By Mark Tapscott
Small Business Administration (SBA) Administrator Isabella Guzman declined to testify at the July 13 House Small Business Committee hearing seeking to understand why her staff found $160 billion less waste and fraud in $1.2 trillion in federal pandemic spending than did the agency’s internal watchdog.
Rep. Roger Williams (R-Texas), the House panel’s chairman, said in his opening statement as he explained the empty chair at the witness table, “As you can see by her empty seat, she declined the committee’s offer. You would think that a report from a nonpartisan watchdog claiming hundreds of billions of dollars were disbursed to criminals through the SBA would warrant her showing up for this committee today, but that obviously isn’t the case for Administrator Guzman.”
Christine Saah Nazer, a spokesperson for Ms. Guzman, told The Epoch Times, however, that “Administrator Guzman is on the road all week long. This is a simple scheduling conflict. She is in New York today and will be in Houston tomorrow.”
Ms. Nazer also referred to a statement by another SBA spokesman, Han Nguyen, who declared that “we strongly disagree with the IG’s projected fraud total of $200 billion suggested by the IG report. It is vital to clarify that 86 percent of the likely fraud in the PPP and COVID-EIDL programs occurred in the first nine months of those programs when, as the SBA IG has often noted, the rush to get funds out led to unwise decisions to pull down anti-fraud guardrails.”
The hearing was prompted by dramatically different reports made public in June by Ms. Guzman’s office and the Office of Inspector-General (IG) at SBA. Ms. Guzman’s staff concluded that $36 billion was lost to waste or fraud in the Economic Injury Disaster Loans (EIDL) and Paycheck Protection Program (PPP) funds.
By contrast, the IG reported that SBA “disbursed approximately $1.2 trillion of [EIDL] and [PPP] funds. Using OIG’s investigative casework, prior OIG reporting, advanced data analytics, and additional review procedures, we estimate SBA disbursed more than $200 billion in potentially fraudulent COVID-19 EIDLs and PPP loans.
“This estimate represents approximately 17 percent of disbursed funds in these programs—specifically, more than $136 billion COVID-19 EIDLs and $64 billion in PPP funds. OIG published these findings on June 27, 2023.”
The contradictory reports were both issued on June 27.
Hannibal “Mike” Ware was appointed by President Donald Trump as the SBA IG in 2018. There are 72 IGs appointed by the president and confirmed by the U.S. Senate to investigate, expose and help prevent waste, fraud, and abuse in federal programs. The IG system was created in 1978 by Congress and President Jimmy Carter.
The SBA IG’s investigations have “resulted in more than $9 billion in dollar accomplishments, which includes investigative recoveries, fines, and forfeitures, as well as review findings of disallowed costs. OIG oversight of the PPP and the COVID-19 EIDL program has resulted in 1,050 indictments, 827 arrests, and 553 convictions as of June 2023. Also, over $8 billion in EIDL funds have been returned to SBA by financial institutions and another $20 billion by borrowers.
When Mr. Williams asked Mr. Ware if it is possible that his investigators and auditors over-estimated the actual amount of waste and fraud, as claimed by Ms. Guzman, the IG responded, saying, “I believe that as more and more datasets become available to us, the number could be recalibrated, it could go up, it could go down, but I am telling you that we believe we have a cap on where that fraud level is and that is a little over $200 billion.”
Rep. Nydia Velazquez (D-N.Y.), the committee’s ranking member, told Mr. Ware that SBA officials contend 86 percent of the funds lost to waste and fraud were disbursed under Mr. Trump. Mr. Ware agreed that most of the fraud occurred during the first nine months of the two programs.
Ms. Velazquez pressed Mr. Ware on the gulf between the two reports, telling him that “your estimate of potential fraud is much higher than SBA’s estimate. In fact, SBA expressed concerns that your approach contains serious flaws that seriously over-estimate the fraud and misleads the public.”
Mr. Ware claimed in response that “SBA is mistaken, and I think they know that. There are two main reasons for that. One, we are the independent watchdog. We have demonstrated that during the pandemic and long before that. We are one of the original 12 offices of inspector-general. Secondly, we have access to datasets that they didn’t have access to …”
Mr. Ware tried to continue his second reason but was cut off by Ms. Velazquez, who then argued that the SBA review, which allegedly included “manual” examinations of more than three million applications, was more effective than the methods used by the IG office.
“I will assert that SBA’s manual review does not meet the qualifications for a manual review for our office,” Mr. Ware said before he was again cut off by Ms. Velazquez. The New York Democrat then suggested that the discrepancy between the two reports was no more than the difference between actual and potential fraud. Mr. Ware vigorously disagreed, saying that “the differences are not semantic.”
Not everybody views $200 billion in potential fraud exposed by the SBA IG as an unqualified disaster.
Alfredo Ortiz, president and Chief Executive Officer (CEO) of the Job Creators Network (JCN), said in a statement made available to The Epoch Times that PPP program deserves praise for having a comparatively low fraud rate.
“The Paycheck Protection Program is one of the most successful government programs ever created. While some scammers certainly took advantage of the program, a new [IG] report finds widespread fraud concerns are largely misplaced. The study estimates that there was $64 billion worth of fraud in the $800 billion program. This 8 percent fraud rate is lower than many standard government programs. When you exclude the fraud facilitated by fintech, the PPP fraud rate falls to only about 4 percent,” Mr. Ortiz said.
“One reason PPP is getting a bad rap is because the SBA’s alternate relief program, Economic Injury Disaster Loans, was rife with fraud. The SBA OIG report estimates $136 billion of this $400 billion program was fraud, a 34 percent fraud rate,” Mr. Ortiz continued.
“Many commentators—and even the SBA—are improperly conflating the fraud in these two programs. In reality, the PPP performed saved America’s small business economy with a relatively low level of fraud. The criticisms it’s facing are misplaced.”