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 a