree that they'd be out of business, many people would be fired. there'd be investigations, so that's just staggering. does the sba model itself for fraud controls after private lenders, mr. ware? can you comment on that? >> not-- >> no? >> that's a good question. >> normally a good question for the program office how exactly they model themselves because there's 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%, 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, because the things were under the red flags, the same red flags that we are conducting our criminal investigations on. the same ones that we've arrested many team on are the same ones, these are the indicators and you need to show up and pay tension to them. >> despite the numerous reports of fraud, the sba raised the limit from covid-19 programs six months with a maximum loan amount of 150,000 up to a maximum line, 500,000. can either one of you comment

why that would be done with all of this pro tension fraud taking place? >> if i may. >> from the 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 cell 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 programs we-- who shouldn't be in the program. >> we personal hope-- you're not necessarily to claim, but we're certainly hoping you'll do the things discussed here to direct this horrible program. i wanted to shift gears here. can either of you comment on the issue eidl loans have created for secured lenders? secured lenders by the eidl

have been cleared out and subordinate to the eidl loans. the eidl loans replace other credit lines so secured lenders cannot use the eidl loans for collateral. it's damaged in the end small business over time, just quickly, will these-- will this be addressed? is this considered by you all and would you state whether or not you could meet with the secured finance network to try to address this problem? >> should i go? >> i'll go first. >> okay. yes. 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 hasn't risen to being an

issue with eidl, but we could look into the question as far as -- we could look at that. >> could you meet with them? >> we can meet. we meet with trade associations and what is important for us is to make sure that we're doing that in an objective way in terms of who we meet with, but i would think so. >> great, mr. chairman, thank you, i yield back. >> i just ask members and our witnesses to try to be respectful of the five-minute rule. with that the gentle lady from georgia is recognized for five minutes. >> 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's very, very important to make sure that

we're good storers of taxpayers dollars and it's spent wisely and well. >> a lot has been covered about how we make sure to put the safeguards in place as we open some of these new programs up and try to make sure that we're cautious on that front and money is going to people who need it and going to the right spot. one issue and i know we kind of touched on this in some of the other questions just to ask mr. shear about this, because i think that mr. ware has touched on this. it's about the targeting of the restaurant revitalization fund and we know that when we initially launched the paycheck protection program. it's not getting to the underserved markets the best we could see and based on the current guidance so far, are you confident we're not able to resolve this and make sure we get the restaurant

revitalization fund to some of the smaller minority-owned businesses across the country. >> i'll start out by saying that a lot of our focus on both ppp and eidl is in terms of what are the characteristics of the borrowers who are getting these loans. so this has been a close focus of ours and as we initiate the work on the restaurant program will be looking at that as well. so it's important to see who the program is serving. it has to do with what is the intent of the program and who is being served by the program so we will be taking a close look at that. >> okay. we have this 21-day prioritization period. what is your take on how effective that's going to be at making sure that we get to the right people? >> we're auditing in real-time

and we're going to soon begin work on the venue and the restaurant program, so the idea is we're auditing in real-time, but we're going to be looking at who actually is being served by the program so i think we'll get some indication as far as how well it's worked in terms of serving its intended impact. >> okay. all right. well, we'll turn to one more issue that we've really been watching or trying to see, although the data really is challenging, as you all have noted and i guess it's a question for mr. ware or mr. shear, which is we have a lot of businesses relying on the ppp loan forgiveness and was wondering if you all have discovered any reasons for concern with respect to access to learn 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 access that loan forgiveness. >> if i may, we are currently conducting an evaluation of the loan in review process and that's the process for reviewing the loans for eligibility and forgiveness. it's in the kl stages and time for a series of project on sba forgiveness on the eligibility. so it's in our 2021 oversight program and we will be able to give you real concrete assuming that's wrapped up. >> thank you, mr. shear, do you have anything to add to that? >> we look very seriously at the recommendations having to do with thinking strategically about fraud risk management

because it's not a matter of putting in controls that can slowdown the process or 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 the strategic approach that says what flags can we pay attention to, do we have to pay attention to, and which flags are less a concern, so it's really to come up with an approach that we're looking for. >> okay. thank you so much and i yoeld yield back the balance of my time. >> the lady yields back and now the gentle lady from new york is recognized. >> thank you, i want to thank you for holding this important meeting. our district was basically saved by the ppp program and excited that it was an opportunity to keep some of our small business community alive.

94% of the jobs in our district are created by small businesses. so it was a vitally important issue, which is why i'm so disheartened by this fraud, abuse and waste number that's come up, particularly with the ppp program which really affected us more and i wanted to address my first question to mr. shear and i know that you had said in your testimony that sba failure to provide the value and documentation on ppp and also on the economic development disaster loan program, and assure the transparency and accountability of the program, which i guess has apparently happened, what would you do? and i know you somewhat answered this question, but if you could-- in another area, could you tell me what you would do to correct the way that sba could change its practices to get that data to more efficiently and quickly in the future so that we could make these loans and avoid these sort of astounding fraud

numbers that we're seeing? and maybe a best practices guideline? could you address that quickly, sir, please? >> there's two parts to it. one was when we referred to the lack of transparency in the uncooperative nature of the agency with us, it was getting to the question 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. but the idea so to get to the question is how can they get information to us more quickly, we're always working with them to try to get information more quickly and we're certainly doing it now in that there's a lot of outstanding united states that we work through with them and we're very busy, basically 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 has been-- >> that's interesting that you say that you think they maybe intentionally didn't give you the information. what reason would they be trying to hide the information from you? or what reason would you attribute your, you know, opinion that they were intentionally trying to keep the information from you? >> this is one where i don't want to really get at intent because the idea is that it's getting into people's minds as far as why wasn't sba being cooperative. it wasn't from lack of efforts from our side and certainly there were efforts made not just by my teams, but by our general counsel, by the comptroller general, by members of congress, so i really don't 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. >> would you recommend that those people not continue to work in that regulatory agency and that we replace them? because obviously this is, you know, obstructionist in some ways to meeting the needs of the taxpayers are expecting with these programs. >> this was clear this involved officials at very senior levels so with the changes that occurred now, it's like you have new people in the associate administrator type of positions and general counsel positions we have a new administrator so it's a different environment. >> do you think that any of

that intentional as you put it, anything to do with the massive amount of fraud that we've discussed like the 3.6 billion alone for the ppp program where potentially eneligible recipient received that money? is that something that you think that there was some kind of underhanded behavior on their part? >> i don't want to make the connection to saying that the reason we see so much poe length fraud in this program and fraud risk is because of the behavior that reduced the level of transparency. >> okay. >> and our inability to audit the programs in a rigorous sense, but what i will state to you under normal conditions, i'll say this with sba in terms of normal programs and things like that, i like to think that we're -- that the cooperation leads to improvement of the operations of the agency. ...

>> similar issue with the treasury. >> your time has expired, i'm sorry. >> thank you. >> agenda lady from california is recognized for five minutes. >> thank you. mr. ware, you provided such valuable testimony that i chaired in october after a hearing last fall sba strongly disagreed with the office of inspector general findings on the level of fraud risk in the eidl program and asserted the agency had a robust system of internal control. however, the third-party audit of sba 2020s finances found

despite his internal control system sba loan officers were never formally trained to address documentations approval of potentially fraudulent loans and grants continued. today we have new administration at sba that is dispersing the targeted eidl funds that have been appropriate by the american rescue plan. so mr. ware, usa no sba has implemented -- you are saying now sba has implement internal controls but are want to know with the highest priority steps are that sba can take today to improve the securities of the eidl loans, considering eidl grant and loan programs, consider that these grants are being made as we speak right now. >> thank you. the highest priority is some of the things they have said they have addressed. we have some indication that

they have, reinstituting the rule where two people would review the loan come were as they would stop the amount of process that they would do. those were big weaknesses in ine 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's a major part of it. >> so is a just implementation of the control center now? >> right. i believe, well, the controls that were completely absent, right. the implementation of those should help quite a bit. >> thanks. >> i got to tell you, it's a different environment in terms

of cooperativeness antigens of listening and in terms of sitting down to come up with what the best way is to address the fraud risk. >> it sounds like they have implemented every one of the suggestion just talked about. >> well, they have stated that we have not yet -- that they have. we have not yet tested them. some we definitely dt they have. others we certainly have not tested yet. >> okay. mr. ware, also there's another issue. it's been almost a year since you participate in oversight forum for your flash report. during that forum you told me last your sba issued no guidance to lenders describing how they should prioritize underserved borrowers and taking almost no steps to collect data on loans disbursed meaning it would be nearly impossible -- whether the

program was reaching underserved -- and that's an important issue to me. congress -- [inaudible] financial institutions in order to reach these underserved businesses but would never know how effective the programs would be at reaching underserved markets. how we can improve that outreach. since under the last administration the agency failed to act on your recommendations, can you describe what specific steps sba can take now to backfill the demographic data on ppp recipients? >> well, publicly they disagree. they actually did make some changes to the forms. they did some changes to the way they're going to be measuring, so that was done even under the last administration to make sure they could capture going forward. but what happened in the past,

basically it happened. so there's no way to capture that initial part of it. but going forward that was something they did move to correct. >> and how about now with the data collection? >> in terms of data collection, well, if you just use -- doing it in the pilot to make sure that they get to the people they're supposed to get to upfront and to be able to take a deep breath and assess the effectiveness, i think that's a major step forward. and we will be reviewing that pilot program. >> the gentlelady's time has expired, another gentlelady from california, ms. kim, is recognized for five minutes. >> thank you, chairman. i also want to thank the

committee for holding the support hearing to discuss the oversight of the sba lending program. we heard a lot about the deficiencies that -- [inaudible] and and i think we all agree t ppp and eidl program have -- [inaudible] however, in order -- [inaudible] continue to provide assistance to small businesses, sba -- [inaudible] the purpose of this ring is let them know we are watching and they are on notice here sba should also take note of the oversight -- [inaudible] to make sure of the programs do not face the same -- to that

end, mr. ware, to your knowledge does the sba -- oversight capabilities in place -- >> what i can say is this. based on what sba has provided to our office, it is apparent, number one, that are taking it very, very seriously. number two, on the surface that they built in a control structure that would address all of our recommendations and that should on the service because we have not yet tested them, it should mitigate a lot of the fraud risk that we saw in the

beginning. >> when you plan on doing follow-up? >> well, for example, on the restaurant revitalization program we will be conducting a review of the implementation of the pilot, for example. at the time we would be able to talk more clearly and succinctly about what controls were in place, but the controls achieved and whether not they have the intent of the act. >> mr. ware, you mentioned -- data analytics. so how does data analytics assist you? >> sure. well, it's basically transform the way we do business. when you have that many loans to review, when you have that many hotline complaints, when you that many referrals from agency to the tune of almost like

50,000 a week, the only way that you could really, that you could focus your attention of what needs to be focus on is the views of data analytics, to the use of trained analytics to see where the problems are located so that we can assign our investigative staff to pursue it, so we can assign our audit staff to give a more global look in terms of what's going on in these programs, where the front is so we can move. it's the only thing that is allowed us, that hasn't crippled us. we would have been crippled if not for data analytics. >> i will yield the balance of my time. >> the gentlelady yields back. the gentleman from pennsylvania, mr. evans, is recognized for five minutes.

>> you need to unmute. >> thank you madam chair. i want to thank you also for this hearing. i would like to ask a question of, madam chair, to mr. scheer and mr. ware. the question i like to ask is if you had to give the sba a grade for handling of the programs running the pandemic, what grade would you give them and why? >> i would like to see how you tackle that one. >> okay, i will give it a try. it's a a great question, and t makes me think of my former days as a college professor. it's kind of like how would you grade students? and on this one we are very

accepting when sba said, you know, 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 that got the loans out very quickly, but then when you look at just the problems with administering the program and moving forward in putting the types of oversight in place that was so necessary and just the lack of cooperation with us and of trying to kind of use us as a tool to try to identify improvements that could be made in the program, it's a poor record. so these are some of the things that are associated with why we have these programs on our high risk list.

>> the role of an inspector general is to assist our agencies in being the best agencies 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 with lending out in 14 days a sickly. and we were allowed -- in terms of the three white papers we put out, terms of coming to the table of what needed to be set up from the very beginning. had those been heated, it would be a much higher grade than -- it would be a huge, and much larger success story. i can't give a letter grade. >> the same thing to mr. ware. can you give one?

>> that was -- >> i mean, mr. shear. sorry. >> i would you say that personally, my focus is more on this long period of time where there was a lack of transparency, lack of cooperation in where it just, there wasn't a demonstration that basically that, for example, with ppp, that the loan review process being in place, the lack of information there. i'm not going to give i do want to give the exact letter grade but it wouldn't be an a period but i really, you know, it's just one that i really don't want to give it a letter grade. it's not something we're in the business of doing. >> mr. ware, is that what you're

saying, you don't want to give a grade? >> yes. i'm saying that it is clear that sba worked hard. i'm here, i know how hard these employees work. they help the americans in need. the only thing in terms of our assurance, or anyone's assurance, that the money went to only be eligible. so no letter grade. >> i yield back the balance of my time, madam chair. thank you. >> the gentleman yields back. the gentlelady from texas is recognized for five minutes. >> thank you very much, madam chair, and to the ranking member for holding this necessary hearing. each of today's testimonies have referenced the billions of dollars the fraud and aditi theft in the pandemic relief programs but the sba has failed

to provide necessary data and documentation on the ppp and eidl in a timely manner. i've got to chile i listen to a lot of blame gaming going on today and is frustrating. we have people who are being blamed in leadership. they are no longer here to defend themselves. sba was a $17 billion agency that was expected to put out over a trillion dollars in the matter of months, and i'm not here to defend them but i think what we need to do is stop playing the blame game unless civilization the mr. schiff that i know elected officials are the ones pushing that make sure the government got put outcome for good reasons. government may than an soluble and we needed to help them as soon as we could but i'm looking moving forward. what are the steps we're going to take as we're coming out with more money for these programs, as coming out with more programs 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, when we have more controls since without a number of months now to get up to? >> with that, 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 a time perd we will work with the new administration to say this is the numbers we look at to ensure the data access? how do we -- >> should i go first? my agency was a lot different from gao's, my experience was. i had access to the most part to the data i wanted and i had access to the leadership. i sat at the table with the leadership on numerous occasions. occasions. as a matter fact, every week we had a standing meeting where we would go over these things. i didn't have that same

experience. and i don't have anything that is necessarily outstanding that would prevent us from providing the type of information the agency can use to make sure they are footnoting to his programs the they are supposed to. >> mr. shear? >> our focus is on looking at how sba is acting to implement our eight open recommendations. so that's a big focus of hours, and a lot of that is we are being provided information. we know these recommendations are not something that is just a matter of giving us information, that sba will have to make some fundamental changes. and i think they are showing a certain responsiveness to realize that certain changes have to be made in how these programs are operated. as far as what, what we are

doing is our next step, we've had these bimonthly reports that were under the cares act, we are going to quarter reports and thin where going to have three standalone reports this summer that will focus on for ppp one report looking at who's been served by the program and what, you know, the lenders and borrowers that event participate in the program. on ppp, , what i've been talking about today has to do with internal controls and looking at the forgiveness process. so we're analyzing a lot of data, analyzing a lot of information, getting cooperation on that. we are still seeking a a fair amount of information on the oversight structure for the eidl program but we're going to be reporting on the eidl program in the standalone report that's going to be both on who's been served by the program and

looking at questions as far as what, looking at questions as far as how is the agency implementing our recommendations. and in doing that now that we have -- >> i just didn't i've five minutes and at the ten more questions so -- >> sorry. i will just say we were probably have more recommendations now that we have detailed information on what the agency is doing. >> okay. we we'll still see a lot more reports coming out but you two new programs, which are again new programs with the new administration, their own challenges. you noted some of these have horrendous launches. do you believe the sba has put in place enough controls to limit the susceptibility to waste, fraud, and abuse for new programs? >> time has expired. i will let him answer the

question. go ahead. >> in response to the question, what we've been presented with to date demonstrates that they are very alert and attentive to the issues that were faced before and make sure they're not there. this set up a controlled environment to address these issues. >> i spitted we have not tested it yet. >> i look forward to working with the chairman to hold a hearing in the near future on some of these issues with oig's office, gao's office and sba. i know we have sba minister to come in our next hearing what i really look for to working on the oversight, honor oversight investigation investigations and regulations subcommittee on pulling together. thank you so much. >> gentlelady's time has expired. expired. the gentlelady from minnesota, ms. craig, is recognized for five minutes. >> 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 endemic 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's clear from testimony today though that there has been some internal controls that are lacking an action in the sba has resulted in several issues that ultimately harm the people that we're trying to help, those small business owners get while the sba should certainly work towards corrective actions based on experience over the last year, we have an opportunity to

add more internal controls and address these issues as we stand up new programs such as the shuttered venue operators grant and the restaurant revitalization fund. so in questioning a moment ago touched on this but i know she was at a time and you didn't get to really expand upon this but our hardest hit small businesses have been waiting for this assistant for months and we must ensure these funds to get our small business owners the money. so mr. ware, you noted in your testimony series concerns with the control and tracking of the shuttered venue operators grant program that requires immediate action. could you please provide an update on that work that you're doing with the sba to strengthen and launch the program? and more specifically have been similar conversations and do you

believe that the work you are doing for the shuttered venue operators grant will -- [inaudible] >> so maybe i start backwards. on the restaurant program, like i said, it is very evident that their intent in establishing a controlled 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 of both of them that go along way and addressing many, if not all, of our concerns. the issue that i reported on with the shuttered venue had to do with what happened for the people that get in the right way.

is there proper guidance? is it any way for you to monr what those funds are actually going to be used for? acus is a grant program. it's not a lending program. there's a specific rules contained in the cfr, cfr 200, and so that was issue we thought was critical that they had to have the control structure on the inside to make sure that were able to know that we come we know what the program results are. >> fantastic. i also serve on the oversight subcommittee and we look forward to continuing to receive the information and look forward to continue that dialogue. with that, madam chairwoman, i'm going to yield back. >> she yielded back, i'm sorry. thank thank you, the gentles back and the gentlelady from florida is recognized,

ms. salazar, for five minutes. >> thank you, madam chair, and thank you very much, mr. ware, for your role as inspector general which is vital to do a good job, and myself as was my constituents thank you for your hard work. and i have two questions which are i know they will be a little bit uncomfortable but i wanted to just ask you if in the last year the sba received $3.6 billion in salaries and administrative costs? inspector general office received $70 million and you receive $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, $82 billion.

so where were you guys? were you guys asleep? you had $3.6 billion in salaries and administrative costs, 70 million for the inspector general office, and $50 million for audits. >> i'm not sure if you -- find inspector general, so i did not get those funds that you're 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 -- >> wait a minute. >> the loans without -- >> let me interrupt you. work you in charge of making sure that whatever the monies the sba was receiving was properly used? >> 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. >> correct. so when $82 billion were -- tell me. so where were you? >> we were the ones who reported on the money that's being misused. we're the ones conducting the criminal investigation to make sure criminals are brought to justice. that's our role. i think there's a confusion between the role of speedy and i am sorry about ignorance and it's true, let's suppose that i'm ignorant and i'm very sorry, but then what then what 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? >> 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 upfront so that i don't have as many criminal investigations to run on the backend. >> 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, in order to ask that person these questions? somebody has to responsible and that's what i tried to find out. you are the person who needs to tell us. >> i believe, like, at this point where we are currently come we are in an environment where the control environment is greatly strengthened. in an environment where we have

partnered across the entire government to include sba, fbi, social security administration, secret service, fdic, everyone, working groups, all of us are looking into this at this time. >> so then please keep advising us that where we need to look at in order to make sure we do not have another 28 -- $82 billion wasted. >> thank you. >> yield back. >> the gentlelady yields back, and with that, we conclude 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 happen 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 this loans have opened them up for fraud. the steps sba has been taken to mitigate fraud are encouraging. however, your testimony today has made 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 and if they are bipartisan manner. i look forward -- yes -- to

working with the committee members to ensure that money goes to the small business that truly need it and that taxpayers dollars are protected. i will add unanimous consent members have high blood slit of submit statements and to support material for the record. without objection, so ordered and if there is no further business to come before the committee, we are adjourned. thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations]

president mike pence will deliver his first public remarks since leaving office in january. he will be speaking at a social conservative group in south carolina. book watch live coverage at c-span, online on c-span.org, or with the c-span radio app. >> global threats facing the u.s. was the topic of the senate armed services hearing.