[House Hearing, 118 Congress] [From the U.S. Government Publishing Office] OFFICE OF INSPECTOR GENERAL REPORTS TO CONGRESS ON INVESTIGATIONS OF SBA PROGRAMS ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT, INVESTIGATIONS, AND REGULATIONS OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTEENTH CONGRESS FIRST SESSION __________ HEARING HELD APRIL 19, 2023 __________ [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 118-009 Available via the GPO Website: www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 51-813 WASHINGTON : 2023 HOUSE COMMITTEE ON SMALL BUSINESS ROGER WILLIAMS, Texas, Chairman BLAINE LUETKEMEYER, Missouri PETE STAUBER, Minnesota DAN MEUSER, Pennsylvania BETH VAN DUYNE, Texas MARIA SALAZAR, Florida TRACEY MANN, Kansas JAKE ELLZEY, Texas MARC MOLINARO, New York MARK ALFORD, Missouri ELI CRANE, Arizona AARON BEAN, Florida WESLEY HUNT, Texas NICK LALOTA, New York NYDIA VELAZQUEZ, New York, Ranking Member JARED GOLDEN, Maine KWEISI MFUME, Maryland DEAN PHILLIPS, Minnesota GREG LANDSMAN, Ohio MORGAN MCGARVEY, Kentucky MARIE GLUESENKAMP PEREZ, Washington HILLARY SCHOLTEN, Michigan SHRI THANEDAR, Michigan JUDY CHU, California SHARICE DAVIDS, Kansas CHRIS PAPPAS, New Hampshire Ben Johnson, Majority Staff Director Melissa Jung, Minority Staff Director C O N T E T S OPENING STATEMENTS Page Hon. Beth Van Duyne.............................................. 1 Hon. Jared Golden................................................ 2 WITNESS Hon. Hannibal ``Mike'' Ware, Inspector General, United States Small Business Administration, Washington, DC.................. 5 APPENDIX Prepared Statement: Hon. Hannibal ``Mike'' Ware, Inspector General, United States Small Business Administration, Washington, DC.............. 16 Questions and Answers for the Record: Questions from Hon. Williams and Answers from Hon. Ware...... 28 Questions from Hon. Bean and Answers from Hon. Ware.......... 34 Questions from Hon. Van Duyne and Answers from Hon. Ware..... 46 Questions from Hon. Mfume and Answers from Hon. Ware......... 47 Questions from Hon. Velazquez and Answers from Hon. Ware..... 50 Additional Material for the Record: None. OFFICE OF INSPECTOR GENERAL REPORTS TO CONGRESS ON INVESTIGATIONS OF SBA PROGRAMS ---------- WEDNESDAY, APRIL 19, 2023 House of Representatives, Committee on Small Business, Subcommittee on Oversight, Investigations, and Regulations, Washington, DC. The Subcommittee met, pursuant to call, at 10:13 a.m., in Room 2360, Rayburn House Office Building, Hon. Beth Van Duyne [chairwoman of the Subcommittee] presiding. Present: Representatives Van Duyne, Williams, Luetkemeyer, Mfume, Golden, and Perez. Chairwoman VAN DUYNE. Good morning, everyone, I now call the Committee on Small Business to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. The committee will hear testimony today from the Small Business Administration's inspector general. Before my opening statement, I ask unanimous consent for the Congressman from Missouri, Mr. Luetkemeyer, to participate in today's hearing. And without hearing objections so ordered. I now recognize myself for my opening statement. I want to welcome everyone here to today's hearing which will focus on the Office of the Inspector General's investigation of Small Business Administration programs. First, I want to thank our witness, Inspector General Ware, for joining us today. I hope this is the first of several productive hearings that we will have with you in this Congress and I appreciate you speaking with us today. This hearing could not be coming at a more important time. I have heard from countless small businesses in north Texas who have faced difficulties in dealing with the SBA and the waste and mismanagement that we have seen from the agency is a complete disservice to our job creators and their employees. Some of the most egregious examples of SBA mismanagement came in the form of pandemic-related funds and programs. As the SBA dispersed an unprecedented amount of money, they relaxed internal controls and failed to be a responsible steward of taxpayer dollars. While the SBA was overwhelmed with an increased workload, they left the door wide open for criminals to abuse pandemic relief programs. Who ultimately the pays the price? Hardworking American taxpayers. The SBA's disorganized management structure and a lack of basic guardrails to prevent fraud led to wasted taxpayer dollars. The OIG identified nearly 71,000 potentially fraudulent PPP loans totaling more than $4.6 billion, and that may only be the tip of the iceberg. In the Economic Injury Disaster Loan program alone the inspector general found $78 billion in loans and grants that were potentially fraudulently obtained. Tens of bills of dollars of apparent fraud. That was from just one program. Again, against Inspector General Ware's advice, the SBA ended collection on and forgave all PPP loans with an outstanding balance of $100,000 or less. This sets a horrible precedent of allowing fraudsters to avoid facing repercussions. While billions in pandemic relief funds were misused, the SBA neglected to implement simple fraud mitigation measures until the first round the PPP loans were approved. We could have prevented much of this fraud and still can for future programs. But the SBA has ignored proposed reforms. Right now our nation's small businesses are facing runaway inflation, rising interest rates at a fastest pace since the 1980s and a labor shortage. This committee is prioritizing the needs of our small businesses and their employees and we stand with them. I hope this hearing can help gauge how Congress can take steps to improve the integrity, accountability and performance of the SBA. Inspector General Ware has done a commendable job on shining a light on waste, fraud, and abuse within the SBA. I am hopeful that this hearing with our committee will help us better understand how we can help our job creators get the support they need and deserve from the SBA. And with that, I yield to our distinguished Ranking Member who is actually not with us yet so we are going to go ahead and recognize Mr. Golden, from the wonderful State of Maine for 5 minutes. Mr. GOLDEN. Well, look at that right there, folks. On queue. Chairwoman VAN DUYNE. We are going to yield to our distinguished Ranking Member Mr. Mfume, from the wonderful State of Maryland. Mr. MFUME. Madam Chair, Members of the Committee my apologies. As all of you know, these are the days when we are having for some reason committee meetings that all run simultaneously. So I apologize. I had to be in the Oversight Committee hearing and deal with an issue of an Afghanistan withdrawal. But I am happy to be here. And I want to welcome Inspector General Ware. Thank you very much for your presence today. The past 3 years have been extremely challenging, and we commend you for your oversight of the pandemic relief programs, as well as making sure that the Small Business Administration's core programs are working effectively as well for small businesses. Every year your office issues the top management challenges report and the semiannual report to the United States Congress. Both of those reports call attention to long- standing issues and identify some of the biggest challenges facing the agency. As the Ranking Member of the Oversight, and Investigations and Regulations subcommittee, I want you to know that your work with guide this committee throughout the year as it conducts and as it should its oversight of the SBA. I anticipate that much of the discussion today will focus on pandemic relief programs. Since 2020, SBA has distributed more than $1 trillion in economic relief to small firms. And while the economic aid was vital in keeping millions of small businesses afloat during the pandemic, we know that your work and through your work that there was a significant amount of potential fraud. And I have stated my disgust with that in previous hearings both at full committee level and at another subcommittee. I think most of us are concerned about that, particularly as it relates to the Paycheck Protection Program and the Economic Injury Disaster Loan program. Much of this potential fraud can be traced back I think to the early days of the pandemic when programs were new, when the loan volume was high and there was a need to get loans out of the door quickly. Those priorities unfortunately in many respects created the possibility of potential fraud. This committee took steps to address the problems and to make sure that the money went to small businesses that needed it and that it did not go to a bunch of bad actors who we are all incensed about. To that end I support a bipartisan legislation to extend the statute of limitations for fraud in the Paycheck Protection Program and the Economic Injury Disaster Loan program in the last Congress. Both of those bills which became law we believe sent a strong message to the unscrupulous behavior by a number of people and that behavior would no longer be tolerated and that those who committed the fraud would be held accountable in the years to come. And we all hope that there are fewer years than more years in order to make sure sure they are held accountable. The SBA under the leadership under leadership of Administrator Guzman has taken steps to combat fraud in the pandemic relief programs. And today it will be important for all of us to hear your perspective on the progress of the agency and on the progress that we believe has been taking place since that time and to hear more about your combined efforts to recover the stolen funds, which really at the end of the day looms as a significant undertaking. Oversight of the pandemic relief programs will be a top priority for all of us for years to come. And your office will play a central role, obviously. I recognize that you will need additional resources in order to be able to investigate the fraud and to bring bad actors to justice. And I expect to hear more about that in your fiscal year 2024 budget request. It is a reality unfortunately, but we have got to find a way to hold people accountable. And we have got to be able to have the resources to do that. It is also important to know what is working well with the agency and how it is working well and what more needs to be done to ensure that core SBA programs are in fact working effectively. So I am committed to working with my colleagues on this committee, the administration and your office to root out fraud, to bring fraudsters to justice, to find bipartisan solutions to make the SBA run for effectively. And I want to again thank the distinguished Chairwoman who has called us together for this particular hearing. I apologize, Madam Chair, for my in and out on this as I am dealing with two other committee meetings quite frankly. Thank you. I yield back. Chairwoman VAN DUYNE. Thank you very much. I now yield to Chairman Williams for a brief opening statement. Mr. WILLIAMS. Thank you. And good morning, General Ware. Thank you for being here. We appreciate that. I want to thank my fellow Texan, Beth Van Duyne, for holding today's subcommittee hearing with the SBA's Office of Inspector General. Today's hearing is a critical component to examining the competency and performance of the SBA, especially after the pandemic forced the agency to take on a more prominent role which exposed many shortcomings. For nearly 71,000 fraudulent PPP loans as we have talked about already to $78 billion in fraudulently obtained loans and grants to the Economic Injury Disaster Loan program the SBA failed to implement adequate guardrails to protect taxpayers' dollars. And this allowed criminals and illegitimate entities to have a payday after payday while legitimate small businesses struggled through pandemic. The change is needed and we hope that you, General Ware, can help lead the way in fighting the success of waste, fraud, and abuse so Main Street America who we represent cannot continue to allow the recommendations that you have made for the agency to be ignored. There must be significant changes made to improve the integrity and accountability of the agency. And with that, I am looking forward to today's discussion and hope we can create a sense of urgency for the SBA to listen to your suggested changes. So thank you, Chairman Van Duyne. I yield back. Chairwoman VAN DUYNE. Thank you very much. It is an honor today to introduce or witness, the honorable Hannibal Mike Ware, Inspector General Ware is a native of the U.S. Virgin Islands and holds a bachelor of arts degree in accounting from the University of the Virgin Islands. In May 2018, following his confirmation from the U.S. Senate, Inspector General Ware was sworn in as inspector general of the Small Business Administration. Prior to his appointment, Mr. Ware served as deputy inspector general. Mr. Ware has over 30 years of experience within the OIG community. In 1990, he joined the Department of the Interior OIG Virgin Islands' field office as an auditor and later became the field office supervisor. Mr. Ware later moved to the DOI OIG's office of management and served as the deputy assistant inspector general for management. In this capacity he executed the DOI OIG's independent operating budget and managed the logistical concerns to the offices nationwide presence. In his current role as inspector general, Mr. Ware's responsible for independent oversight for Small Business Administration's programs and operations, which normally encompass more than $100 billion in guaranteed loans and nearly $100 billion in federal contracting dollars. Inspector General Ware, thank you for joining the subcommittee today and I am looking forward to our conversation. I now recognize Mr. Ware for his 5-minute opening remarks. STATEMENT OF HONORABLE HANNIBAL MIKE WARE, INSPECTOR GENERAL, SMALL BUSINESS ADMINISTRATION Mr. WARE. Thank you very much. Thank you, Chairman Van Duyne, Ranking Member Mfume, and distinguished Members of the Subcommittee. And Chairman Williams and Congressman Luetkemeyer, thank you for being here. And thank you for the opportunity to appear before you today. I am as always super honored to represent the dedicated men and women of the SBA's Office of Inspector General and their work to provide oversight of SBA's programs aimed at bolstering the nation's small businesses to include more than a trillion dollars at stake as part of the pandemic response programs. I am confident that much of our discussion today will focus on the challenges SBA faced and experience in delivering critical funds that stem from the economic ruling as a result of the pandemic are oversight efforts span SBA's other programs. To a significant degree, the strain of the pandemic response laid bare SBA's systematic management and performance challenges. My office knew from the onset of pandemic relief that SBA would face a delicate balancing act of preventing widespread fraud while ensuring timely disbursement of relief funds to Americans in immediate neat of assistance. The biggest concerns for our office was SBA's quick delivery of capital to qualifying small businesses without first establishing the internal controls necessary to decrease risk. This was why we issued three reports prior to the first PPP loan or EIDL being disbursed, stressing the importance of up front program controls to mitigate the risk of fraud. Notwithstanding these early warnings, SBA's internal controls challenges engendered the biggest fraud in a generation. It was immediately clear that pandemic relief efforts had drawn the attention of unscrupulous and greedy criminals. Complaints from lenders and allegations of misuse of funds overwhelmed our hotline. Over 100,000 complaints in the first year alone, which has swelled to more than 240,000 and counting. We actively engaged SBA's leaders throughout the duration of the pandemic to notify them of preliminary findings so they could respond in real-time to prevent loss to the taxpayer. At the same time, we launched criminal investigations and audits to root out the fraud and abuse engendering these critical resources. There are is no higher priority than addressing the top management and performance challenges facing SBA, which is the pandemic response. We have unleashed the power of data analytics in our oversight, fueled by the expertise and experience of our criminal investigators, auditors and analysts. To prioritize our work and to bring fraud that is hidden in plain sight within the vast portfolio, we have indeed embedded data analytics into the hearts of those efforts. We have been able to responsibly use machine learning and artificial intelligence to identify outliers in a portfolio for review and investigation. To date, we are have issued 30 pandemic-related reports with dozens of recommendations for corrective actions to the agency. Additionally, since March of 2020, we have initiated over 1,000 investigations involving complaints of fraud resulting in arrests, indictments and convictions. Our investigative work has resulted in 860 indictments, 687 arrests and 486 convictions as of March. And those numbers continue to balloon. Through our oversight OIG has provided taxpayers an exponential return in investment. In the past 2 years alone our work has resulted in more than $9 billion in accomplishments, over $8 billion in EIDL funds also have been returned to SBA by financial institutions and another $20 billion by borrowers. We have played a key role in the return of those funds to working with our law enforcement partners and financial institutions. With swift congressional action last year the President signed into law an increase in the statute of limitation for fraud in PPP and EIDL to 10 years. It is vital that sufficient resources are available to my office to confront the fraud landscape. The President has sought a $63.3 million in total budget authority from my office in fiscal year 2024. Budget scenarios such as return to the fiscal year 2022 funding levels for us would be detrimental to instilling integrity in SBA's program and promoting accountability for wrongdoing. Reducing our funding to fiscal year 2022 enacted would decrease our investigative and fraud enforcement capabilities nearly equivalent to staffing levels that we had following sequestration in 2013, which is less than 100 total positions. Such a funding scenario simply does not allow us to provide effective oversight. We are able to provide information to you to ensure adequate resources are made available to promote the public trust and instill integrity in SBA's programs. The nation can depend on my office to provide independent, objective and timely oversight of SBA. Thank you for the opportunity to speak to you today. I am happy to answer any questions you have of me. Chairwoman VAN DUYNE. That was exactly 4 minutes and 59 seconds. Congratulations. Thank you very much. We will now move to Member questions under the 5-minute rule and I recognize myself 5 minutes. On April 17, 2022, the SBA decided to formally end collections on remaining defaulted PPP loans with an outstanding balance of $100,000 or less. Your office noted in a September 2022 report that this decision lacked evidentiary support. Do you still stand by that analysis? Mr. WARE. Thanks for the question. I definitely stand by my analysis. Feel strongly that there are many steps that could be taken. And I believe it sends a detrimental message for any future emergency programs or any programs period across government. Chairwoman VAN DUYNE. So as of September 30, 2022, the value of $100,000 and under loans no longer being pursued was approximately $1.1 billion. Do you have the current total dollar amount of these loans that are no longer being pursued? Mr. WARE. I could get back to you on the exact total. I could give you a general right now. The general on it is about $8 billion that it has gone up to. I believe that is what it is. Chairwoman VAN DUYNE. Okay. Mr. WARE. I have it in front of me. I can find it. Chairwoman VAN DUYNE. All right. Thank you. We were just looking for--if you could find that out and follow up with me after that would be great. The committee sent a letter to the SBA on March 15, 2023, expressing our concerns about the SBA's decision not to collect on these loans and the taxpayer dollars being abandoned. The SBA responded on March 27 claiming that collection of the government is not a cost effective use of taxpayer resources. As justification the SBA used historical data from the SBA Express loan program which they claim is most analogous to PPP loans. The SBA claims that because Treasury recovered only .28 percent of the Express loans referred for further collection, that collection on the exponentially greater outstanding PPP loan portfolio was futile. Do you agree that these programs are a fair comparison and that that collection is futile? Mr. WARE. I actually don't agree that it is a fair comparison. I actually think it is more like apples to orange in that regard. Relative to collection that is not--what they are comparing is not the only form of collection, it is not the only collection efforts. There is more simple avenues such as Treasury offset. Where Treasury offset works that any future government funds that would go, it could be a tax return, it could be anything would be held to fulfill the debt to the government. And these are not--that is not a difficult mechanism to deploy at all. On top of it, it would help in ensuring that folks who defaulted, who didn't pay for whatever reason, it may not have been fraud, it was just that they refused to pay, it would help that they don't get access to future programs until they are current. So I really don't--it is not something that I am in agreement with. Chairwoman VAN DUYNE. The SBA had mentioned that they provide this analysis to and I am just going to ask if you could provide that to the committee when you get a moment. Mr. WARE. Sure I could. Chairwoman VAN DUYNE. The SBA had mentioned in a briefing to the committee staff their attempts to collect this money has already been made, including by mailing letters to borrowers. Are you aware of these attempts and do you believe they are sufficient? Mr. WARE. We have not looked into exactly how frequently they did that, but they were required to do so. And that is what you do prior to going to going to Treasury offset so it would be the first step actually. Chairwoman VAN DUYNE. But then they did the first step and they just dropped it after that. Mr. WARE. Well, on that they made a decision that they would go away from that. Chairwoman VAN DUYNE. Okay. And another questionable decision, the SBA has evidently also decided to end collections on COVID Emergency Injury Disaster Loans, COVID EIDL, under $100,000 which makes up approximately $71 billion of the $303.6 billion COVID EIDL loan portfolio. Unlike PPP loans, most of which were able to be forgiven if certain criteria were met. COVID EIDL loans were meant to be repaid. So the SBA has not said how many loans are in repayment or experiencing issues with repayment. Do you agree with this decision not to collect on COVID EIDL loans under $100,000? Mr. WARE. I definitely don't agree with that stance. And I am pretty public with that. And I am internally public with it as well in my discussions. Chairwoman VAN DUYNE. Did SBA provide you with any analysis for the justification of that decision? Mr. WARE. We have a current--an ongoing review right now that is ramping up on that. So I believe the audit team has their justification, but from what I am being told it is along the same lines that they provided for PPP. Chairwoman VAN DUYNE. So are you able to provide justification for this committee at all? Mr. WARE. As soon as the report is finalized. Chairwoman VAN DUYNE. Would you be interested in drafting legislation to require the SBA actually be--collect those loans under $100,000? Mr. WARE. So I don't believe in my role I can draft legislation. Chairwoman VAN DUYNE. No, I am just--if you think that would help, if we actually drafted legislation to be able to get at least $8.8 billion plus the $78 billion? Mr. WARE. I would say this, I would say that I believe SBA should make every effort to collect. And that they are pretty simple avenues to make an attempt to collect that money. And I believe it sends a terrible message relative to how seriously we take that. Chairwoman VAN DUYNE. Excellent. Thank you very much. I yield. And I now recognize Mr. Golden from Maine for 5 minutes. Mr. GOLDEN. Thank you, Madam Chair. Mr. Ware, the budget proposal coming out of the White House is a reflection of an institution's priorities. So in fiscal year 2024 there was a request for an increase from your office of nearly $16 million, that is about a 33 percent increase from last year's enacted levels. So how does this proposal reflect the priorities of the administration to fight fraud as it relates to pandemic relief programs? Mr. WARE. Thank you. It definitely demonstrates that they have a real commitment or high confidence in my office's ability to go after bad actors, because the majority of that money if you looked at it is for to deal with our criminal investigations. And on top of it, it is basically to keep us afloat. When we had the supplemental budget that we had, that is about to be to finished in 2024. We have quite a bit of term investigators who would basically disappear, if not for that. We are basically trying to right size that to stay there before even going forward. Mr. GOLDEN. Okay. So there is proposals out there right now to cap discretionary spending levels overall for the government, fiscal year 2022 levels, of course that doesn't have to be an even cut across every program. So how vital is it that that not occur to your budget? What do we stand to lose if you actually lost money rather than got more? Mr. WARE. If my office lost money or went back to the 2022, facing what is happening with my term employees in 2024, I wouldn't be able to provide the oversight. The number goes back to almost like our 2016 or something like that enacted number. Mr. GOLDEN. Sir, I understand the GOP is pending a debt ceiling legislation which we may see soon, it may actually include a funding government savings to the tune of $50 billion related to COVID, part of which is the recovery of fraudulent loans. Would you be able to help recover fraudulent loans if you took a cut? Mr. WARE. No, I don't believe that I would be able to. I simply would not have the staffing necessary to do so. But if we did recover the funds, it would be at a much smaller clip. Look at what we are dealing with. My office--with an office that has a budget of 20 something million dollars, we have returned what close to $30 billion or played a major role in returning close to $30 billion. That is kind of an unprecedented return on investment. Mr. GOLDEN. Yeah, I like those odds. So just focusing a little bit more on how much we can recover and suffice it to say that I think everyone on this committee thinks that you shouldn't lose money but rather get more and deepen that return on investment. So what do you think is a reasonable estimate for SBA to recover in regards to fraudulent PPP or EIDL loans over the next let's say 2 years or looking further over the next 10 years? What is in the realm of possible for a goal? Mr. WARE. That is a great question, very difficult to answer. Mr. GOLDEN. Yes, I know. Mr. WARE. Very, very difficult. I don't believe I could put my arms around what that could be. Criminal investigations are pretty tricky, but I will tell you this, when we go after normal fraud before the pandemic I created the footprints in sand. So you have to move quickly in order to catch a bad actor or it is gone, the evidence is gone. What we have right now is footprints and cement. Right? When we get to it, it is found. As soon as we open that file it is found. All the records are there. Mr. GOLDEN. Very good. Just thinking about over all expectations, when does your kind of confidence on the ROI start to diminish? Surely I mean we would love to get every penny back, but that is probably not a reasonable expectation. So when do we start to go beyond the return on investment? Mr. WARE. I don't think you can with my office and I will explain. Mr. GOLDEN. Your office, sure, but certainly the SBA argues that at some point they might use more resources trying to recover some of these funds than they would actually get back. It is a delicate balance and I know you don't want to send a bad message. Mr. WARE. I agree that there is some sort of delicate balance. I don't believe we are there yet. Mr. GOLDEN. Yeah, I agree with that very much. I appreciate your testimony and the work that you do, very important. Chairwoman VAN DUYNE. Thank you very much, Mr. Golden. I now recognize Mr. Luetkemeyer from Missouri for 5 minutes. Mr. LUETKEMEYER. Thank you, Madam Chair. And thank you General Ware for being here again and your continued hard work to recover these tax dollars from fraudsters. One of the things in some of our previous conversations that we have talked about were the fintech companies that were kind of the main problem children in the PPP program. And it is very concerning because the SBA now is trying to enlarge the number of entities that can make 7(a) loans to include fintech companies. To me this is was very concerning whenever we say in the PPP program that the banks and the credit unions were basically the good actors and the real problem children were the fintech companies and there is about a handful of them. Do you have concerns about this program being expanded, 7(a) program to be able to include more fintech companies? Mr. WARE. Thank you. I have concerns with the inclusion of any type, it could be a bank, it could be a fintech, any our type of nondepository lender that doesn't have brightly marked out rules that they are going to work under, that doesn't have an internal control structure in place to deal with it and that doesn't have the proper oversight and monitoring mechanism in place to go with it. Mr. LUETKEMEYER. So you bring up the point that I was trying to get to here, in order for these fintech companies to be able to do this, do you think it would be a good idea for us to put in place some additional requirements for them to be able to participate in a program or would that something that comes from you as the inspector general saying these folks need to have these extra precautions because these things were in place for the banks and credit union, which things to be in place and then force the SBA to do it that way. So how would you recommend us going about this process? Mr. WARE. So a couple of ways. One is that we have some work that is going on right now, the evaluation of SBA's oversight of the fintechs and the Paycheck Protection Program that will definitely have recommendations that would get to a proper control environment and making sure that SBA properly oversees and manages them, because as you know with the nondepository lenders, SBA is basically the oversight. They are the regulator. So that is of concern to me. But we have also had prior work that identified key areas of risk with fintech and they also speak to the very same things that I am talking about here. It is basically a three headed monster up front, rules and regs, that is a general thing that doesn't happen well with everybody having a level playing field and knowing which rules they are playing under and really playing under the same rules that the internal control environment and then very important the oversight and monitoring. Mr. LUETKEMEYER. Thank you for that. And I think it's very concerning to us to see that they have done this and there doesn't seem to be any additional protocols or procedures in place to monitor the fintech. So one of the questions that I asked the director the our day when she was here were how many people showed up for work everyday? Do you monitor that at all? Because she was talking about well, because we know that there is a lot of them still working from home. And she talked about maybe they are in the office 2 out of 5 days. I mean, I think you would go over there and you would see dust on some of the desks personally, but do you monitor that at all. Mr. WARE. That is not an area that we have looked into. But I must self disclose, my office had a as pretty robust telework and remote work policy in place currently. The main reason that we are in the major fraud fight right now. That work is done in courtrooms and U.S. attorney's offices and in the Department of Justice across the country. That is where our focus is. Mr. LUETKEMEYER. So you people are out in the field doing their work. They are not home behind the--in their PJs with their feet up, drinking a latte, while they are looking on their computer. Is that what you are saying? Mr. WARE. I am not saying. I don't know if anyone is doing that. Mr. LUETKEMEYER. But I am not wrong in my perception of the fact that they are not there. We have got people out in the field doing their work where they are supposed to be. Okay. Just to get a handle again as a follow up on the previous two questioners here, what do you see as the total amount of fraud that is all there--not that you can recover all of that--do you have an idea roughly of about what the amount of fraud that is still out there that you would be going after? If it is, like, $50 billion, we realize you may get 10 percent or 5, can you give us an idea of roughly where we are at? Mr. WARE. So at the beginning the pandemic we put out these numbers that Chairman Van Duyne spoke about. Those numbers were at the beginning, those are tiny. Where we are at now, we are way past that. I can't give you the exact number now. I am telling you that we have a report coming out, our fraud landscape report will be out in just a few months. And that report I am extremely confident in our methodology, it will tell the story of what the true fraud landscape is and it is meant to be a living document because as we continue to dig in on or data analytics and get access to more data points the number could grow. Mr. LUETKEMEYER. Thank you for that. I yield back. Chairwoman VAN DUYNE. Thank you very much, Mr. Luetkemeyer. And I now recognize Chairman Williams for 5 minutes--oh, I am sorry. I am so sorry. I did not recognize you. I now recognize Ms. Perez, from the State of Washington for 5 minutes. Ms. PEREZ. Thank you so much, Chairwoman. And thank you for your testimony, Mr. Ware. A lot of conversation today has focused on how we can prevent and tackle fraud in small businesses programs and I agree that is critically important. We also need to ensure that SBA dollars are not being misspent or defrauded by criminals. With my time I would like to focus on the flip side of that, making sure that dollars that reach small businesses are spent effectively and meeting small business owners where they are at. By definition the Small Business Administration deals with small businesses, these are often one man or woman shows operating with a skeleton crew. A small business owner's most valuable asset is their time. They don't have time to waste reading mountains of SBA paperwork. So when overseeing SBA programs, how do you evaluate the small business experience in accessing SBA programs in addition to SBA programs. Mr. WARE. Right. So thank you for that. And you are absolutely right. That is part of our portfolio. We have done some work on this in the past, but I don't believe--it hasn't been during the pandemic. We have not looked at that or I think that as part of the beginning when they were kicking this off we were looking at the customer experience and we were looking at--and we have done work in a disaster realm where we have looked at how much time it takes to get someone at SBA and what that experience is like. So we have done some work in that area. SBA has some challenges in that area, but it is something that, you know, it is something that we are always looking, looking for. We were thankful for the legislation that allowed to us do general surveys. And I know that that is part of our work that we are teed up. Ms. PEREZ. Great. I know that you closely engage with Administrator Guzman, do you also engage with small businesses to see how SBA programs are rolling on the ground. Mr. WARE. Personally I have not. My teams do---- Ms. PEREZ. Okay. Mr. WARE.--when they are doing their reviews. Ms. PEREZ. Okay, I am glad to hear that. In general, how can SBA make its resources more accessible to the average small business owners, not just the small businesses that have this sort of administrative capacity to look into the SBA. Mr. WARE. Yeah, so I mean they have their whole business development group. And the business development group, that is what they are charged with, that is part of what they are charged with. Our work--I don't know if we have work to that regard, but I know that we can get work to that regard, I can get you that. Ms. PEREZ. That would be great. Your states that the SBA has made limited progress in servicing EIDL loans. What improvements has SBA made to improve customer service and servicing those EIDL loans? Mr. WARE. Right. The customer service angle of it has not been the angle that I have focused on, but now I realize that will have some focus in that area. Ms. PEREZ. So the Office of the Inspector General also has an important consumer-facing role taking calls and investigating complaints. The top management in performance challenge report found that the OIG received over 208,000 calls on its hotline during the pandemic. How has your office handled that increase of calls? What is the current backlog of complaints? And what is the average sort of timeframe it takes to address a complaint once it is made? Mr. WARE. Had you asked this question about a year ago, I would have had quite a backlog. But thank goodness for a really capable data analytics group that we have that we don't have a backlog. We are able to triage these things and to distill what is actionable and what is not. What we have actionable right new is over 100-year's worth of criminal investigative work in the hotline. So there is triage's own process that starts with that and then it goes out to the field, but the field has their own portfolio, that is why I was talking about the importance of resources for our office. Our investigators are so dedicated and so driven that I had to fight them to reduce their portfolios, because it is not sustainable for a single agent to be working 20 something, 30 something cases at the same time. And the ramifications of that means that their supervisor, who is supervising ten our agents, would have 25 times 10 supervising--that is what we are dealing with. Ms. PEREZ. Yeah, yeah. Mr. Ware, you have an important role in keeping the SBA on track and accountable to taxpayers. I know that you take that responsibility seriously and I sincerely look forward working with you to improve these programs. Thank you very much. Mr. WARE. Thank you. I appreciate your questions. Ms. PEREZ. Thank you. Chairwoman VAN DUYNE. I now recognize Chairman Williams, for 5 minutes. Mr. WARE. Go frogs. Mr. WILLIAMS. Thank you again for being here. The SBA has faced major challenges in managing enormous financial lending programs, we are talking about that, IT and other areas even before the pandemic. Now existing issues were exasperated by the sheer volume and lack of controls of SBA's COVID-19 related programs and problems continue to surface in the aftermath of SBA's pandemic response, particularly around identifying the mitigating fraud, balancing the competing priority shortcomings and oversight, insufficient reporting requirements and failure to meet legislative intent. So it seems the agency does not have the ability to manage the current loan volume or remedy existing fraud issues, yet the Biden administration is trying it expand. And we talked about that the SBA's loan portfolio changes to the 7(a) lending program. On October 14, 2022, the OIG issued a report stating that OIG anticipates the agency will face significant challenges managing its loan volume going forward. Here is the question, is this still your view? And if so, what are your greatest concerns with the new 7(a) loan programs that will grandfather in all current community advantage lenders as well as bring in more SBLCs. Mr. WARE. Yes, thank you. My--I still share those concerns. And I share those concerns because of the volume. Now SBA would say that they are not adding that much more and that the people who actually deal with this oversight have assured everyone that they can handle it, because they are intent is to deal with more of data analytics to deal with it. My problem is data analytics is just what you--the capacity is what you build it to be. So if you don't build it with the right parameters in place, you are not going to be overseeing the right things. You are going to miss the things that you actually should be looking at. And I don't have an assurance that that has been built in mainly because I haven't seen it. Mr. WILLIAMS. The bigger they are, the more we lose is probably what the formula is right now. The SBA is supposed to be the lender of last resort. However we are hearing that the SBA is considering changing standard operating procedures to allow for businesses to self certify, that they could not find any credit elsewhere in the private sector. Now in your opinion, how would this major departure from the current practice add additional risk to the system or deviate away from their current role as a lender of the last resort. Mr. WARE. In my opinion, and I have stated it just about everywhere, I don't believe in any self certification on program. After what we just came through with PPP and EIDL, I don't see how can we could still be relying on any type of self certification. Mr. WILLIAMS. I agree with you. Mr. WARE. I believe it adds significant risk. And I think we have the evidence and the experience to know that it does. Mr. WILLIAMS. The SBA has continually said that they believe they can leverage technology to make up for staffing shortages when the Office of Credit Risk Management would be charged with overseeing the new lenders in the 7(a) programs. I know what your answer is, but do you share the same opinion? And believe the agency is equipped to be the sole federal regulator of these new participants. Mr. WARE. Even in house for the Office of Inspector General, we rely on data analytics a great deal and it has really been a force multiplier for us in terms of our investigations, but even those we have to back check. Right? That is why we still talk about potential fraud because we haven't looked at every single one of them. Right? We have looked at a lot, enough to validate our data points. So to me, that is where the concern lies with the reliance on data analytics is do you have enough people still to know for certain that you have reduced the mitigating risk in your program and is it built correctly. Mr. WILLIAMS. Right. Well, we need to get better at what we do rather than what we want to do. And I will just ask you a question, I am in the car business back in Texas. This money that we can't find. Right, that we have talked about, what if we people your people on commission, would they be able to find it? Mr. WARE. Sorry, I don't mean to laugh. Like, wow. Mr. WILLIAMS. It is a pretty good idea. Mr. WARE. That would have changed my entire career. Mr. WILLIAMS. You think about it and let me know. Mr. WARE. I will. Mr. WILLIAMS. Madam Chair, I yield back. Chairwoman VAN DUYNE. I am going to yield 2 minutes to Mr. Golden for additional questions. Mr. GOLDEN. Thank you, I appreciate it. I know we are looking to wrap up here. Really more just some feedback, Mr. Ware. First on the issue of spending a little bit of time and resources looking into the efficiency of these programs rather than just waste, fraud, and abuse which is important. For those of us that represent rural communities I could tell there is a lot of anecdotal evidence that you could find ways to improve programs if your staff spent time putting some reports out to Congress on those things so I appreciate Ms. Perez's questions. I just couldn't help, when Mr. Luetkemeyer was talking about fraud and how much is out there and you mentioned you have got a report coming. And I know that you don't want to, like, rush to close something out, but it is pretty timely topic. The Republicans are talking about reducing the deficit spending, they are talking about a debt ceiling proposal that involves the recovery of COVID funds. Not all of that I think, but some of it is counting on getting some of this fraudulent money back and important decisions about what type of budget to give you to help make sure that we can actually capture those funds, you know, it is pretty timely. So could you maybe get an early report out to the committee or some kind of preliminary data about how much fraud is actually out there and how much you think we might be able to recover. Mr. WARE. I am so glad you said that, because this is the point that I make internally all the time relative to timelines and being relevant in this space. So I am so glad you said that. The issue with providing something early is that it has not gone through our independent indexing and independent referencing to ensure that what we are reporting is 100 percent factual. And I would not be comfortable in releasing something that has not gone through that process. Mr. GOLDEN. Well, always relevant but like I said the clock is ticking. Mr. WARE. The clock is ticking. Mr. GOLDEN. We would love to have the information yesterday. Mr. WARE. Man, I can't wait. I am putting those words in quotes and putting it up on a board in the office, the clock is ticking. That is our new mantra. Chairwoman VAN DUYNE. Thank you. I would like to thank our witness for his testimony and for appearing before us today. Without objection, Members have 5 legislative days to submit additional materials and written questions for the witness to the Chair. Witnesses to the Chair which will be forwarded to the witness. I ask the witness to please respond promptly. If there is no further business, without objection the committee is adjourned. [Whereupon, at 10:58 a.m., the subcommittee was adjourned.] A P P E N D I X [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]