Transcripts For CSPAN2 Hearing On Preventing Fraud Abuse Of COVID-19 Paycheck Protection Program 20240712

Small Business Committee meet for a hearing on preventing fraud and abuse in the Paycheck Protection Program. Before we begin id like to take this opportunity to note some important requirements. Let me begin by saying that standing house and Committee Rules and practice will continue to apply during hybrid proceedings. All members are reminded that theyre expected to adhere to these standing rules including decorum. During the covered period designated by the speaker the committee will operate in accordance with House Resolution 965 and the subsequent guidance from the rules committee in a manner that respects the rights of all members to participate. Please keep your cameras on. Also please remember to remain muted until you are recognized to minimize background noise. If you must participate in another proceeding, please exit this one and log back in later. In the event a member encounters technical issues that prevent from being recognized for their question i will move to the next member of the same party and i will recognize that member at the appropriate time slot provided they have returned to the proceedings. For those members physically present in the Committee Room today well also be following the health and safety guidelines issued by the attending physician. This includes social distancing and especially the use of masks. I urge members and staff to wear masks at all times while in the hearing room. I thank you in advance for your commitment to a safe environment for all here today. The covid19 pandemic has fundamentally altered the way Small Businesses operate. Mandatory closures to protect the Public Health have significantly to help Small Businesses weather the Pandemic Congress has passed a series of legislator packages. On march 6th the Coronavirus Preparedness and response supplemental appropriations act became law on march 27th the cares act was signed into law and created the Paycheck Protection Program or ppp and the Economic Injury disaster loan emergency advance. And sba acted extremely quickly to implement these 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 and approximately 3. 5 million applications have been approved. Thats incredible amount of federal assistance to americas Small Businesses and i commend the staff for creating the infrastructure to setup these programs so quickly. Sba was asked to undertake an enormously challenging task to implementing these programs in just a few days. And this committee recognizes that some mistakes were expected. But the congress and American People must have confidence that the administration is taking seriously their responsibility to mitigate fraud and ensure this assistance is available to all eligible Small Businesses. Today i hope to learn more from the sba Inspector General and the Government Accountability office about your findings and discuss ways to improve the delivery of sba service as to Small Businesses. On july 28th the sba office of Inspector General released a report detailing potential incidents of fraud in the program. And serious concerns about suspected fraud and without swift action from fda these fraudulent activities will only become more widespread as Congress Debates legislation to allocate more assistance as the pandemic stretches on. I understand that sba responded to this report by stating they have internal controls in place to address these types of fraud. Yet recent reporting from the project on government oversight or poego casts doubt on how effective these internal controls are. The poego report stated antifraud policies were not fully implemented during processing am. Software was not up toidate and sba was struggling in midaugust to handle fraud applications. As the chairwoman of the investigations oversight and regulation subcommittee im concerned with these reports and hope we can have a constructive discussion to address these findings today. The september report outlines extremely concerning gaps in the availability of demographic information and serious data reliability issues. The report also details potential fraud the sba reffed to, both the it and department of justice. Additionally the report finds sba has failed to adequately prepare borrowers and lenders for the ppp forgiveness process. Demonstrating the seriousness of this problem last week sba announced they had received 96,000 forgiveness applications representing less than 2 of loans that were dispersed. But they still have not processed a single one. Perhaps most troubling to me, a report that gao has had difficulty even completing their audit objectives as sba has not been forthcoming with documentation and access to data. Today id like to learn more where sba stands on implementing fraud controls, where the deficiencies lie and what the subcommittee can do in their efforts to prevent fraud in both idl and ppp. Again, i want to thank the witnesses for participating both virtually and in person and i now yield to the Ranking Member for his Opening Statement. Thank you, madam chairwoman and thank you chair velazquez for holding the hearing. This committee has worked to create an optimize Economic Relief program administered by the sb ra. We created the Paycheck Protection Program or ppp. We revitalized the preexisting economic loan program. Id like to thank everyone for their work. Both programs have been a lifeline for our nations Small Business. The date the program reached its authorized deadline the sba had approved over 5. 2 million loans totaling more than 525 billion. The average loan size was around 100,000 and there were nearly 5,500 participating lenders. For a total of more than 32 billion. And in my district, floridas 15th district 10,254 businesses have received loans in p p,ppp funds. A manufacturing of womens athletic wear in my district. The loan was absolutely essential and crucial for mr. Powells business because it provided the critical capital necessary to retain his employees through the retail closures. The cares act extended the program. The sba has approved more than 3. 5 million loans for approximately 390 billion for an average loan size of 350,000. With only the basic Statistics Congress cannot fully measure the impact of these programs, thats for sure. We need to ensure the loans went to the intended business and the loan proceeds were used properly. Fortunately we have fantastic allies in the sbas office of Inspector General and Government Accountability office. Today each office has sent a rep tchb and were grateful for that to present their initial reviews of ppp and eidl. We look forward to working together to make sure taxpayer dollars are spent appropriately and to reduce waste, fraud and abuse in these critical sba relief programs. With that, madam chair, i yield back. Thank you. The gentleman yields back. And if other subcommittee members have an Opening Statement we would ask they be submitted for the record. Id like to just take a moment to explain how this hearing will proceed. Each witness will have 5 minutes to testify, and each member will have 5 minutes for questions. Please ensure your microphone is on when you begin speaking and that you return to mute when finished. Our first witness is the honorable Inspector General of the fda. He has 28 years of experience in the community rooting out fraud, waste and abuse. Welcome. Our second witness is mr. William sheer, director of Financial Markets and Community Investment team at the Government Accountability office. Elite gaos Work Community and economic development, Small Business and sbas covid19 response programs. Mr. Sheer joined gao more than 20 years ago. He has a masters degree in Public Policy and phd in economics both from the university of chicago. He also served as an adjunct faculty member in the city and Regional Planning in the university of pennsylvania. Welcome mr. Sheer. Id like to begin todays hearing by recognizing mr. Ware for 5 minutes. Thank you for inviting me to speak with you today and for your continued support of my office. Believe me when i say that the men and women of the office of Inspector General have been working diligently to provide oversight of the Pandemic Response. Im always proud to represent them publicly and speak to you about our important work. I come to you today in the wake of the historic crisis and an ensuing unprecedented role for sba. Sba is managing over a trillion dollars in managing authority through, ppp and eidl program. And the controls surrounding the ppp and lending authorities brought with it substantially increased risk. As indicated in my written statement we sought to reform through three white paper reports based on prior oversight of the recovery act and other disasters. At the same time we focused on preventing and deterring fraud by raising Public Awareness of fraud schemes and scams. During the course of these reviews we had alarming findings causing us to issue a flash report on ppp in may and a management alert on eidl in july. We lidified our preliminary results and identified additional findings. On september 14th and one contained our findings related to the implementation of bpp and one containing finings to the initial Disaster Response to covid19. Our review standards require we consider the official comments. We anticipate publishing these reports in midoctober following the 30day review and Comment Period by sbas leaders. As such my comments today regarding those findings must be considered preliminary. Nonetheless our findings are significant and speak to the need for strengthening internal chromes and our report speaks to significant potential fraud in both ppp and eidl. Its been marked as potential only because weve not reviewed each loan associated with the area of finding. However, the amount of dollars we site as being potential fraud are not based on projections. Rather they are based on buckets of loans meeting criteria for a weak internal control environment where in many instances we have active criminal investigations of fraud to substantiate the concern. Our office has received tens of thousands of complaints of wrongdoing in our hot line. Hundreds of investigations involving complaints of fraud have been initiated by the office among these accomplishments was the charges against individuals fraudulently seeking ppp loans on may 5th. I want to assure sbas Lending Partners and the nations Small Business owners that if they follow the guidelines and act in good faith we are not focused on your actions. The findings we report do not diminish the feat that the men and women of sba and their Lending Partners accomplish. At one point in the crisis it was reported that sba performed as 14 years worth of lending in just 14 days. However, our oversight work confirms sba did not have sufficient controls to address week and provide assurance that ppp loans and eidl grants and loans were only being received by eligible recipients. We are not alone in this effort. Programs of this magnitude require a whole of government response. As a statutory member on the counsel of Inspector General, im working with my colleagues to leverage a collective power of joint Oversight Efforts to increase transparency of Pandemic Response. Rest assured the men and women of my office understand that nothing short of the Publics Trust is at stake as well as the vitality of the nations economy. Thank you for the opportunity to speak to you today. I am happy to answer any questions you may have of me. Thank you. Mr. Shear, you are not recognized for five minutes. Thank you. Im pleased to be here this morning to discuss our work on sbas Paycheck Protection Program. Through these programs theyve guaranteed more than 14. 5 million in loan and grants. In april 2020 sba moved quickly to implement ppp. Given the immediate need for these loans sba worked to stream line the program so that lenders could begin distributing these funds as soon as possible. For example, funders were permitted to rely on borrowers as a result there was significant risk some fraudulent or inflated applications were approved. In our june report we recommended that sba implement and identify plans to respond to risk in ppp to ensure program integrity, achieve Program Effectiveness and address potential fraud. According to federal internal control standards and gaos fraud risk framework managers and executive Branch Agencies are responsible for implementing fraud risk. When fraud risk can be identified and mitigated fraud may be less likely to occur. In june 2020 we reported that reliance on applicants selfcertifications can leave a program vulnerable to exploitation by those who wish to surcomvent eligibility rierlts or pursue criminal activity. Since may 2020 the department of justice has publicly announced charges in more than 50 fraud related cases associated with ppp funds. In april to20 sba announced it would review all loans of more than 2 million and officials subsequently stated they would review loans of less than 20 million to determine whether it was entitled to loan forgiveness. However, sba did not provide details how it would conduct either of these reviews. As of september 2020 sba reported it was finalizing the contract of reviews. We continue to be concerned about the potential for fraud in ppp and are continuing to conduct work on the Program Including internal controls and fraud risk management. Sbas efforts to expedite processing of economic entry disaster loans such as the reliance on selfcertification may have contributed to increased fraud risk in that program as well. In july 20 as mike weir just stated sbas office of Inspector General indicated widespread potential fraud including thousands of fraud complaints and deficiencies with the internal controls. The department of justice in conjunction with other federal agencies has also taken actions to address potential fraud. We continue to be concerned about the potential for fraud in the eidl program with are currently conducting work on the Program Including fraud risk management. However, weve obtained data and information requested from sba including access. We continue to take actions to obtain records needed to move forward with our work. This concludes my statement. I would be pleased to respond to any questions you may have. We will begin the questioning, and i will begin by recognizing myself for 5 minutes. Frankly, i am shocked by these findings. Our two main loan and Grant Programs are eidl and ppp. And in both programs you have said theyre not the internal controls in existence to prevent fraud. So i have many questions. First id like to start with, mike, our Inspector General. And just to summarize you said there was fraud and also that there was a lack of internal controls so that number one there were 250 million worth of loans in the eidl Program Loans and grants in the eidl program that were given despite the fact they were clearly ineligible. That is no business was eligible if they created their business after january 1st of this year. And yet loans were given in the amount of 250 million and grants to these particular businesses. The second problem, the duplicate loans, i mean there were no internal controls. And as a result duplicate loans in the amount of 45. 6 million were approved. And then third is the shocking social media fraud schemes in which they used social media to recruit applicants and then split the advanced money with the ring leaders, and in fact there was advertising of their ability to secure sba money for clients to start businesses. And then the sharing of this money. Im just astounded that these terrible acts took place when legitimate deserving businesses could have used our help. Again, Inspector General weir in your report you stated despite the internal controls fraud and potential for fraud still exists in the Economic Injury disaster loan or the eidl program. Can you identify the weak points in sbas internal controls and how can sba improve these existing controls in the time ahead. So the challenge sba always has especially in their Disaster Program is they have to balance balance is the keyword here by balancing against a proper control environment. In this instance sbas efforts to hurry capital to businesses more at the expense of controls that would have mitigated the risk of businesses obtaining ppp or eidl loans, and thats why we had the problems that we had. The sba said for themselves that to get funds to eligible entities quickly they lowered the guardrails for the eidl program by removing a weakening of controls. And weve found for a fact thousands of cacks for banks, thousands of hot line complaints and our 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. And the type of things that we were finding in terms of controls of course the selfcertification part was one. But the contractor they got with had some broken controls. But these things the loan applications came in huge batches, so that batch process and the speed to get it out allowed a lot of thing tuesday be missed. And then there were other controls that were not in place such as what happens after the contractor says, okay, this is a legitimate bank account . But they allowed on the back end the applicant to change the bank account before the money was dispersed, and there was no control in place to at least doublecheck or make sure that those were going to an eligible recipient. Now, the agency in these meetings have taken a lot of action already. And before when the alert went out wed been meeting with them because we thought it was critical so they shored up control if they found only minor issues then they would come to sba in much smaller batches. Theyve done quite a bit. They found an issue with the system of control they said they had in place where it wasnt identify identifying all the duplicate information, and now they have addressed that issue. The big thing theyve put in place is that they have began automatically declining loan applications where the system identifies suspicious online activity. That wasnt happening at all. For example, related applications by the same Bank Accounts that are not the same person. Email addresses or phone numbers. Email addresses with an odd period location and that may force any legitimate applicants into the loan application reconsideration process to allow for supporting documentation before the applicant gets their loan approval. And, yeah, so they have pivoted pretty quickly on implementing the rules. I dont know if the time is up or not. We have to continue to meet with the agency when we find new schemes so that they can pivot quickly to mitigate a lot of the risk and shore up their controls. And i think theyve been pretty responsive to that. Well, thank you for the thorough answer. And now we have a Ranking Member from florida. Thank you, madam share kacha. The cares act creating new ones like the Pandemic Response Accountability Office and Inspector General for pandemic recovery. The question is how does your office contribute to the larger pandemic oversight system, if you could answer that first, mr. Chair. We have a mage responsibility in the cares act. And it was articulated to each of the affected agencies as far as our role in overseeing cares act programs broadly and the need for us to report on generally a bimonthly basis to the congress on a wide variety of issues. So in contrast id just say we focus on issues just as my colleague does dealing with fraud risk and things of that nature. But we deal with broader issues having to do with the integrity of the programs so we do look at responsiveness. Weve issued reports in june, august and september that deal with a wide range of cares act programs. And addressing them in a broad way and doing detailed auto work. Mr. Weir, would you like to respond to that . Sure. Yeah, i will. And this is like one of the questions i was hoping i would get mainly because of the prominent role i play. Im the committee chair, and we meet regularly like every single week. Im a statutory member of that committee. In our meetings we work constantly to determine how we can help the community and how we can move the whole of government approach forward. If youve noticed the press releases concerning our investigative work, it is always joint. Weve been working with the fbi, fdic, Federal Reserve board, hhs. I mean, this has been on all hands on deck approach to this oversight because no single one of our offices could handle this alone due to the magnitude of issues we are finding. Regarding mr. Miller, him and i have had several oneonone meetings particularly to pass on certain things to my office that he is not able to do at this time as he stands up his office. But we are all in communication and all working in a collaborative manner to ensure that the proper level of oversight is undertaken. Do you feel like you need additional any Additional Guidance or clarity in terms of the roles youre playing respectively . Sir, i do not. I believe that the act that stood up was pretty clear. I do believe that, well, in some meetings weve discussed quicker access to data, but im pretty sure thats something the executive director would you like to respond to that . I think that the cares act beyond just relying on our axis authority in our role generally as congress it was very clear we had very expansive authority. We had very expansive responsibilities, and we led by our controller general 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 clearly states. The gentlemans time has expired and yields back. Now the gentle lady from new york, our chairwoman is recognized for 5 minutes. Thank you chairwoman chu and mr. Spanner, Ranking Member. This a very important oversight responsibility that we have in 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 now. And as auditors, we ask the question, what is the agency trying to hide . And theres too many questions that go unanswered. Well, we just need to be on record. We are basically pointing out the attitude of this administration. You know, you could go out there and just yes, we do not deny that the agency must do everything they can to put money into the hands of deserving businesses. But not at the expense of compromising the fact that they have to take every control or put in place every mechanism to make sure that we avoid mismanagement, fraud, and abuse. And it is not happening. Chairwoman, thank you. I yield back. Chairwoman . Youre muted. Thank you. The gentlelady yields back. And now, the gentleman from pennsylvania, mr. Evans, is recognized for five minutes. Thank you, madam chairperson. My issue is for mr. Shear again. Many lenders in my home city of philadelphia have expressed frustration with the release of the ppp rules. Despite sba issuing ruling for ppp forgiveness, theres still too much confusion about the lenders role in the process. Sba is supposed to send the Forgiveness Amount to the lenders no later than 90 days from receival of the lenders decision of the loan forgiveness. That means for any application submitted, the first day sba started accepting them, sba has little more than a month to send the funds to the lender. This is especially concerning because lenders such as cdfis are operating. Mr. Shear, what do you believe sba will be able to do to meet this deadline . And if not able to meet the 90day deadline for distribution of forgiveness funds, will this stop them from participating in the ppp in the future . Ill first start with saying that sba might actually meet those deadlines. Our concern in meeting those deadlines is that were 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 in how they go about it. So now, if they dont meet those deadlines, then you have you are creating more uncertainty for the lenders. And the lenders have 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, and just changes in the program and the whole question of how much lenders will be held harmless based on certifications from borrowers, its just like the situation keeps changing. So we are very cognizant of the strain that this has put on lenders. And you could say theyre being compensated for it, but in a sense, theyre being compensated for something that it wasnt clear when they got involved with this what their 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. The gentleman yields back. And now i would like to make a closing statement. I would like to thank our witnesses for joining us both virtually and in person to share their important testimony today. The oversight work of the oig and gao is vital to insuring 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 existing problems within sbas covid19 programs and gives us insight into these issues as they unfold in real time. It is my hope that considering what we learned today, that the sba will fully cooperate with the gao and the oig to improve these programs for our nations Small Businesses. Our Witnesses Today showed that with proper input and cooperation, it can be done. I look forward to continuing our Oversight Effort with all of you as partners. I ask unanimous consent that members have five legislative days to submit statements and supporting materials for the record. Without objection, so ordered. And if theres no further business before the committee, we are adjourned. Thank you very much. In the afternoon us comptroller general jane the Darwin Phillips waggle appear before a subcommittee to talk about the economic outlook. Now live to london for british prime ministers question time. Each week the house of commons is in session we bring you Boris Johnson taking questions