An internal disagreement at the Small Business Administration has spilled into the public.
Hannibal Ware, the agency's inspector general, said he and the agency's administrator, Isabella Casillas Guzman, have a "passionate disagreement" over the level of fraud that occurred in the pandemic-relief programs SBA managed.
Ware and Guzman released conflicting reports last month, with Ware's Office of the Inspector General
SBA officials have characterized the OIG's $200 billion figure as an overestimate and misleading. SBA's report, released June 28 — a day after OIG released its findings — stated the agency conducted more than 3 million detailed, "human-led" reviews, which have helped whittle its fraud estimate to 744,000 loans totaling $36 billion.
In a July 12 letter to House Small Business Committee Chairman Roger Williams, George Holman, SBA's associate administrator for congressional and legislative affairs, expressed the agency's concern that the OIG report "contains serious flaws that significantly overestimate fraud and unintentionally mislead the public to believe that the work we did together had no significant impact in protecting against fraud."
Both the SBA and OIG probes covered the Paycheck Protection and Economic Injury Disaster Loan programs.
Appearing before the committee on Thursday, Ware defended his team's work, calling SBA's estimate "totally false." According to Ware, the agency "does not have access to the data sets we do."
"We're sitting in the middle of the fight and [$36 billion] is not a real number," Ware added.
Han Nguyen, SBA's Acting Associate Administrator in the Office of Communications Public Liaison, cited the agency's repayment data, which indicates 74% of businesses that received a PPP or EIDL loan have either fully repaid or started to repay. Another 14% are in permitted payment deferral periods.
"The evidence that only 12% are in complete non-repayment simply does not square with the SBA IG's estimate…," Nguyen stated Friday in an email to American Banker. "It is a strong oversight principle that major criminals and fraudsters seeking to steal funds from the US government do not seek to even partially repay loans."
Ware, for his part, said he had complete confidence in OIG's findings. "I'm super confident in this report," Ware said.
Guzman was invited to appear alongside Ware but declined, citing previously scheduled commitments outside of Washington. Guzman's decision not to testify Thursday drew a harsh response from Republican lawmakers. The committee's invitation to Ware and Guzman was made public June 29.
"You would think a report from a nonpartisan watchdog claiming hundreds of billions of dollars was dispersed to criminals through SBA would warrant her showing up," said Williams, a Republican from Texas.
"This is a big deal," Williams added. "I would assume [Guzman] would have an army of her staff here coming to defend her work and SBA."
Williams also questioned the SBA's criticism of the OIG's report. "I don't know if I can ever remember a time an agency accused their nonpartisan watchdog of misleading the American people," the chairman said.
Having both Guzman and Ware testify together "would have been beneficial," Minnesota GOP Rep. Pete Stauber said.
"I wanted to be able to have that dialogue and question both of you," Stauber told Ware.
Democrats on the committee were more sympathetic to Guzman's position. While Rep. Nydia Velazquez, D-New York, termed the OIG's $200 billion fraud estimate "unsettling," she urged Ware to "further refine this data and help close the gap between the two estimates."
"If our committee is going to conduct proper oversight of SBA, we need to be assured the reports we are receiving … are measured and accurate," Velazquez said.
Ware told lawmakers he and Guzman "are usually in lockstep," adding SBA's negative response to the June 27 OIG report was unexpected.
"I was a little surprised they would use those words," Ware said. "It caught us a little off guard."
Ware was highly complimentary to banks, calling them "incredible partners."
"Probably within the first month [of PPP operations] I think they had given me 5,000 fraud referrals," Ware said.
Ware was less positive about the fintech contribution to PPP, again citing fintechs as a primary source of fraud, as he has done in previous testimony.
Ware's comments prompted Rep. Blaine Luetkemeyer, R-Mo., to level criticism about a recently enacted rule that opens the door for more nonbank lenders, including fintechs, to participate in SBA's flagship 7(a) loan-guarantee program.
"It's concerning to me whenever they're allowing basically the folks who were the bad actors in the previous program to be able to participate in it again," Luetkemeyer said. "It makes no sense to me."
