Office testified. This isan hour and 20 minutes. I thank everybody for joining us today. Both virtually and in the hearing room. And also like to thank the witnesses for their participation in this important and timely oversight hearing. Before we begin id like to take this opportunity to note some important requirements. Let me begin by saying that Standing Health and Committee Roles at practice will continue to apply during hybrid proceedings. All members are reminded that theyre expected to adhere to these standing rules and put in a courtroom. During the period designated by the speaker the committee will operate in accordance with House Resolution 965 and subsequent guidance from the rules committee and canada respects the rights of all members to participate. House regulations require members to be visible through a video connection throughout the preceding though please keep your cameras on. Also, please remember to remain muted until you are recognize to minimize background noise. If you must participate in another proceeding please exit this want and log back in later. In the event a member has technical issues that prevent them from being recognized for their questioning, ill move to the next member of the same party and i will recognize member of the appropriate time slot provided they have returned to the proceedings. Those numbers physically present today, will also be following the health and safety guidelines thissued by the attendingphysicians. This includes social distancing and especially the use of masks. I urge members and staff to wear masks at all times while in the hearing room. I think you in advance for your commitment to a safe environment for all heretoday. The covid19 pandemic is fundamentally altered the way Small Businesses operate. Mandatory closures to protect Public Health have significantly affected their bottom line and visibility. To help Small Businesses whether the pandemic, congress has passed aseries of legislative passages. On march 6, Coronavirus Preparedness response supplemental appropriation became law and authorized Disaster Assistance program fused available funds to issue Economic Injury disaster mode or idol. The Small Businesses affected by the pandemic. On march 27, the fairfax was signed into law and created the paycheck Fiction Program for ppp and the economic recovery disaster loan emergency advance. And fda acted extremely quickly to implement these relief programs in order to deliver emergency funding to Small Business owners to keep them afloat. Over the past six months, more than 5. 2 million ppp loans in approximately 3. 5 million idol applications have been approved. Thats an incredible amount of federal assistance to americas Small Businesses and i commend sca staff or creating infrastructure is set up these programs so quickly. Sba was asked to undertake an enormously challenging task to implement these programs in just a few days and this committee recognizes that some mistakes were expected but Tthe Congress and the American People must have confidence that the administration is taking seriously their responsibilities to mitigate pause and ensure this assistance is available to all eligible Small Businesses. Today i hope to learn more from the sba Inspector General and Government Accountability office about your findings and discuss ways to improve the delivery of sba services to Small Businesses. The sba office of Inspector General released a report detailing potential incidence of fraud in the idol program. Initial investigation found tens of millions of dollars in duplicate loans about suspected fraud including accounts established with stolen identities and award transfers to foreignaccounts and deposits into personal accounts that have no evidence of business activities. And without swift action from sba these fraudulent activities will only become more widespread as Congress Debates legislation to allocate more assistance as the impact of the pandemic stretches on. I understand that sba responded to this report by stating they have internal controls in place to address these types of fraud. Yet government oversight casts doubt on how effective these internal controls are. The pogo report stated antifraud policies were not only implemented during the idol processing. Software was not uptodate sca was struggling in mid august to handle fraudulent applications. As the chairwoman of the investigations oversight regulations subcommittee, im concerned with these reports and hope we can have a constructive discussion to address these findings today. In addition, to the it report, the gao release reports on august 31 and september 21 detailing concerns that sbas oversight of theppp and their ability to collect and interpret applicant data. The september report outlines extremely them concerning gaps in the availability of demographic information serious data reliability issues area the report also details fopotential fraud sba referred to both the ip and the Poor Department of justice. More than 40 on related cases arecurrently under investigation. Additionally, the report finds sba has failed to adequately prepare borrowers, lenders or the dep forgiveness process. Demonstrating the seriousness of this problem. Lastly sca announced they had received 96,000 forgiveness applications representing less than two percent of loan dispersed. But they still have not processed as single one. Perhaps most troubling to me are reports that gao has had difficulty even completing their audit objectives of sba have not been forthcoming with documentation and access to data. Today id like to learn more about where sba stands and implementing internal controls, where the deficiencies live and what the subcommittee can do to support sca and their efforts to prevent fraud in both idol and ppd. Again, i want to thank the witnesses were participating both virtually and in person and i now yield to the Ranking Member, mister spada for his Opening Statement. Acumen chairwoman you chair for holding todays hearing. The Economic Impact of the coronavirus, this committee has worked to create and optimize Economic Relief programadministered by the sca. The bipartisan cooperation te and interagency negotiations we created a Paycheck Protection Program for pe. Revitalize a preexisting r Economic Injury Disaster Loan Program, idl. Id like to take a moment to thank everyone for their work both rams have now a lifeline for our nation will businesses as it august 2020 the day that the program reached its authorized deadline sca had approved 5. 2 million loans totaling more than 525 billion dollars. The average loan size was around 100,000 and there were nearly 5500 participating lenders. A Small Businesses received 432,000 dep loan for a total of 32 billion. And in my district florida safety district 10,254 businesses received 304 million loans and he area these loans have Small Business owners keep the lights on. Keep their employees onthe payroll. I talked with many Small Business owners since the launch of the ppe, how , owner of older athletic wear in flex a florida, a manufacturer of womens athletic wear in my district. The loan was absolutely essential and crucial for mister powells business because it provided the critical capitalnecessary to retain employeesthrough the retail closures. In addition to creating the new program , the subsequent legislation expanded the preexisting idol program administered by the sca Disaster Loan Program and as of september 13, 2020 sca has approved report 5 million idol. [a 190 dollars and average loan sizes. The i have strength which is not required to be paid back by 6 million Small Businesses with 20 million in grants. Florida Small Businesses approximately 150,000 loans approved were nearly 20 billion. With only the basic statistics thomas cannot fully measure the impact of these programs. Thats for assure. We need to ensure loans went to the intendedbusinesses and that the loan proceeds were used properly. Fortunately we have fantastic allies to the sbas office of Inspector General and Government Accountability office. Today each office has sent a representative to represent their initial or to present i should say their initial reviews of ppp and idl. We look forward to working together to make sure that taxpayer dollars are spent appropriately and to reduce waste, fraud and abuse in these critical fda release programs and withthat madam chair i yield back. Mistress bono. The gentlemanyields that. Other subcommittee however numbers have an Opening Statement i would ask that they submitted for the record. Id like to take a moment to explain how this hearing will proceed. Each witness will have five minutes to testify and each member will have fiveminutes for questions. Ensure your microphone is on when you begin speaking and you returned to me when finished. Id like to introduce our witnesses. Our first witness is the honorable animal mike ware, Inspector General of the sba. Mister ware was sworn in as the Inspector General in may 2018 and has been an effective leader in his role and an asset to the community. He has 20 years of experience in the ig community rooting out fraud, waste and abuse in federal programs. Hes received numerous awards throughout his career including several from the council of the Inspector General on integrity and efficiency in recognition for significant portfolio of oversight work. Welcome mister ware. Thank you. Our assistant witness is mister williamscheer , director of Financial Markets and Community Investment team of the Government Accountability office. Theleads in gaos Work Community and Economic Development , Small Business and sbas response programs. Mister shearer joined gao more than20 years ago. He has a masters degree in Public Policy and a phd in economics from the university of chicago. He also served as an adjunct to the member and the graduate program in city and Regional Planning in the university of pennsylvania welcome , mister scheer. Id like to begin todays hearing by recognizing mister where for five minutes area. Ranking member expanded, members of the subcommittee, thank you for inviting me to speak with youtoday for your continued support. The men and women of the office of Inspector General have been working diligently to provide oversight of sba Pandemic Response. I am always proud to ff represent them publicly and to you about our important work. I come before you today in the wake of a historic crisis posed by the pendant and ensuing unprecedented role or sca to mitigate damages to the nationseconomic crisis. Scas managing over 1 a trillion in Lending Authority for pe en idol programs. The speed and lower guardrails of these eligibilitys surrounding the ppp and idol lending authorities brought with it substantially increase risk. As indicated in my written statements, we sought to inform sbas efforts through three white paper reports offering known risks implementing pep and idol based on prior oversight of the recovery actand other disasters. At the same time we focus on preventing and determine fraud by raising Public Awareness offraud schemes. The outset, we initiated several reviews to include the ppp and idol reviews. During the course of these alarming findings. Often enough to issue a report on ppe in may management alert on idolin july. That oversight were carried on. We solidified our preliminary results and identified Additional Findings area on september 14, we provided leadership to track reports. One containing our findings related to sbas implementation of ppp and one containing findings of sbas initial disaster resistance is response to covid19. Review standards require that we consider important findings. We anticipate others seeing these reports in midoctober following the 30 day review and Comment Period by fdas leaders. As such my comments today regarding those findings must be considered preliminary so we can account for sbas official comments before finalizing our report. Nonetheless, our findings are significant the need for strengthening internalimcontrol and for combating potential fraud in the program and. Our reports to significant potential fraud in both ppp and idol. Its a remark that the potential only because weve not received each loan associated with the area findings. However, the amount of dollars we cite as potential fraud are not being on projection, rather they are based on loans, meeting criteria for a week internal control environment where in many instances we are in massive criminal investigations of fraud to substantiate concern. Our office has received tens of thousands of complaints around the world on our hotline. Hundreds of investigations involving complaints of fraud have been initiated and are ongoing with no results being reported daily by the United States department of justice which has been a tremendous partner. Among these accomplishments was the first t charges against individualsfraudulently seeking ppp loans which was announced on may. More than 57 defendants have been charged with fraud cares tax passage that the department of justice on september 10. I want to assure sba lending partner and the nations Small Business owner that they follow the guidelines and act in good faith we are not focused on your actions. The findings of the report do not diminish the lending partners. At one point in the crisis, it was reported that sba performed 14 years worth of lending in just 14 days. However, oversight work confirms sba did not pass the controls to address risk and provide ovassurance that the loans and idol grants and loans only be received by eligible recipients. We will continue our efforts to keep administrator this congress currently informed about our findings area we are not alone in this effort. Programs of this magnitude require a whole government response as a statutory member of the council of Inspector General on integrity and efficiency, i am working with my Inspector General colleagues to leverage the collective power of joint oversight efforts to increase transparency of sbas Pandemic Response. Rest assured the men and women of my office understand nothing short of the Publics Trust is at stake as well as the vitalityof the nations economy. Thank you for the opportunity to speak today area i am happy to answer any questions you may have. Thank you mister ware mister shearer, you are now recognized for five minutes. Thank you. I am pleased to be here this morning todiscuss our work on sbas Paycheck Protection Program and economic entry Disaster Loan Program. Through these programs sbas made or guaranteed 14. 5 million loans and grants providing about 729 billion to help Small Businesses personally affected by covid19. In april 2020, sba moved quickly to implement ppp. Given the immediate pneed for these funds, sba worked to streamline the program so lenders could begin discrediting responses as soon as possible. For example lenders were permitted to rely on substantial occasions s that help it the use of loan proceeds and as a result there was significant risk that some fraudulent or inflated applications were approved. In our june report we recommended sba develop and implement plans to identify respond to risk and ppp to ensure Program Integrity and achieve Program Effectiveness and address potential fraud. According to federal internal control standards gaos progress framework managers and executive Branch Agencies are responsible formanaging fraud risk and implementing practices for mitigating those rest. When progress can be identified and mitigated, fraud may be less likely to occur. In june 2020 we reported that reliance on applicant Self Certifications can leave a program vulnerable to exploitation does wish to circumvent eligibility requirements or pursue criminal activities. Since may 2020, the department of justice has publicly announced arches in more than 50 fraud related cases associated with ppp funds. In april 2020, sba announced it would review all loans of 2 million or more to review eligibility and sba officials subsequently stated they would review selected loans of less than 2 million to determine for example whether the borrower was entitled to loans. However, sba did not provide details on how it would conduct either of these reviews. Theres a september as of september 2020 sba reported that it was working with the department of the treasury and contractors to finalize plans with reviews. Because sba had limited time to implement safeguards up front for loan approval we believe that planning and oversight by sba to address risk in the ppp program is crucial moving forward. We continue to be concerned about the potential for fraud and ppp and i continue to conduct work on the Program Including on internal controls and fraudRisk Management. Sbas efforts to expedite processing of economic entry disaster loans such as the reliance on Self Certification may have contributed to increasedfraud risk in program as well read in july 2020 , as mike ware just stated sbas office of Inspector General reported indicators of widespread potential fraud including thousands of fraud complaints and some deficiencies with sbas internal controls. The department of justice in conjunction with other federal agencies have also taken actions to address potential fraud. We continue to be concerned about the potential for fraud in the idle program and are currently conducting work on the Program Including on internal controls and fraud Risk Management area however we have experienced data and information requested from sba including access to vital data, we continue to take actions to obtainrecords needed to move forward with our work. Chairwoman shoe, Ranking Member spano and members of the subcommittee, this concludes my statement. I would be pleased to respond to any questions you may have. Thank you mister shearer. We will begin questioning and i will begin by recognizing myself for five minutes. Frankly i am shocked by these findings area are two main loan and Grant Programs are idle and ppp and in both playgrounds, you have said that there are not the internal controls in existence. To prevent fraud. So i have many questions. First id like to start with mike ware, our Inspector General reedit to summarize, you said that there were, there was fraud and also that there was a lack of internal control so that for number one, there were 250 million worth of loans in the idle program that were given despite the fact that they were clearly ineligible area that is, no business was eligible if they created their businessafter january 1 of this year. And yet , loans were given in the amount of 250 million in grants to these systems to particular businesses. The second problem is duplicate loans. I mean, there were no internal controls and as a result duplicate loans in the amount of 45. 6 million were approved. And then third, its so shocking, social media pride schemes in which they use social media to recruit applicants and split the money with the ringleaders. Can you identify the weak points in sbas inqtel control and how can sbas improve these existing controls in the time ahead . I certainly can and [inaudible] so the challenge sba always has especially in their disaster learning program is they have to balance, balance is the key word here, the need of aiding people in desperate need while [inaudible] in this instance, sbas at first to hurry capital to business would mitigated the risk of ineligible fraudulent businesses for eidl loans. Thats why we have the problems we have. The sba they get funds eligible entities quickly, they lowered the guardrails with eidl program by removing a weakening of controls. We found for a fact to thousands of contacts and banks at the thousand own Data Analytics that those actions increased fraud, risk significantly. Again, they have that balance to deal with, but the balance cannot one part of the balancing act cannot be sacrificed for the other. The type of things we were fighting in terms of controls were of course the Self Certification part was one, but the contractor that the cat with had some builtin controls. But the loan applications came in huge batches so that batch process allowed a lot of things to be missed and then there were a lot of things, of the controls that were not in place, such as what happens after the contractor said okay, this is a legitimate bank account, but they allowed on the backend the applicant to change the bankll account before that money was dispersed and there was no control in place to at least double check or to make sure that those were going to an eligible recipient. The agency in these meetings especially on eidl, they are taken a lot of action already. Before the alert went out we were meeting with him with ande thought itof was critical that they knew this information that they take action to immediately, so they shored up the control with a wreath verified the Bank Information every time they changed, and if they didnt find only minor issues, then they would come to sba much smaller batches and they now have team lead approving batches, and they have done that, let me see, what else. They had done quite a bit. They found a larger issue with the system of control they said they had in place where it wasnt identified all the duplicative information, and now they have addressed that issue. And now the big thing that they put in place is they have begun automatically declining loan application for the system identify suspicious online activity. That wasnt happy at all, for example, Bank Accounts that not the same person. Email addresses and phoneap numbers in someone elses name. Where emails like along with the regular. That may force in a legitimate applicants into the loan application reconsideration process to allow for support and documentation before the applicant gets their loan approval. Er and so yeah, they have pivoted pretty quickly on implementing controls i have to say. I dont know times up or not, but fraudsters are going to do what fraudsters are going to do. We had have to continue to meeh the agency when we find new schemes so that they can very quickly mitigate a lot of the risks and shore up their controls. I think theyve been pretty responsive to that. Well, thank you for thehe thorough answer here and now we have our Ranking Member mr. Spano from florida. Thank you, madam chair. The cares act set up an intricate web of oversight mechanisms utilizing preexisting offices and creating new ones like the Pandemic Response Accountability Committee and the office of the special Inspector General for pandemic recovery. My question is how do you offices contribute to the larger pandemic oversight system . If you could add to that first, shear. Answer that. We have major responsibility in the cares act, and it was actually articulated to each of the affected agencies from letters from the comptroller general is first are bullet overseen cares act program broadly, and the need for us to report on a bimonthly generally a bimonthly basis to the congress on wide variety of issues. In contrast i would just say that we focus on issues just as my colleague mike where does getting with fraud risk and things of that nature but we deal with broader issues and we will do with integrity of the programs. So we do look at responsiveness. We have issued reports in june, august and september that deal with the wide range of cares act programs. And addressing them in a broadway and doing detailed audit work. Mr. Ware, would you like to respond to that . Sure. This is actually one of the questions i was hoping that it would get, mainly because of the prominent role that i play. I am the Audit Committee chair and we need regularly, like every single week. I am a statutory member of that committee. In our meetings we were work cy to determine how we can help the community and how we can move the whole of government approach for work. If you noticed, the press releases concerning our investigative work, it is always joint. Weve been working with fbi, fdic, Federal Reserve board, hhs. This is been an all hands on deck approach of this oversight, because no single one of our offices could handle this alone to the magnitude of issues that we are finding. Regarding [inaudible] we have had come him and ive had several oneonone meetings, particularly to act on certain things to my office that he is not able to do at this time but he stands up his office. Wee are all in communication ad all working in a collaborative manner to ensure the proper level of oversight is undertaken. Do you feel like you need additional, any Additional Guidance or clarity in terms of enthe roles that you were playig respectively . Sir, i do not. E i believe that the act that stood up, as we refer to it as, was pretty clear. I do believe, you know what, in some means we discussed quicker access to data for the brac. But im pretty sure that something that the executive director [inaudible] mr. Shear, would you like o respond to that . I think that the cares act, beyond just relying on our accessss authority and our role generally as congress, that there was very clear that we had very expansive authority. We had very expansive responsibilities, and we let our comptroller generalve gene dodao have gone on in that direction. We generally have had very good cooperation with the agencies that are included. So its an expansive role and it very clearly states what our role is and what our authorities are entrance of access to information. Thank you. Madam chair, i yield the remainder of my time. Thank you. The time of the gentleman has expired and the gentleman yields back. Now the gentleladys time new york, our chairwoman, needy velazquez, is recognized for five minutes. Thank you, chairwoman chu, and mr. Spano, Ranking Member. This is a very important oversight responsibility that we have in this Committee Regarding the cares act. This Committee Regarding the cares act. So mr. Shear we understand that you had issues accessing eidl data from sba. Why do you think that happened . We and i always try to avoid trying to say whats going through peoples mind. But what we can observe is a situation that is not a cooperative one, which we have speernlsed a more cooperative environment with sba dealing with other matters, but not when it comes to cares act. As you know that with ppp data excuse me, sir. Would you characterize the actions out of the sba as obstructionist . There was obstruction when we were trying to obtain loan level ppp data that went on for weeks. Getting access for people to talk about how they were implementing ppp, that wept on for weeks. We still arent getting a lot of cooperation from sba and yet they accuse us of not giving them credit for what oversight they have in place when they provide very Little Information and dont respond to what were asking. With eidl it is more extreme. We have asked a very long time ago for application level eidl data. So let me ask you. So it is clear you have expand authority and the controller general has expand authority to demand and to have the access to information, to have access to the data. So i myself have to call the administrator to ask her to expedite or to allow for the controller general to have the information that he was requesting. He personally called me and i believe that evening called the Ranking Member. Can you imagine it is our responsibility to protect taxpayers money and to make sure that the program is implemented and what we have seen is not only a case of fraud and abuse committed in the eidl and both the ppp, mismanagement, probably the obstruction coming out of the sba is because they knew that they didnt take or implement the kind of controls to prevent fraud and abuse. So what can we do . What can congress do to help you do your job Going Forward . Do you think that, for example, withholding Agency Funding that that will be an option . Its like it could be an option, and i would hope it wouldnt come down to that. But if you go back to the issues that we had with just getting loan level ppp data im sure you and Ranking Member chabot and other members of congress were surprised when the controller general was making personal calls to you seeking your support, and we appreciate it greatly. Its unfortunate it was necessary. With eidl, and some 06 this its not just data that we know should be readily available. But there are certain things like contracts. Theres a tremendous delegation of authority to contractors where were just asking for contracts, very straightforward information to provide. So we certainly hope it doesnt have to go up. Were close to being at the stage where you might be hearing from the comptroller general again, the administrator of sba will be hearing from the comptroller again. Our general consul will be reaching out to the general counsel on sba. So the agency is not collecting Demographic Data that we have requested. And that was the sense of the senate when we passed the legislation. Its clearly stated. And so how difficult does that make your job and our job in determining whether or not we are making sure that the loans particularly businesses in underserved communities. This is an issue weve dealt with numerous programs including now with ppp as far as Demographic Data. And sba takes a certain view toward the authority to collect data on race and ethnicity. And weve been dealing with that. So the work around i think becomes for sba and for us is to geocode where were not sawing who are the borrowers, you know, are they minority owned Small Businesses, but at least what communities are they operating in . And that becomes the best we can do with that situation. Chairwoman, with your indulgence i just need to ask one more question. And if you consider that necessary please allot the same amount of time to the minority. There are 4,226 loans that went to businesses with over 500 employees. In your work have you been able to examine whether sba have confirmed that these businesses employed the number of employees stated in their application . We are still at the stage and weve been waiting for a meeting thats now scheduled for next week. Just dealing with what we consider extreme data reliability issues which affects our ability to do thats associated with evaluating Data Analytics, its affecting our ability to evaluate who the programs are serving. And we are trying to move forward on that, but we arent at that stage yet. And part of that is the extended delays we get in dealing with sba. Thank you. I yield back. Thank you. Gentle ladys time has expired and the gentle lady yields back. Now the gentleman from tennessee is recognized for 5 minutes. Thank you, chair lady and i appreciate the panel. I guess my first question would be what has been the Economic Impact of this . And ill open that up to anybody whod care to answer that. Positive or negative overall. By Economic Impact youre talking about Economic Impact of the fraud . No, both sides of it. Id like to hear both sides of it. Oh, there is absolutely no doubt that programs reach out to people who are definitely in need and we know that for certain. But we also know for certain theres no assurance that all that money went to the Small Businesses it was intended to go to. And this is a fact and do believe there is a balance that could be struck to mitigate the risk of fraud and identify the risks both of us have identified for sba. But on the one side im telling you that sbas employees have worked long and hard to get this money into the hands of people who needed it. We have identified many of the schemes. Weve work would the agency to mitigate much of that risk. So i know theres a large part theres no doubt theres a large part that have gone to ineligible and fraudulent recipients. Since we have identified those are we do you think its in place im sorry to interrupt you, and i like what you said about fraud centers are going to fraud. I think thats pretty accurate. Every time you do something, some new plan or some horrible tragedy occurs in our country, these dirt bags get out and take advantage of the situation. But i is something in place to go after these people . And do you feel like we will go after them, are we just going to say let it go . So the department of justice what is it called . The press conference that we had just a few weeks ago, we had it to signify the 50th arrest made of these fraud centers. There are hundreds of investigations already in process by my office. The fbi in their press conference stated they had over 500 investigations initiated. And if you know how fraud works and fraud investigations work that normally doesnt take place until 12 to 18 months after these loans have gone out. The fact we have moved so very quickly to catch people has been pretty remarkable and a great deal has to do with the department of justice and their partnership with us and other Law Enforcement entities. But were on this and going to keep going. What im afraid is we move onto the next calamity in our country and we forget about the working folks that didnt get the money that should have because again my favorite term, these dirt bags got the money they shouldnt have, and weve got hardworking business folks especially the smaller business in our rural and inner city areas will not receive that funding, and thank you for your answer. Sir, i know you were wanting to say something, too, as well, please. I will pull this out from the fraud issue by just saying who are are the intended beneficiaries of this program, and how is it serving these Small Businesses in the communities they operate in kind of like overtime . It was clear that ppp is trying to keep businesses in business and to allow businesses to keep payroll. Where eidl is a bit focus on keeping businesses sustainable. So theres slightly different approaches. They serve slightly different issues. But let me take ppp. We have serious concerns about data reliability having to do with jobs reported. But nonetheless its clear that ppp has spent a large amount of resources to support a large number of Small Businesses that employ a lot of people. And so it has been a lifeline. So we can observe that. And what also became clear is that originally it was an 8week period before forgiveness that it was recognized that the pandemic would continue for a longer period of time and congress, you know, made legislative changes to expand that period. What we dont know yet in terms of Economic Impact is basically that to what degree it has helped various segments of the economy. And its a very difficult question to answer, and it might not be possible until weve gone through much if not all of loan forgiveness. But theres a lot of questions as far as over the long haul where theres still uncertainties about what will happen with the pandemic. Theres still a lot of questions what the Economic Impact ultimately will be, but it has certainly been a lifeline for, you know, a very large number of Small Businesses. Chair lady, ive gone over, but if you could issue my distaste for the fact this is such an important issue, and we have i have to go to another committee and were markup bills, but if you could tell them to prioritize these things. Both parties do it. We go hours during the day where nothing is going absolutely not. And they stack these committees on top of each other, and its a disservice to you as a chairlady and disrespectful to you, and its disrespectful to the taxpayers and im going to talk to my leadership and i hope you would do the same because this very important issue, and i apologize i have to go to another committee, but im very passionate about this issue, so thank you, maam, and always your courtesy to me and your friendship. Thank you. Well, thank you, and the gentlemans time has expired. The gentleman yields back, and now the gentleman from pennsylvania, mr. Evans, is recognized for five minutes. Thank you, madam chairperson. Mr. Shear, sba his relying on heavy contracts to process applications. What information has sba provided to you on the contractual responsibility of contractors and subcontractors and why such Important Information for gao works . This is one of the areas, we had a meeting with sba last wednesday. So just eight days ago, where there at least was a meeting to talk about what were requesting from the agency. So that was a step forward. But theres no timeline put on providing material. And in both of these programs, but you asked with respect to eidl, theres heavy reliance on contractors. We just asked for the contracts themselves. And that will lead to questions about what the contractors are doing, but it will get us started. And in terms of information that should be readily available, were still waiting for a response. And as i said to chairwoman velazqu velazquez, were taking actions to push this forward, just like we did with ppp and access to ppp data, but were still seeking information from sba on the contracts and what the contractors are doing. Do you get any real sense of cooperation or not . No, the cooperation has been poor. And i dont like stating this, but we havent had good cooperation in conducting this work. There was some improvement when the agency then decided that they would provide us loan level ppp data, but its not the usual cooperation that we have received from sba for that matter other agencies. With respect to both of these programs. It is my understanding that ppp and eidl on the front end of loans because of the speed of the c. A. R. E. S. Act they needed to get to Small Businesses. Many businesses in my district needed the money right away to stay afloat. If congress authorized additional, and the chairwoman asked you this, authorized additional funding, can you be specific what you recommend Congress Take to insure internal controls in place at the beginning of the approval process of the new loans . Right, so thanks for the question. Recommend to congress put in place just a need to have the type of controls that at the very least, if an application falls into the high risk where we know theres fraud buckets, rampant fraud buckets, it requires an automatic second look to verify. So the lower end of the guardrails needs to come up, particularly on those that fall in the highrisk areas. And those that have multiple loans in the same type of mixed code categories from the same ip addresses. Those that have random email generator accounts. Those where the Bank Accounts are changed after the approval process is over. Those that are in the name of, for example, prominent politicians, prominent Business Leaders that we would all know their names. And other clearly ineligible entities. And the type of controls that capture ineligible entities. If they do not meet this date, it is automatically declined. Those are controls that are necessary. Thank you, madam chair. I yield back the balance. Thank you. The gentlemans time has expired. The gentleman yields back. And now the gentlelady from minnesota, ms. Craig, is recognized for five minutes. Thank you so much, chairwoman chu, and good morning, everyone. Chairwoman and Ranking Member santo, im so grateful were having this hearing today. This issue is incredibly important to me. The issue of fraud and improper payments and government waste. Since the beginning of the covid pandemic, i have worked hard, i know all of us have, to make sure that were providing the businesses in our community the absolute best of resources and especially to those hardhit Small Businesses through the ppp program. You know, these fraudulent activities that have now been incredibly well documented, it steals resources from taxpayers, and it steals resources from the Small Businesses who still need that help. Improper payments are exactly why i introduced the payment integrity information act, which im proud that President Trump signed this into law earlier this year. It strengthens protections against improper payments in federal programs. So currently, there are a number of resources and tools available out there in the market developed to detect exactly the kind of fraudulent activity that seems to have gotten through the sba. In fact, a division of Thompson Reuters located right in my Congressional District has that kind of technology and system. So in light of this, mr. Ware, i have a first question for you. Do you feel at this stage that sba has the necessary tools and resources and funding and oversight to be able to accelerate your efforts to prevent fraud and waste . And if not, what specifically do you need from our subcommittee and the u. S. Congress to put you in a better position to manage your activity in this agency . Thank you. Im being told that i got a call from the house that said that my camera is coming and going. I dont know why. Im looking at myself. I dont know whats going on, so i apologize. When you ask about the resource, are you asked about sbaoag or sba proper . Im asking more generally, do you and the agency have what you need to be able to do better . Because obviously, theres technology out there that can help you detect and improve the accountability here, and im asking, is there an active effort to make sure that that happens . Because sadly, this pandemic is not going away anytime soon, and i suspect unless were able to effectively suppress this virus in a way that we clearly havent been, were going to have to continue to ask sba to do some very difficult things that obviously were not in a position to stop fraudulent activity at this moment. We are extremely fortunate that maybe two years ago Congress Gave us additional money to stand up our Data Analytics capability. And we are very fortunate that that investment was made because that group is doing excellent work in identifying fraud trends and quickly reporting out on them to the agency. As far as the agency well, still speaking about my resources, we are coordinating with other Law Enforcement entities to approach this in a more whole of government manner. As far as the agency, like i said earlier, they have taken some steps. Ill give you one of the steps in terms of their resources. Initially, in that first report that we issued where we were talking about all of these thousands of calls we were getting from the banks saying, hey, guys, theres fraud here. We dont know what to do with this, we stopped this, we held this money. How do we get the money back to the government . This, that, and the other. We pulled everybody into a meeting. Initially, what i required was a secondary review we were asking sba to conduct to make sure. Sometimes theres reasons why things happen and it could be an eligible loan. But what they only had a couple people assigned to doing that, they grew that immediately to 25 people to do that. And then i think it was 54. And now i believe that number is even higher. So they have put the bodies necessary to have these secondary reviews. We have not reviewed how that has gone on yet. This has what has been reported to us. But in terms of resources, i cant speak to what sba has to do things. I just know they have moved things around to address and to mitigate some of this fraud risk. Thank you, mr. Ware. It appears my time has expired. So ill yield back to the chairwoman. Thank you. The gentleladys time has expired and she yields back. And now we actually have time for a second round of questions, if anybody desires to do so. I believe the topic is so important that i would like to go a second round. So i will start by recognizing myself for five minutes. Mr. Shear, i wanted to ask about the loan forgiveness process. You described in your september report that sba has not provided clear guidance to lenders on the ppp loan forgiveness process, and as a result, sba may be using unreliable data to process loan forgiveness. And i would say that the description that you provide describes a situation that is at best fragmented. And that is the guidance comes on a rolling basis. Theyre not specific review requirements for lenders who are processing these applications. But as a result, what we have is a situation where sba has announced its received 96,000 forgiveness applications but has yet to process and approve one single one. That is i mean, there are lots of businesses that are hanging on the edges of their seats wondering if theyre going to get loan forgiveness. So what specific steps should sba take now to improve the quality of this data . And what can be done to make sure that there is a loan forgiveness process that is functional . There has to be clear guidance and responsibilities of whos responsible for what. And the role of sbas oversight of that process to have banks are interested in certain types of safe harbor, that has always been an issue. You have had reliance on borrower certifications, and again, we were very receptive to the fact that loans had to be gotten out very quickly. But like immediately, our first report, we made a pretty broad recommendation that you needed certain controls in place, and there has to be some clarity for the participants in the program rather than this sprawling guidance. So there has to be clearer processes and procedures that banks and borrowers can go on. And i say this especially with respect to the smallest businesses that might not have the most Resources Available for accounting and legal assistance. So there just has to be greater clarity. And we need, again, we wish they would look at us as an asset in terms of trying to improve the integrity of this program. And that they would let us look like they do at other programs in our experience at sba, and actually be in a position to evaluate and to make recommendations for how those processes can be improved. Thank you, mr. Shear. Now id like to ask about the first phase of ppp being dominated by large borrowers and even some publicly traded companies. Sba had issued guidance to emphasize the economic necessity requirements, but then, this came after many Larger Companies, even publicly traded companies, had already been approved. So first, how many publicly traded Companies Returned the money . And what is the dollar amount that this represents . And how would you suggest sba prevent Large Companies from accessing a Program Designed for americas Smallest Companies . If that question is for me, i dont have the exact figures. I definitely could get back to you within a very short period of time on the exact figures. But in terms of what happened there was how it was initially set up in terms of the 500 employees in a single place. And that allowed some of these Larger Companies to get in within the confines of the law. Now, if you understand, the next code they use, i believe its 72. Youre considered small if the businesses had fewer than 500 employees in one location. So that happened. So if theres a shoring up of that to insure i believe there was in the amended or the next that came out, but thats how they can insure these companies dont get it. And like i said, ill get back to you with the exact amount of companies and the exact amount of dollars. My time has expired, but yes, im very interested in that information. I think so many others would be as well. So please come back with that information. I yield back. And now the Ranking Member from florida, mr. Spano, is recognized for five minutes. Thank you, madam chair. What is the percentage of fraudulent loans approved in proportion to the 5. 2 million loans approved . Ill at least start with that. We dont know, just realize that we make a very big distinction between fraud risk and the management of fraud risk and a lot of things we have talked about in this hearing have been about Data Analytics and other actions. To look at fraud Risk Management, and so we look at that. Were not a Law Enforcement agency. But one of the things that we emphasize is how do you prevent this . How do you set up the fraud risk framework along the lines that we have actually had a report now since 2015 spelling it out, thats widely used by agencies. How do you set it up, because the cost of setting up prevention, right out of the starting gate, or even now when youre talking about what happens as we proceed with loan forgiveness and other aspects of the program, prevention tends to be the most efficient thing to do. I get that, and i apologize for interjecting. I only have five minutes. Sorry. From the very beginning, what has been articulated as the balance that has to be struck between in this particular situation getting money out quickly and preventing against fraud. Theyre both important. We obviously experienced personally how important that was when we were getting in our congressional offices dozens and dozens of calls from Small Business ownersarve day that say what in the world are you doing . Ive got to know whats going on. I dont know whether to let me staff go. So there was this inexorable push to the sba to get this stuff done quickly. So last thing i want is fraud. Dont want fraud. But when we acknowledge that there are two competing interests in this scenario, to get it out quickly and prevent fraud, it seems to me an important question we should ask and an answer we should have if both are important is how many loans were fraudulent and how much of the over 525 billion was extended was fraudulent. That will help us determine how much if any additional measures will be taken to prevent fraud in the future. Does that make sense . Yes, let me try to be brief on this. It will be a long time until we know how much fraud there was in the program, and you can think of the education of department of justice and other Law Enforcement. But part of our emphasis has been, we very much recognize that loans, there is a push to get loans out. But with the passage of time, it becomes much more troubling when the fraud framework is not in place to try to mitigate the risk of fraud existing, you know, in the program and being practiced. And even more generally, improper payments occurring because of the lack of oversight. At some point in time, and we think that time has come, and thats what were looking for, is what has sba put in place . So thats where our emphasis has been. Understood. If you know, whats the statute of limitations for prosecution of fraud under the c. A. R. E. S. Act . And ill let you answer that first. Well, if you want to make a question for the record, i dont know it. Maybe mr. Ware does, but if you make a question for the record, i would be glad to respond. Mr. Ware, can you answer that question . It appears i didnt specify a particular amount of time in terms of it. Normally, were looking at seven to ten years that were dealing with on these fraud investigations. And these loans are going to perform in the portfolio for decades. There will be a time to go back and deal with this, but if i may, i dont know if we still have time for me to i have 30 seconds. Okay. Quickly. So the issue with this is that in terms of the fraud framework that needs to be in place, we know for a fact that there is fraud. Mainly because of the thousands of calls to the hotline, particularly having to do with identity theft. Where people are finding out for the very first time that their identities were stolen. When they hear from sba that their loan payments are going to be deferred and theyre like, what loan payments . I have never had a loan from sba. This is routine. Were getting this dozens every single day. Were hearing some heartbreaking stories out there. And all these things fall into the same buckets where were talking about this fraud environment. Thank you, mr. Ware. And i know my time is up. I would say it seems to me if the c. A. R. E. S. Act didnt certify what the appropriate statute of limitations is, thats something we should follow up on. That would give us the opportunity to plan long term for what the window of time would be in which we need to go back after these folks. Thank you, madam chair. I yield back. Thank you. The gentlemans time has expired and the gentleman yields back and now our chairwoman from new york, ms. Velazquez is recognized for five minutes. Thank you very much. Mr. Ware y would like to ask the same questions that i asked mr. Shear, but because of technical difficulties, i was unable to ask the same question to you. An issue regarding the gao september report that shows 4,226 loans went to businesses with over 500 employees. So in your work, have you been able to examine whether or not sba has confirmed that businesses employ the number of employees stated in their application . Have we confirmed this . Yes. Yes, our work has confirmed some of that did take place. The thing is i dont have the exact figures in front of me. I definitely could get you that, though. And i really see that looking at the screen that the request for that information already popped up. So several loans that were granted to companies with over 500 employees, not withstanding the rules that permitted exemption for the industry, does your office plan to examine how these companies were eligible to receive these loans . Certainly. I believe thats in our supplemental overview plan that we have publicly. And we will definitely look into that and eligibility. As a matter of fact, some of that will be reported publicly later in this month. Okay. And mr. Ware, in sbas official response to your report, administrator carranza stated, and i quote, loan defishants are made by team, mainly Loan Officers. During your investigation or in the time since, have you reviewed whether there are adequate training protocols in place for sba Loan Officers . Initially, no. Now, yes. Okay. Because money was provided, funding was provided to the agency to execute and implement the ppp and eidl program. Mr. Shear, in gaos report, in september, you stated that the department of justice has publicly announced charges in over 50 fraudrelated cases, related to the ppp. These cases were referred to the doj. By sba, but the agency has yet to implement additional internal controls to mitigate risk. Can you expound on the risks sba is incurring by not implementing internal controls for ppp . And what is your assessment as to why they, to this point, after we enacted the First Tranche of money, they have not been able to put in place control mechanisms . With the lack of information provided to us, we presume that controls are not in place, and we would hope that, you know, i dont want to speak for the Inspector General, but i would hope that they could view us in a more constructive way in terms of helping to identify how you can create a better control environment for this. So with the passage of time, again, right out of the gate, we thought that something very serious was needed with the lack, the limited up front controls. And we just dont see it yet. We see references on pages 8 and 9 of my written statement as far as how theyre going to use contractors, but we dont even have contracts as auditors we asked the question, what is the agencyy trying to hide . Theres too many questions that go unanswered. Well, we just need to be on record basically pointing out the attitude of these administrations. You could go out there and yet we do not deny that the agencies must do everything they can to put money into the hands of deserving businesses, but not at the expense of compromising the fact that they have to take every control or put in place of a mechanism to make sure that we avoid mismanagement, fraud and abuse. And it is not happening. Chairwoman, thank you. Iab yield back. Chairwoman, you are needed. Thank you. The gentlelady yields back, and now the gentleman from pennsylvania is recognized for five minutes. Thank you madam chairperson. My issues, many later in my home city of philadelphia have expressed frustration with the piecemeal release of ppp rules. Despite sbaen issuing rules for forgiveness, theres so much confusion about the lenders role in the process. Sba is supposed to send a forgiveness announcement out to lenders no later 90 days or receiptt the decision on loan forgiveness. That means for any application submitted, the first day as we start accepting them, sba has little more than over a month to send a response to the lender. This is of a concern because lenders [inaudible] mr. Shear, what do you believe sba will be able to do to meet this deadline . And if not able to meet the 90 day deadline, will this mean lenders will move from participating in the future . I first start with the saying i will sba might actually meet those deadlines. Our concern in meeting those deadlines is that we are looking for some type of control environment under which the forgiveness process will proceed. But, so sba could meet the deadlines. Its the question of whether it will protect the integrity of the program and how they go about it. Now, if they dont meet those deadlines, then you have, you are creating more uncertainty for the lenders. And the lenders, certainly we have spent a lot of time talking to lenders and their trade groups, and the concerns with the rolling guidance, ill call it, it changes in the program, and the whole question of how much lenders will be held harmless based on certifications by borrowers. Just like the situation keeps changing. We are very cognizant of the strain that this has put on lenders, and you could say they are being compensated for it, but in a sense they are being compensated for something that it wasnt clear when they got involved with this what their te responsibilities would be. Heir responsibilities would be. So i hope thats responsive to your question. Madam chair, thank you. I yield back the balance of my time. Thank you. Id like to thank our witnesses for joining us both virtually in person to share their important testimony today. The oversight work of the oig and gao is vital to ensuring that we root out instances of fraud and abuse and spend americas tax dollars wisely. Especially since our Small Businesses need so much help. Your work helps inform the subcommittee on problems within sbas covid19 program and gives us insight into these issues as they unfold in real time. It is my hope that considering what we learned today that the sba will fully cooperate with the gao and oig to improve these programs for our nations Small Businesses. Our Witnesses Today showed that with proper input and cooperation and can be done. I look forward to continuing our oversight efforts with all of you as partners. I ask unanimous consent that members have five legislative days to submit supporting statements for the record. Without objection so ordered and if there is no further business before the committee we are adjourned. Thank you very much. Tonight on the communicators, tech freedom founder erin socha and free press Jessica Gonzales on tech issues that may play a role in campaign 2020. But the administration is trying to do is narrow the protection for content moderation so that websites would no longer be protected if they tried to remove content that thought was false or perhaps racist. Im no fan of big tech platforms and how they abused their workers and how they abused the privacy rights of their users, but frankly going after section 230 is not the right approach to the very real problem that were seeing with online platforms. Baron soka and Jessica Gonzales tonight at the return on the communicators on cspan2. Tonight youre on cspan2 pharmaceutical executives testify on drug pricing. Reform committee wanted to know how Prescription Drug prices are set and why prices are higher in the us and other countries. And i part one, youll hear from the head of Bristolmyers Squibb and other Country Companies and model parking more executives including the ceo of us harder. Tonight at 8 30 eastern tomorrow at eight eastern here on cspan2. Who will control congress in january . They informed on all the competitive congressional races leading up to election day with c stands campaign 20 20 coverage. Watch the candidates debate and Election Results on cspan2. Watch online at cspan. Org or listen on the free radio. Cspan, your unfiltered view of politics. Another larry hogan now on how maryland schools are handling the coronavirus pandemic. Was part of the Ronald Reagan president ial foundation and Institute Annual education summit. The governor talk about his state response to protests in baltimore. Good morning, my name is hansen and its an honor to be with you today. Ipr
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