U.S. GOVERNMENT PRINTING OFFICE

68–000 CC WASHINGTON : 2000

S. HRG. 106–758

GAO’S PERFORMANCE AND ACCOUNTABILITY

REVIEW: IS THE SBA ON PAR?

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

JULY 20, 2000

(

Printed for the Committee on Small Business

For sale by the Superintendent of Documents, Congressional Office

U.S. Government Printing Office, Washington, DC 20402

(II)

COMMITTEE ON SMALL BUSINESS

ONE HUNDRED SIXTH CONGRESS

CHRISTOPHER S. BOND, Missouri, Chairman

CONRAD BURNS, Montana

ROBERT F. BENNETT, Utah

OLYMPIA J. SNOWE, Maine

MICHAEL ENZI, Wyoming

PETER G. FITZGERALD, Illinois

MIKE CRAPO, Idaho

GEORGE V. VOINOVICH, Ohio

SPENCER ABRAHAM, Michigan

VACANCY

JOHN F. KERRY, Massachusetts

CARL LEVIN, Michigan

TOM HARKIN, Iowa

JOSEPH I. LIEBERMAN, Connecticut

PAUL D. WELLSTONE, Minnesota

MAX CLELAND, Georgia

MARY LANDRIEU, Louisiana

JOHN EDWARDS, North Carolina

EMILIA DISANTO, Staff Director

PAUL COOKSEY, Chief Counsel

PATRICIA R. FORBES, Democratic Staff Director and Chief Counsel

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CONTENTS

OPENING STATEMENTS

Page

Bond, The Honorable Christopher S., Chairman, Committee on Small Business, and a United States Senator from Missouri ............................................. 1

Enzi, The Honorable Michael B., a United States Senator from Wyoming ........ 6

Kerry, The Honorable John F., Ranking Member, Committee on Small Business, and a United States Senator from Massachusetts .................................. 255

Snowe, The Honorable Olympia, a United States Senator from Maine .............. 267

WITNESS TESTIMONY

Walker, The Honorable David M., Comptroller General, United States General Accounting Office, Washington, D.C. .......................................................... 7

Czerwinski, Stanley J., Associate Director, Housing and Community Development Issues, Resources, Community, and Economic Development Division,

United States General Accounting Office, Washington, D.C. ........................... 30

Willemssen, Joel, C., Director, Civil Agencies Information Systems, Accounting and Information Management Division, United States General Accounting Office, Washington, D.C. ............................................................................... 115

Brostek, Michael, Associate Director, Federal Management and Workforce

Issues, General Government Division, United States General Accounting

Office, Washington, D.C. ..................................................................................... 230

Alvarez, The Honorable Aida, Administrator, Small Business Administration,

Washington, D.C.; accompanied by Peter McClintock, Deputy Inspector

General, Small Business Administration, Washington, D.C.; James

Ballentine, Associate Deputy Administrator for Government Contracting,

Minority Enterprise Development, Small Business Administration, Washington, D.C.; and Kris Marcy, Chief Operating Officer, Small Business

Administration, Washington, D.C. ...................................................................... 279

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Alvarez, The Honorable Aida

Testimony .......................................................................................................... 279

Prepared statement and attachment .............................................................. 283

Responses to post-hearing questions posed by Senator Bond ....................... 320

Responses to post-hearing questions posed by Senator Kerry ...................... 358

Bond, The Honorable Christopher S.

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 3

Letter from Senator Bond to Ms. Alvarez ...................................................... 266

Post-hearing questions posed to Ms. Alvarez and subsequent responses .... 320

Brostek, Michael

Testimony .......................................................................................................... 230

Prepared statement .......................................................................................... 233

Responses to post-hearing questions posed by Senator Kerry ...................... 354

Czerwinski, Stanley J.

Testimony .......................................................................................................... 30

Prepared statement and attachments ............................................................ 38

Responses to post-hearing questions posed by Senator Kerry ...................... 349

Enzi, The Honorable Michael B.

Opening statement ........................................................................................... 6

Ledger report titled ‘‘Sorted By Function’’ ..................................................... 271

Page

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Kerry, The Honorable John F.

Opening statement ........................................................................................... 255

Letter from Ms. Alvarez to Senator Kerry ..................................................... 257

Prepared statement .......................................................................................... 262

Post-hearing questions posed to Mr. Walker and subsequent responses .... 341

Post-hearing questions posed to Mr. Czerwinski and subsequent responses ........................................................................................................... 349

Post-hearing questions posed to Mr. Willemssen and subsequent responses ........................................................................................................... 350

Post-hearing questions posed to Mr. Brostek and subsequent responses .... 354

Post-hearing questions posed to Ms. Alvarez and subsequent responses .... 358

Snowe, The Honorable Olympia J.

Opening statement ........................................................................................... 267

Walker, David M.

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 15

Responses to post-hearing questions posed by Senator Kerry ...................... 341

Willemssen, Joel C.

Testimony .......................................................................................................... 115

Prepared statement and attachments ............................................................ 117

Responses to post-hearing questions posed by Senator Kerry ...................... 350

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GAO’S PERFORMANCE AND ACCOUNTABILITY

REVIEW: IS THE SBA ON PAR?

THURSDAY, JULY 20, 2000

UNITED STATES SENATE, COMMITTEE ON SMALL BUSINESS, Washington, D.C.

The Committee met, pursuant to notice, at 9:30 a.m., in room

428-A, Russell Senate Office Building, the Honorable Christopher

S. Bond (Chairman of the Committee) presiding.

Present: Senators Bond, Enzi, Snowe, and Kerry.

OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S.

BOND, CHAIRMAN, SENATE COMMITTEE ON SMALL BUSINESS, AND A UNITED STATES SENATOR FROM MISSOURI

Chairman BOND. Good morning. The Small Business Committee

will come to order. Senator Kerry will be joining us, but since we

have a full schedule of witnesses today and the possibility of votes

beginning sometime right after 9:45, I thought we would start and

get as much testimony in as we can before we have to go off to

vote.

Let me say that as we begin this hearing, it is with a heavy

heart, particularly on the Small Business Committee, that we note

the passing of a dear friend, Paul Coverdell. He was a great champion of the small business community. He was a dedicated leader

in the Senate.

Since I became Chairman of this Committee in 1995, Paul Coverdell has been a valued and dedicated Member of the Committee.

He worked tirelessly for small business on many critical issues, including making the SBA a more efficient and effective supporter of

small business, tax relief and IRS reform, ensuring a drug-free

workplace, and improving educational opportunities for America’s

children.

He certainly is going to be missed by all of us. We feel a special

connection with Paul as Missourians. He was a Missourian for a

while, lived near Kansas City and attended the University of Missouri. But most of all, I think that all in the small business community will remember him as one who really had the interests of

small business at heart and he was undoubtedly a valued member

of our leadership.

Our thoughts and prayers are with his wife, his family, his staff,

and all those who cared greatly for and appreciated the work that

Paul Coverdell did.

Today’s hearing is the first in a series of hearings by the Committee on the management challenges faced by the SBA. This hearVerDate 11-MAY-2000 13:29 May 24, 2001 Jkt 010199 PO 00000 Frm 00005 Fmt 6601 Sfmt 6601 E:\HEARINGS\68000 pfrm06 PsN: 68000
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ing also introduces a new methodology that the GAO is using to

assist Congress with its monitoring and oversight efforts. Of

course, the GAO’s job is to assist Congress by providing careful,

independent, and objective reviews of agency operations and programs. Most of the GAO’s reports, however, focus on isolated programs, processes and/or concerns, and while they provide important information about the various specific aspects of an agency,

they do not provide Congress or the agency administrators with a

complete picture of how an agency is operating.

Accordingly, last October, at my request, the Committee and the

GAO set out to formulate a method for the GAO to conduct an examination of agency operations that would provide depth and

breadth to root out any systemic problems in an agency, not just

symptoms of such problems that might appear in the way a particular operation is undertaken. The result is what GAO has

dubbed the Performance Accountability Review, or PAR.

The PAR is a way for the GAO to provide an overall assessment

of an agency’s major performance and management challenges.

What the PAR entails is a comprehensive review of agency operations that are most critical to the achievement of an agency’s mission. These include an agency’s strategic and performance planning, information systems management, financial management,

human capital, client services, and budget formulation and execution. The PAR review also calls for a review of mission-critical program and ties the shortcomings an agency might have with its programs to systemic issues related to general agency operations.

As a former State auditor, I am familiar with accountability reviews, performance reviews, and functional reviews. I share Mr.

Walker’s vision that it is of the utmost importance that Congress

actively exercise its oversight authority to ensure that the Federal

Government is operating in the most effective, efficient, and economical manner possible. That is the ultimate goal of PAR.

Now, after formulating the method by which the GAO could perform this type of review, the Committee concluded it was important

that the GAO perform the Performance and Accountability Review

at the SBA. There are three primary reasons. First, the SBA is an

agency in transition. At the request of Congress, the SBA has

outsourced many of the tasks it used to perform in-house. It is

transforming itself from a programmatic agency to a regulatory

agency, and we need to monitor how it is carrying that out.

Second, there have been concerns raised to the Committee about

how the SBA manages its core programs. The Committee has received several reports from the SBA Inspector General and GAO

demonstrating serious problems with its core programs.

Finally, the SBA is a small agency compared to behemoths like

HUD and the IRS, and PAR is intended to be a prototype that we

expect the GAO can use in all other agencies.

We will hear more about that from the Comptroller General, but

PAR is challenging, comprehensive, and resource intensive, not

only for the GAO and the SBA but for the Committee. We believe

that there are many important aspects to this Performance Accountability Review and before we turn to the Comptroller General,

I want to call on Senator Enzi for any opening comments that he

wishes to make.

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[The prepared statement of Chairman Bond follows:]

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OPENING STATEMENT OF THE HONORABLE MICHAEL B. ENZI,

A UNITED STATES SENATOR FROM WYOMING

Senator ENZI. Thank you, Mr. Chairman. I appreciate your holding this hearing today. I think that the Government Performance

Accountability Review and the Act that created it are extremely

important to the Government.

Before I make formal remarks, I, too, need to say a few words

about our colleague, Paul Coverdell. Senator Coverdell was a great

part of this Committee. In fact, he was a great part of anything

that he served on. He was one of the work horses that was not up

front taking the publicity but was pumping away at all of the internal efforts that were being done and usually wound up being a

huge part of any solution.

He pursued legislation that benefited small businesses not only

in Georgia but throughout the country. He was a hard worker. He

never understood ‘‘no.’’ He never understood when we said it cannot be done that way. He always persevered.

He was a good friend of mine as well as a mentor. I admired him

greatly. He will be truly missed in the Senate as a whole, but more

specifically as a Member of this Committee. He has done some exciting and diligent work here that cannot be matched.

I am looking forward today to learning more about the progress

of the GAO’s Performance and Accountability Review of the Small

Business Administration. As you know, the SBA was one of the

pilot agencies for the Government Performance and Review Act and

their strategic plan has benefited from past GAO reviews. To my

knowledge, GAO was generally pleased with the SBA’s progress

and cooperation during the GPRA process. I had meetings with

them on that process earlier and then I followed that up, meeting

personally with Administrator Alvarez during the GPRA process at

the SBA offices to encourage their cooperation in getting a better

understanding of the process as well as their agency. I also have

been to a number of other agencies following up on this process,

such as the Department of Labor, OMB, and the IRS.

I think that GPRA and PAR have the potential for being one of

the great tools of government, right down to the employees, so that

the employees can finally get some credit for the work that they

are doing.

Therefore, I sincerely hope and am confident that the Small

Business Administration will work actively with the GAO to find

solutions to the concerns that the GAO has addressed in its three

initial reports associated with this new Performance and Accountability Review. The Small Business Committee is committed to ensuring that the Small Business Administration stays on task in an

efficient and effective manner when assisting small businesses nationwide.

Again, I want to thank Administrator Alvarez, Comptroller

Walker, and the other witnesses for being here today. I look forward to hearing from each of you.

Chairman BOND. Thank you very much, Senator Enzi. It is always nice to have a real accountant on the Committee. I was just

elected to the post. Senator Enzi earned the title of CPA. There is

a real difference.

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With that, let us turn now to our first witness, the Honorable

David Walker, Comptroller General, U.S. General Accounting Office in Washington, D.C. Good morning, Mr. Walker, and welcome.

STATEMENT OF THE HONORABLE DAVID M. WALKER, COMPTROLLER GENERAL, U.S. GENERAL ACCOUNTING OFFICE,

WASHINGTON, D.C.

Mr. WALKER. Thank you, Mr. Chairman, Senator Enzi. I appreciate the invitation to testify before you here today on the important issue of Congressional oversight. But before I do, I, too, would

like to say a few brief words about Senator Paul Coverdell, given

his recent and sudden death.

Senator Coverdell was one of my strongest supporters for appointment as Comptroller General of the United States. I knew

him from my time as a partner and Global Managing Director with

Arthur Andersen in Atlanta. His wife, Nancy, and mine have

worked for Delta Airlines for years. My wife actually handled his

personal travel when he was Director of the Peace Corps, and my

daughter worked on one of his Senate campaigns.

Paul Coverdell was a true leader and a total gentleman. He

made a difference every day and he will be remembered for years.

We can only take comfort in the fact that he is now with his maker

and in a better place, and so our thoughts and prayers go out to

Nancy and Paul’s family. We will not forget him.

Chairman BOND. Thank you.

Mr. WALKER. With that, Mr. Chairman, I would like to begin my

testimony. As you know, you have asked me to focus on the importance of the issue of oversight and I am going to provide an overview context. I will also provide a bridge to the next panel of three

GAO professionals who will be talking about specific projects that

we are doing at the SBA.

But before I do, let me have a few brief introductory remarks. I

think it is commendable that you are having this oversight hearing. There is a dire need for a renewal and a reinvigoration of the

oversight process in both houses of Congress. This is an important

beginning. Our Nation is at an important crossroads. The cold war

is over and we won, and for the first time in decades, we face surpluses projected for a number of years in the future. These surpluses provide us with an opportunity to look beyond the immediate, to look over the horizon and to try to address some of the

longer-term challenges that we face in the 21st century.

I have testified before about the demographic tidal wave that is

going to hit this Nation and put tremendous budget pressures on

us in the future. It is very important that we continue to review

what government does, and how government does business, to

make sure that the taxpayers are getting an appropriate return on

their investment. While we may have plenty of money today, we

are going to come under increasing budget pressures in the future

because of known demographic trends. Our simulations show that.

It is critically important.

So we need to continue to focus on oversight, and there are several ways in which we need to do so. This is a perfect time for the

Congress to be looking at what the Government does and how the

Government does business, and with that framework, I would like

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to turn to the first board that I will use for discussion purposes.

I assume, Mr. Chairman, that my full statement will be entered

into the record.

Chairman BOND. We will make it a part of the record and we appreciate your calling that to our attention.

Mr. WALKER. Thank you, Mr. Chairman. First, I think there are

four key points as an overview theme. This is the opportune time

for the Congress to be looking at what the Federal Government

does and how it does business. Many programs were created decades ago based upon past wants and needs. They may or may not

make sense today, and they may need to be reengineered or otherwise modified. Elected officials ultimately will determine what the

Government should do because that is your responsibility as an

elected official. But the GAO can play an important role in getting

you the facts, helping you understand the options, the pros and

cons, to be able to make timely and informed judgments.

Now is the time to also reexamine and redefine beneficiaries of

Federal programs. The key word here is targeting, targeting Federal policy, whether it be spending, loans, guarantees, tax incentives, regulatory actions, or otherwise, to those most in need in

order to get the best return on investment. Also, targeting programs that get the best results or the best return on investment

in similar areas.

The third area, the constant need to improve the economy, efficiency, and effectiveness of Federal Government operations. This is

an ongoing task and requires the concerted effort of OMB, the departments and agencies, the Congress, the GAO, and the Inspectors General. We must bring modern management principles to

government and enhance the use of technology while protecting

personal privacy.

And last but certainly not least, we should continue to be vigorous in fighting fraud, waste, abuse, and mismanagement. But

candidly, Mr. Chairman, the U.S. Government is the largest, most

complex, most diverse entity on the face of the earth and it probably always will be. Fraud, waste, abuse, and mismanagement will

never be zero. We should have zero tolerance for it, but it is very

important that we focus on changing the way that government does

business because that is where we are going to get a much higher

return on our investment.

[The chart follows:]

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The next chart will show there are three general areas where we

think there are opportunities for oversight. One area deals with

cross-cutting programs and efforts, whether it be economic development, health care, food safety, or counterterrorism.

Another area deals with cross-management functions, whether it

be strategic planning, financial management, information technology, human capital management, acquisition management, or

client and customer service.

Another area deals with individual agency programs and management functions, where it is important that we look at major

functions within an agency and major programs within an agency,

and that we consider both for our performance and accountability

series as well as our high-risk series, which we update every 2

years.

You can see there is a great intersection between these three and

it is important that we work with the Congress on a bicameral and

nonpartisan basis on all three of these tracks. In fact, I think that

now is the time that both the GAO and the Congress need to review how we go about conducting studies, how we go about working

together in order to make sure that the major programs and functions are being addressed on a reasonable cycle and within reasonable timeframes but yet to try to better manage the workloads, the

workloads of the Congress, the workloads of the agencies, and, yes,

the workloads of the GAO, because we all have limited resources.

[The chart follows:]

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Mr. WALKER. The next chart shows that we have an opportunity.

We have an opportunity to buildupon a management reform agenda that the Congress enacted in the 1990s. Whether it be financial

management, information technology, or other areas, you can see

that there are a number of major reforms that were enacted in the

1990s. The real key missing link to maximizing the Government’s

performance and accountability for the benefit of the American people is the area of people, or human capital. Much more attention

must be focused administratively on that issue as well as ultimately legislatively when the issue is ripe.

[The chart follows:]

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Mr. WALKER. We need to build on these reforms. We need to capitalize on the information contained herein in order to develop an

oversight plan that addresses the three key oversight tracks and

achieves a better workload balance for the Congress, the agencies,

and the GAO. We stand ready to work with the Congress on a bicameral and nonpartisan manner to do so.

As you know, we have been conducting work at the SBA—for the

last several years. We have issued approximately 20 reports on the

SBA in a given year and that has occurred for several years and

I am happy to answer questions with regard to that.

The SBA is in transition and we have had a number of pending

requests to do work at the SBA. As you know, Mr. Chairman, by

law, we are required to do work that is either mandated by the

Congress or requested by a Congressional committee. I would like

to note for the record that everything that we are doing falls into

one of these two categories. I do, however, appreciate workload concerns on behalf of the Agency, the Committee, as well as the GAO

in this regard.

It is important to note that the panel that follows me will provide

examples of some of the work that we are doing right now at the

SBA. There are three areas in particular that are going to be discussed. Stan Czerwinski, who has overall responsibility for the

SBA program work, will discuss our findings in two reports that

you have requested on the SBA’s 8(a) program. They are being released today. Joel Willemssen, who has looked across government

at information technology issues will discuss our report to you on

information technology at the SBA and a report that is also being

released today. And finally, Mike Brostek, who has been handling

our human capital work, will discuss our recent work in the SBA’s

human capital area.

It is important to note that the SBA has had an opportunity to

review these reports. We think that is important. We do not want

to play ‘‘gotcha.’’ That is not what good government is all about. We

want to be professional, objective, fact-based, nonpartisan, nonideological, fair, and balanced, and Mr. Chairman, I will endeavor

and our people will endeavor to do that in everything that we do.

I cannot overstate my support for you and your colleagues and

others to try to look to renew and reinvigorate the challenging task

of serious oversight. It is important for the country. It is important

for the taxpayers.

That concludes my prepared statement. Mr. Chairman, I would

be happy to answer any questions that you or Senator Enzi might

have.

Chairman BOND. Thank you very much, Mr. Walker.

[The prepared statement of Mr. Walker follows:]

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Chairman BOND. When I ran for the post of State Auditor in

Missouri, I promised to move State auditing in Missouri from a foot

and tick operation to a performance review and I found out very

quickly as we hired a staff of CPAs and brought in people with

some management expertise that some of the agencies who we reviewed looked at us with the same skepticism that the dental patient looks at the dentist who promises a root canal is ultimately

going to make him feel better. There was a great deal of skepticism, and so I am used to that. We believe that performance reviews can be very helpful.

Administrator Alvarez will be stating in her testimony, and she

has mentioned to me in the past, that the GAO has or is conducting 41 reviews of SBA programs or processes. Is this correct,

and what would explain the number of the GAO reviews?

Mr. WALKER. We have about 20 reviews ongoing right now. We

issue about 20 reports a year on the SBA and we typically have

about 20 that are in process that typically get issued the next year.

Of the 24 reviews that we have underway, 10 of them relate to governmentwide issues in which we are looking at an SBA angle.

Fourteen relate specifically to the SBA. All of them are either a

mandate or a Committee request. We are not doing any self-initiated work in this area. I think, clearly, it does place a considerable

workload on the Committee, on us, and the SBA, which is one reason I think we want to look at the review process of how we go

about oversight and balance that workload better. But those are

the facts, Mr. Chairman.

Chairman BOND. You have indicated that the GAO has shared

this information with the SBA, they have had a full opportunity to

comment on it, and you will be including their responses in your

reports. Does the GAO stand behind the reports as fair, objective,

and independent?

Mr. WALKER. We do, and frankly, I think we have a constructive

relationship with the SBA. I think Administrator Alvarez can testify to that.

Chairman BOND. Would you elaborate on that for us?

Mr. WALKER. Well, she and I, for example, met within the last

several months to talk about the many projects that we have underway and she expressed the understandable concern that we

have a lot going on at the SBA. This obviously is a workload problem for us, as well. We had a very candid and constructive conversation about how we go about our work, what we are doing, and

how we do it, and we have talked periodically.

My view is that while we have got a lot going on and there are

clearly workload implications, we are being true to our core values

and we have a constructive working relationship with the SBA. I

think the SBA has been responsive to us. I think the SBA has, in

most cases, agreed with our recommendations, and I think, in most

cases, they have also moved to implement our recommendations

within a reasonable period of time. I consider that a win-win, quite

frankly.

Chairman BOND. The Performance and Accountability Review

does put an extra burden on the SBA. Do you think that the longterm benefits of that kind of review will outweigh the short-term

drain on resources?

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Mr. WALKER. Well, I do, but there are timing differences, Mr.

Chairman. As you know, sometimes you have to make an investment in order to get the return, and I appreciate the fact that we,

the Committee, as well as the SBA, are making significant investments in time and other resources now, but I have no doubt that

they will generate a return that far exceeds the cost.

Chairman BOND. You have mentioned that the GAO is going to

provide Congress with a broad perspective on a number of performance issues through your high-risk and performance and accountability series and that you will provide an overall report on the

SBA as part of your series. What is your approach to doing work

at other agencies beyond the SBA for the high-risk and performance and accountability series?

Mr. WALKER. Mr. Chairman, we are currently looking at that

whole area right now and we will be publishing a proposal for comment within the next several weeks that will lay out, for example,

what we see as the key functions that have to be looked at across

government. Obviously, there are key programs, as well, and we

will be laying out proposed criteria for what it takes to become

high risk and what it takes to get off the high-risk list. In the past

we have always had to employ our professional judgment and we

always will have to. However, I feel it is important that the GAO

have clearly defined, consistently applied, transparent, and welldocumented criteria so that people can understand what the rules

are and, therefore, be motivated to keep off the list or to get off the

list.

We are also planning to focus on functions and programs rather

than departments or agencies per se because most departments

and agencies have strong suits and weak points. Many departments and agencies are trying to make progress in areas because

they may have been challenged for years and it takes time to be

able to effectively address all those challenges.

Chairman BOND. With my other role on the Appropriations Committee, I know something about high-risk agencies and high-risk

programs, but we will save that for another day.

Senator Enzi, do you have questions for Mr. Walker?

Senator ENZI. Thank you, Mr. Chairman. Just a couple of quick

ones because those of us, of course, serving on this Committee understand that small business is the most important function in the

whole United States. We are not prejudiced. In spite of all the

newspaper articles that show all these multibillion-dollar mergers

of organizations that obviously are not small business, most of the

businesses in this country and, of course, all of the businesses in

Wyoming, are small business. So I appreciate the effort that the

GAO is exerting with the Small Business Administration and this

oversight. But for those who might not be on the Committee who

might have an interest, can you give us a little background on how

they became a pilot agency in the PAR process?

Mr. WALKER. We are always trying to develop new tools and

methodologies to try to help us better serve the Congress, and obviously our job is to maximize performance and assure accountability. So we were experimenting with some new tools and approaches and methodologies. We communicate with our clients constantly, committee chairs, ranking members, and other leaders,

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and in doing that, Senator Bond and others expressed interest in

the potential application of this to the SBA.

The SBA is an agency in transition. It has many different programs. In some cases, it has created programs on its own. In some

cases, Congress has created the programs. In fact, one of their challenges is they have a proliferation and some of that is Congress’

doing rather than the SBA’s doing.

Chairman Bond had thought that it might make sense for us to

focus on a few areas as a beta, as a prototype. We are also doing

this at other agencies, and quite frankly, we are going to have to

do it over a period of time. You cannot do it all at once. We do not

have the resources and the agencies do not have the resources. In

addition, the Committee does not have the resources to do it all at

once.

Senator ENZI. I appreciated your comment, too, in your first

chart where you talked about what the Government does and how

the Government goes about its business. I have changed that

slightly to what the Agency does and how we can tell when they

have got it done. That is one of the things that the American people are looking for, is some finality, some method of measuring,

some method of knowing what their agencies are really about and

that they are achieving things, and I think that is really the potential of GPRA, too.

You mentioned that there needs to be more focus on people, more

on the human capital. Could you expand on that just a little bit?

Mr. WALKER. Ultimately, people are what make things happen.

People represent the most valuable asset of the U.S. Government.

Government is a knowledge business. The Federal Government

faces an emerging crisis in the people area. The Federal Government has downsized significantly, but it is how it has gone about

that downsizing that in many cases has placed agencies at risk.

Broad-based RIFs, hiring freezes, cutting back on training, cutting

back on enabling technology, contracting out without necessarily

having the right kind of people with the right skills and knowledge

to manage cost, quality, and timeliness, has occurred at a number

of agencies.

I think that we face a major challenge in the Government where

a significant percentage of the Federal workforce is going to be eligible to retire over the next 5 years, where we have increasing competition for talent, to attract and retain top talent, that the skills

that are required to meet the public’s demands, needs, and expectations are changing.

It is a critically important area that I am speaking out on and

that we are trying to lead by example with regard to administrative actions at the GAO. As you may know, Senator Enzi, I had

global responsibilities for human capital for one of the top consulting firms in the world.

I might add one other point. I think government as a whole

needs to undergo a cultural transformation. From my perspective,

and I have been in both the public and the private sectors, government in many cases, and this is a generality, I am not talking

about a specific agency, tends to be too hierarchial, too processoriented, too siloed or stovepiped, and too inwardly focused. We

need to transform over a period of time to be more partnerial,

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which means more empowerment and more accountability, more

results oriented, focused on outcomes, not outputs, more integrated,

teaming, crossing boundaries, departments, agencies, Federal,

State, local, international, to address challenges, and more focused

externally, including on what the taxpayers want, need, and deserve, and a lot of that has to do with performance and accountability. That is what we are focused on.

That is a huge cultural transformation. It is going to take years,

but it will pay major dividends for Federal employees, for the Federal Government, and for the taxpayers.

Senator ENZI. You have just stated the benefits of GPRA very

well. Thank you.

Chairman BOND. Thank you very much, Mr. Walker. We appreciate your testimony. We will keep the record open and as the hearing goes on, there may be questions that we will submit to you in

writing for your reply. We do very much appreciate your being with

us and we thank you and dismiss you, if you wish, if you have

other responsibilities, or you are welcome to stay.

Chairman BOND. Now I would like to call the second panel, the

members of the GAO who are responsible for the actual audit

projects.

Mr. Stanley J. Czerwinski is Associate Director of Housing and

Community Development Issues, Resources, Community, and Economic Development Division of the GAO. Mr. Joel C. Willemssen

is Director of Civil Agencies Information Systems, Accounting and

Information Management Division of the GAO. Mr. Michael

Brostek is Associate Director, Federal Management and Workforce

Issues, General Government Division of the GAO.

Welcome, gentlemen, and Mr. Czerwinski, if you would begin,

please.

STATEMENTS OF STANLEY J. CZERWINSKI, ASSOCIATE DIRECTOR, HOUSING AND COMMUNITY DEVELOPMENT ISSUES,

RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT

DIVISION, U.S. GENERAL ACCOUNTING OFFICE, WASHINGTON, D.C.

Mr. CZERWINSKI. Thank you, Mr. Chairman, and thank you, Senator Enzi. We are here to discuss two reports that you requested

and released today on the SBA’s 8(a) program.

As you know, the 8(a) program is the Federal Government’s primary tool for developing small businesses owned by socially- and

economically-disadvantaged individuals. There are 6,000 8(a) firms

and these firms are eligible for contracts from Federal agencies.

These agencies set aside about $6 billion a year in contracts. The

firms are also entitled to technical assistance and management

training. However, we are unable to estimate the extent of that

technical assistance and management training because the SBA

does not have that capability.

I would like to highlight two points from our reports today. The

first is that when we did our review, we found that the SBA’s efforts are not aligned with the needs of the 8(a) firms the program

is designed to serve. Second, we found that the SBA lacks the information it needs to direct its efforts and to tell it how well the program is working.

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To elaborate on the first point, as the chart to your right shows,

many 8(a) firms have received few or no contracts. In fact, of firms

in the program for at least 2 years, about a quarter have never gotten a contract at all and over half have obtained no more than one

or two contracts their whole time in the program.

Perhaps even more significant is the fact that a very small number of 8(a) firms have garnered very large percentages of 8(a) contract dollars. For example, in fiscal year 1998, about 3 percent of

the 8(a) firms received about 50 percent of the 8(a) dollars, while

approximately 50 percent of the firms got nothing at all. This is not

a new problem. We reported it as early as 1992. The Inspector General has reported on it since then as well. And the SBA itself has

even listed this issue as a material weakness in its Financial Integrity Act reports since 1994.

SBA officials agree the concentration of contracts is a problem.

However, they added that the program regulations do not require

or guarantee that all firms get contracts. They also noted that the

SBA relies on Federal agencies to make the contracts.

In addition, SBA officials told us that there are more ways to

measure the success of the 8(a) program than just contracts. For

example, a prominent measure that the SBA uses to gauge the success of the program is the technical assistance and the management training it provides. However, the SBA has never surveyed

its customers, the 8(a) firms, to determine their view on what

makes the 8(a) program successful.

[The chart follows:]

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Mr. CZERWINSKI. We surveyed 1,200 8(a) firms to find out their

expectations and their needs. As the chart to your right shows,

over 80 percent of the firms joined the 8(a) program to obtain Federal contracts. As you can see, firms cared little whether the contracts were explicitly set aside by 8(a) or with Federal agencies in

general. The bottom line is, the 8(a) firms pretty much just want

Federal contracts. On the other hand, only about 20 percent of the

firms told us that they joined the 8(a) program to get technical assistance and management training.

[The chart follows:]

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Mr. CZERWINSKI. Our survey shows one reason this may be happening is that 8(a) firms, by and large, have substantial business

experience. As the chart to your right shows, almost three-quarters

of the 8(a) firms have owners with over 10 years of business experience. For example, one survey respondent told us that he had 20

years of business experience. He joined the 8(a) to get help finding

contract opportunities, but instead, what the SBA offered him was

rudimentary training that he told us he did not need.

[The chart follows:]

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Mr. CZERWINSKI. The SBA has agreed with our recommendations

to periodically survey the 8(a) firms. This will help them better understand what their firms need and how to meet those expectations. The SBA has also agreed that it should place a high priority

on helping increase contract opportunities.

This brings me to the second point: The SBA currently lacks information it needs to direct its efforts to help its clients; it also

lacks the information it needs to measure program effectiveness. In

addition to lacking data on customers’ needs and expectations,

there are two other areas that I want to point out today.

First, the SBA does not have information systems in place to

track the assistance it provides to 8(a) firms or the results of that

assistance. This is not a new problem. We also reported back in

1992 that the SBA lacked these systems and the SBA agreed to

take action. After several stops and starts, the SBA piloted such a

system last year. However, the pilot has shown some problems that

really have to be worked out before it can go online.

The other area that lacks vital information is contracts. The SBA

does not know which firms are getting contracts and which are not.

This is because when the SBA delegated contract authority to

agencies, it no longer required those agencies to report contract activity directly to the SBA. Because the SBA is still working through

how it would get needed contract data, it currently lacks information essential to managing the 8(a) program.

As you can see, a root cause of some of the issues that I have

described is that the SBA lacks needed information systems. Joel

Willemssen, the next GAO witness, directs all of the GAO’s work

on information technology. He will discuss the SBA’s information

systems in more detail.

However, before I turn it over to Joel, I would like to close by

saying that throughout the course of our work, we have shared our

findings with the SBA. In fact, last month, we provided drafts of

the reports being released today. The SBA has agreed with the

findings. They have also promised to act on our recommendations.

We believe that such actions should lead to significant improvement in the 8(a) program.

That concludes my statement, Mr. Chairman. I would be glad to

respond to any questions you might have.

Chairman BOND. Thank you very much, Mr. Czerwinski.

[The prepared statement and attachments of Mr. Czerwinski follow:]

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Chairman BOND. Mr. Willemssen.

STATEMENT OF JOEL C. WILLEMSSEN, DIRECTOR, CIVIL

AGENCIES INFORMATION SYSTEMS, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE, WASHINGTON, D.C.

Mr. WILLEMSSEN. Thank you, Mr. Chairman. Senators, thank

you for inviting us to testify today. As requested, I am going to

briefly summarize our statement, which will discuss the results of

our recent review of the SBA’s management of information technology, and I am going to quickly run through a series of slides of

which you also have a hard copy in front of you.

In looking at IT at the SBA, we focused on five areas: investment

management, systems architecture, software development and acquisition, computer security, and IT human capital. In doing so, we

particularly focused on policies, procedures, and practices and compared those with industry standards, legal requirements, and other

generally-accepted guidance. Then, portraying where the SBA stood

at a particular point in time, we gave indications by using either

a blank circle to show that policies and procedures largely did not

exist and practices were ad hoc; a half-circle to indicate that policies and procedures were predominantly current, although not all

practices were in place; or a full circle to indicate things were being

done in a comprehensive fashion.

Just quickly going through a summary of some of these key

areas: first, the investment management area for information technology, that is, controlling projects from a cost, benefit, and risk

perspective through their life. The SBA has much remaining to be

done in this particular area. They are committed to doing that.

They have an investment review board that has been established

and is beginning to work. However, there is more to be done in

terms of getting the necessary data out of those processes and also

bringing that to bear on decisions that are to be made on investment technology projects. So there is more to be done, but the SBA

does have a commitment for doing so.

The second major area has to do with systems architecture—a

blueprint for an entity to follow to provide seamless, cost-effective

services to its users. The SBA has made progress on this, due in

large part to their planning efforts on their loan monitoring system. Among the areas they still need to work on, though, is the

change management area, where system changes are made. They

need to make sure that that is still linked to the overriding systems architecture.

Another critical area is software development and software acquisition. If you look at major information technology projects, software is often the underlying cause for why projects do not come in

on time or over cost or do not meet performance goals. In this area,

the SBA has a lot of work remaining. They are committed to doing

so. I have noted in their statement, in the Administrator’s statement this morning, that she plans to pursue more of their effort

on the acquisition side rather than the development side, and we

are encouraged by that.

Another important area is computer security. The SBA has made

good progress on this in terms of making its staff aware of the need

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for security and implementing necessary system controls. They still

need a bit more effort in making assessments of the risk of threats

and vulnerabilities to their systems and to the integrity of their

data.

And then the last overall functional area we looked at in the information technology area was human capital—understanding

clearly what it is you need both with in-house staff and contractor

staff, making an assessment of your current inventory, identifying

the gaps, strategizing to fill that gap, and periodically reporting on

where you are. The SBA still has a long way to go. They have done

some inventory efforts, but work remains to be done there.

This last slide just gives you an overall summary of the five IT

functional areas and the 37 data points that we used in conducting

our review and presenting the results. We have made, associated

with this area, 18 recommendations to the SBA for improvement.

The SBA has agreed with those recommendations. And I may also

say, Mr. Chairman, the SBA has shown with its top management

a clear commitment to implement these recommendations and to

improve its management of information technology.

That concludes the summary of my statement and I also would

be pleased to answer any questions. Thank you.

Chairman BOND. Thank you very much, Mr. Willemssen.

[The prepared statement and attachments of Mr. Willemssen follow:]

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Chairman BOND. Mr. Brostek.

STATEMENT OF MICHAEL BROSTEK, ASSOCIATE DIRECTOR,

FEDERAL MANAGEMENT AND WORKFORCE ISSUES, GENERAL GOVERNMENT DIVISION, U.S. GENERAL ACCOUNTING

OFFICE, WASHINGTON, D.C.

Mr. BROSTEK. Mr. Chairman and Members of the Committee, I

am pleased to be here to present our observations on the SBA’s

management of its human capital. Whether one looks at how well

programs are implemented, as Mr. Czerwinski has done, or at how

well agencies carry out important managerial support functions, as

has Mr. Willemssen, ultimately, an agency’s most important asset

is its human capital. It is the people who staff an agency whose talent, motivation, and collective effort support organizational success.

I would like to make two points today about the SBA’s management of its human capital. First, the SBA has developed a vision

for how it would like to operate in the future. That vision, which

includes transitioning its workforce from approving and servicing

loans to primarily reaching out to new markets and overseeing private sector partners, has implications for the management of its

workforce.

Second, the SBA has begun to take steps to better manage its

human capital, such as undertaking various workforce planning activities. However, more remains to be done, including completing

its efforts to identify the knowledge, skills, and abilities that its

employees will need to perform successfully in the SBA’s new business environment; estimating the number of employees with those

skills that they will need; developing a succession plan for senior

leaders and reinstating candidate development programs for those

leaders; and finally, ensuring that employees receive adequate

training to perform their jobs well.

Before I proceed further, let me explain the basic steps of workforce planning, which will sound quite similar to what Mr.

Willemssen has just described. A workforce plan begins with a

strategy for how an organization plans to do its business, which

will often differ from the way it is presently doing business, and

that is the case with the SBA. Once a strategy for how business

will be done is complete, an organization must determine how

many workers with what knowledge, skills, and abilities will be

needed to successfully carry out that strategy. This, then, can be

compared to the organization’s current workforce to measure

whether there is any gap in terms of numbers and skills.

When the extent and nature of any staffing gap is known, then

a plan can be constructed for addressing that gap. The plan might

include hiring new staff, retraining current staff to acquire new

skills, or possibly contracting to obtain services.

In relation to these workforce planning steps, the SBA has developed a vision for how it would like to operate in the future and it

has communicated that in accordance with the Government Performance and Results Act. The plan calls for sharply increasing the

amount of financial business development and procurement assistance for new markets, that is, minorities, women, veterans, Native

Americans, small exporters, and businesses in low- and moderateincome urban and rural areas. In addition, the SBA intends to conVerDate 11-MAY-2000 13:01 May 24, 2001 Jkt 010199 PO 00000 Frm 00234 Fmt 6601 Sfmt 6602 E:\HEARINGS\68000 pfrm06 PsN: 68000
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tinue increasing the portion of loans that are approved and issued

by third parties and to sell assets currently in its portfolio.

These changes mean that the SBA will, for example, need to assign more employees to oversee lenders and to perform those outreach services that it anticipates providing to new market businesses.

The SBA has recognized that these changes will require different

skill sets than employees may now have. Accordingly, the SBA has

determined that it needs to develop competencies, that is, definitions of the knowledge, skills, and abilities that staff will need to

perform five functions: Marketing and outreach, leadership, business development, lender oversight, and procurement. While the

SBA has developed the competencies for two of these functions, the

marketing/outreach and the leadership function, it has not yet done

so for the other three.

The SBA also recognizes that it must assess the skill of its current employees in order to measure that gap between current skills

and those that will be needed in the future. This remains to be

done.

In the interim, the SBA has begun training some of its staff in

the skills that it has identified for the marketing/outreach and

leadership functions. It is relying also on employees who already

perform such functions as lender oversight to train additional employees for those activities.

Although training has been identified by the SBA as critical to

transitioning its workforce to the skills needed to implement its

new business approaches, fewer of its employees report that they

have received the training that they believe they need to perform

their jobs than did Federal employees governmentwide in surveys

conducted in 1998 and 1999. And, indeed, the percentage of the

SBA employees who reported that they felt they were adequately

trained decrease between 1998 and 1999.

The SBA also believes that leadership is key to its ability to successfully transform its workforce and to implement its new business practices. Thus, leadership was one of the first competencies

that the SBA defined. However, the SBA does not have a succession plan for developing its future leaders and it has not had candidate development programs for senior executives and district directors since 1995.

As I noted earlier, the SBA has undertaken numerous human

capital initiatives over the past several years. These include, for instance, reallocating its current workforce to better balance the resources available to provide services to clients locally, beginning to

identify the skills that staff will need, and initiating training for

those new skills. In addition, this spring, the SBA contracted to develop a workforce transition plan that is intended to help it begin

addressing the additional steps that we believe need to be taken.

In summary, although the SBA has taken steps to address

human capital management challenges, these efforts are incomplete in several important areas and the efforts that have occurred

have not been guided by an overall workforce plan. While a plan

itself cannot ensure success in transitioning the SBA’s workforce,

a well thought out plan increases the odds that the Agency will be

successful. Implementing that plan, once it is developed, will take

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several years and will require sustained attention by the SBA leadership.

That concludes my oral statement and I would be happy to join

the others in answering questions.

Chairman BOND. Thank you very much, Mr. Brostek.

[The prepared statement of Mr. Brostek follows:]

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Chairman BOND. We have been joined by our Ranking Member,

Senator Kerry, so let me turn to Senator Kerry for comments and

questions. Good morning.

OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY,

RANKING MEMBER, COMMITTEE ON SMALL BUSINESS, AND

A UNITED STATES SENATOR FROM MASSACHUSETTS

Senator KERRY. Good morning, Mr. Chairman. Thank you very

much.

Let me begin, if I may, by expressing what I know others have

already said today, which is our sense of personal loss for our colleague, Paul Coverdell. He was what I would describe as a gentle

soul and one of the kinds of people here who helps to make this

place work and function effectively, who reached across the lines.

I particularly enjoyed working with him, not just on this Committee, where he was always thoughtful and steady, but on the

area of education, where he had been charged with responsibilities

by the Leader. He and I spent a great deal of time in the last year

and a half trying to find the bridge between our two parties and

he was always thoughtful and always extraordinarily generous as

a listener, so we obviously will miss him greatly and my condolences go out to his family, to all of his staff, and to everybody who

feels the sense of loss that the Senate feels today.

I apologize to Mr. Walker, who I know has had to leave, and to

my colleague, the Chairman, for not being able to be here at the

beginning of this. I certainly welcome the Administrator and I am

very grateful to her and I think the Committee should be very

grateful to her for sitting through the whole hearing and then responding at the back end.

This is an important hearing. It is always important for the

United States Senate to take the time to conduct oversight. I have

always been a strong believer in oversight. When I was chairman

of a number of subcommittees, I took the time to do that, and I

thank you, Mr. Chairman, because I do think it is an important

part of our role. In too many committees, they do not take the time

to do it and then we pay a price somewhere down the road because

of that. So I think we have passed good legislation, and that is always important, but it is important for us to know what is happening within the Agency that we fund and how effectively it is implementing reforms that are needed.

I also think, at the same time, there can be a tendency in the

oversight process not to be positive enough about the good things

that entities are accomplishing when they are accomplishing them.

I do not think the record should avoid an affirmative understanding of the degree to which the SBA has been transformed in

recent years from an agency that some sought to literally do away

with to an agency that is, I think, extraordinarily strong, extraordinarily capable and dynamic, and I commend Administrator Alvarez for an impressive job, particularly under difficult circumstances

with respect to the budgeting.

Mr. Chairman, I would like to ask unanimous consent that a letter addressed to me as Ranking Member from the Administrator

regarding the need for the budget, for the full fiscal year 2001

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budget proposed in the President’s budget, be made part of the

record.

Chairman BOND. Without objection.

[The letter of Senator Kerry follows:]

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Senator KERRY. Thank you. I think it is very important for us

to understand the linkage between certain kinds of resources that

provide the technical capacity to do some of the things that the

panel before us has just talked about, and I am confident that they

will affirm that to us, that there is that linkage.

In addition, I will not take the time now to go through all of

what the Agency has accomplished. I do think it is important to

recognize that just one company that it has helped, and there are

many that it has helped to form, just one company, Intel, for instance, pays yearly taxes to the Federal Government that completely cover the Agency’s annual budget. So we need to measure

the numbers of people who have received help, the amount of commerce and transaction that takes place, the numbers of jobs created, the amount of tax base returned to the United States by virtue of the SBA, and I think that needs to be part, also, of the oversight process.

I also want to say, Mr. Chairman, I think we need to be a little

bit cautious about the amount of current oversight taking place.

This is a good report and I am not suggesting this is not a healthy

and important process. But in the past year, the SBA has been the

subject of over 40 GAO audits or reviews, and I think 20 to 24 are

currently underway. One of the things we might want to consider

is how much administrative time gets chewed up responding to

these kinds of requests and how it needs to be measured against

the overall availability of personnel and capacity to do it.

Now, on the 8(a) program, I know that some of the criticisms

found are similar to criticisms that have plagued the program for

many years and we are struggling with them. But I do think that

it is also important to note that the Agency has taken numerous

steps over the last years to try to guarantee that 8(a) firms in larger numbers will receive contracts, and I think that has been a good

faith effort.

I am not going to go through all of my thoughts and comments

on the report here, but I do think that the methodology needs also

to be as fair as possible. Let me just give an example.

One of the criticisms was that the SBA needs policies and procedures to control key IT processes. That is sort of a headline in the

report. Well, we all agree that there is room for more improvement,

but in my judgment, it might be more accurate to say that the SBA

needs more policies and procedures because the headline sort of

suggests that there are not any. It needs policies and procedures.

Well, there are some. It just needs more and needs to refine them.

Another example would be that the rating system set forth is

kind of all or nothing. You get this empty circle, which represents

incomplete or obsolete policies, and then you have the half-circle,

which represents policies and procedures for key functions, but

there really ought to be some kind of a mark or circle to represent

that they are drafting policies or have hired consultants who are

developing policies or procedures are currently being put in place.

There is a distinction between ignorance and complete avoidance of

responsibility and simply developing policies or procedures, or

being behind where you would like them to be. There is a distinction between that and simply not doing anything.

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So these are the kinds of things that I think are important to the

fair-mindedness and level-playing field as we try to approach this.

But again, I think the gist of what has been presented is very important to us as a Committee. I think it is a good report, a good

piece of work by the GAO, and it will be helpful, ultimately, in

making the SBA even stronger, and I think the Committee is

grateful for that.

Mr. Chairman, I thank you for allowing me the time to make an

opening statement.

[The prepared statement of Senator Kerry follows:]

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Chairman BOND. Thank you very much, Senator Kerry.

I will submit for the record a letter I sent to Administrator Alvarez in response to her concerns about the budget in which I laid

out my views.

[The letter from Chairman Bond follows:]

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Chairman BOND. We have been joined by the Senator from

Maine, Senator Snowe. We call on you for comments, questions, or

other observations you wish to make.

OPENING STATEMENT OF THE HONORABLE OLYMPIA J.

SNOWE, A UNITED STATES SENATOR FROM MAINE

Senator SNOWE. Thank you, Mr. Chairman. I, too, want to express my profound sorrow over the loss of our beloved colleague

who served on this Committee and did so many things in the

United States Senate that enhanced the institution and enhanced

this country. I describe him as a legislator’s legislator because he

was always developing thoughtful, productive, constructive initiatives to move the process forward, always trying to design solutions

to the problems. We are all going to be diminished by his loss.

Mr. Chairman, I just want to commend you for holding this hearing. It is an appropriate function of this Committee to conduct

oversight. I congratulate the GAO, who always does an outstanding

job in evaluating programs and functions of agencies and also welcome Administrator Alvarez, who I know is taking steps to enhance

and strengthen the SBA.

We all support what the SBA does, and as Senator Kerry indicated, it was not too long ago it was targeted for elimination. That

is why I think it is so important to constantly evaluate and reevaluate the responsibilities of the SBA’s role so that we can ensure that these programs are being implemented and also fulfilling

the mission to which it was designed.

So I want to thank you, Mr. Chairman, for holding this hearing

so that we can do everything possible to ensure that we are evaluating these programs, because I think it is exactly what we need

to do. In the private sector, they are constantly conducting customer satisfaction surveys and it should be no different in these

programs that we are designing to help small businesses and employees to move forward. I hope that we can learn from what has

been suggested here today and see what we can do to ensure that

these suggestions are incorporated within the Agency’s missions

and procedures.

Thank you, Mr. Chairman.

Chairman BOND. Thank you very much, Senator Snowe.

Senator KERRY. Could I just ask unanimous consent that my

comments be placed in the record?

Chairman BOND. I would hope you would include them because

we look forward to reading them, and without objection. We were

disappointed that you did not have a chance to give them, but now

that they are made part of the record—— Senator KERRY. I mean, if you wanted me to, I would be happy

to——

Chairman BOND. Well, I do not want to impose on you,

Senator—— [Laughter.]

Chairman BOND [continuing]. But we will be more than happy to

include them and send them around to all the Members for their

thorough review.

Let me turn to Mr. Czerwinski. There have been comments made

and I know the Administrator in her testimony will talk about the

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accomplishments of the SBA. Let me just ask, in overview, do you

agree that while the SBA has made strides toward serving small

business, that there are still some shortfalls that need to be addressed? What is your assessment of what the SBA is doing generally?

Mr. CZERWINSKI. Absolutely, the SBA has made accomplishments, and one of the things that has impressed us is how receptive the SBA is to the recommendations we make. So they are on

the right track.

Chairman BOND. That is very encouraging and I appreciate hearing that.

Let me turn now to a detail. Administrator Alvarez, I think,

notes about $180,000 was spent by the SBA in providing information to the GAO. My understanding is that the SBA established a

centralized system to manage the GAO report, which is not customary in other non-military agencies. Is that true, and is this a

more expensive way to deal with the GAO?

Mr. CZERWINSKI. Yes, that is true. We try to keep our requests

for information reasonable. Whenever we are doing work, it is

going to entail an effort for the Agency. In this case, we have a

point of contact very high up in the Agency, the Chief Operating

Officer, and when we ask for information, the SBA has let us know

if there is a problem. We have not been told about any specific requests for information that have been considered excessive.

Chairman BOND. But this is a more resource-intensive way of

handling the operation than other agencies under audit have utilized?

Mr. CZERWINSKI. Yes. We audit a number of agencies. The SBA

definitely has a process in which our work has a much higher level

of attention than within other agencies. That is the plus side. The

down side is I am sure it costs them and takes them time to do

that.

Chairman BOND. Let me turn to the customer satisfaction now.

In your report on 8(a) specifically, what did you find that the customers or the SBA employees, for that matter, stated with regard

to the satisfaction with the manner in which the 8(a) program is

being operated?

Mr. CZERWINSKI. We surveyed the SBA’s customers, the 8(a)

firms, and we asked them what they wanted from the 8(a) program. They told us they want contracts. And we asked them what

they thought they were getting. A very large number of respondents did not feel they were getting the kind of contract assistance

they needed, so there was a level of dissatisfaction that was out

there in the SBA’s 8(a) customers.

Chairman BOND. How about among the employees of the Agency

itself ?

Mr. CZERWINSKI. We did not survey the Agency employees. We

did visit field offices and asked the business opportunity specialists

what kind of things they did, what kind of things they would like

to do. There was a disconnect because we saw a lot of these specialists doing more in terms of checking, such as getting reports, as opposed to the outreach that the customers are calling for them to do.

Chairman BOND. So we have got a mismatch, some mismatch between customer needs and the kind of service provided.

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Let me ask the full panel, under the PAR review, do you believe

that the SBA’s shortfalls in the management of human capital and

information technology have contributed to the problems in the 8(a)

program, specifically the ability of the SBA to maintain a data base

to understand how the program is operating or whether its business opportunity specialists provide useful service?

Mr. CZERWINSKI. If I could take the first stab at that——

Chairman BOND. Please.

Mr. CZERWINSKI [continuing]. Because I think it is probably easier to start from the programmatic perspective. Your question gets

to the very heart of what we are trying to do and that is to integrate what we are finding in the programs with what we are finding in functions. And yes, the 8(a) program would be much better

off, for example, if its information systems were stronger. So that

kind of functional link-up with programs is essentially what we

found.

Chairman BOND. Mr. Willemssen.

Mr. WILLEMSSEN. I would concur with Mr. Czerwinski’s comments. To the extent that the SBA already has in place and can

have in place a standard way of doing business for acquiring and

operating information systems, it is much less likely they will run

into the impediments they have in certain programs and supporting systems. It will become more routine and easier to do business and systems will come on line that much more quickly.

Chairman BOND. Mr. Brostek.

Mr. BROSTEK. I do not think the work that we have done enables

us to say that human capital problems have led to the problems

that Mr. Czerwinski talked about. I would note that to the extent

that the SBA would need to refocus the program to provide more

of the services that the customers are expecting, that that could

have some human capital implications. It might require some retraining of employees to be able to perform those functions more

in the manner the customers would like.

Chairman BOND. Thank you. I will turn now to Senator Enzi for

his questions.

Senator ENZI. Thank you, Mr. Chairman.

Mr. Czerwinski, on your first chart, it showed that the SBA was

not meeting the expectations of the 8(a) minority program participants. We want to get the job done. Did the SBA staff give you any

insight into what obstacles prevent them from doing their jobs better?

Mr. CZERWINSKI. Yes. The major obstacle that they pointed out

to us was resources, specifically resources for travel. The business

opportunity specialists told us that one of the things that they

wanted to do was to get out there, to see the firms, to work with

them. The firms told us they also wanted the opportunity specialist

to be out there working with them to help them get contracts. This

kind of connection was not happening anywhere near as much as

both the firms and the business opportunity specialists in the field

wanted it to happen.

Senator ENZI. If the staff is not able to travel, what are they

doing?

Mr. CZERWINSKI. As I mentioned, we have found that the business opportunity specialists have a lot of responsibilities. They are

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very, very busy and we received very high marks on their courteousness, their service orientation, et cetera. However, what they

were doing primarily was checking and verifying the reporting requirements, documentation, et cetera, for firms’ participation in the

program.

Senator ENZI. That seems to show up in the comments by the

businesses that were interviewed, as well.

Mr. CZERWINSKI. Yes, Sir.

Senator ENZI. You mentioned that the staff did not have sufficient travel funds. Didn’t the GAO recently report about a similar

problem involving the procurement center representatives?

Mr. CZERWINSKI. Yes, Sir. That is exactly the same issue that

came up in that report.

Senator ENZI. Are not the SBA’s procurement representatives

supposed to be working aggressively at major Federal procurement

centers seeking contracts that can be set aside for small businesses?

Mr. CZERWINSKI. Exactly. The concept is for them to be reaching

out, being a part of those operations, helping out on the ground.

Senator ENZI. Is it reasonable to believe that they can do that

job without traveling?

Mr. CZERWINSKI. No. You have to be there.

Senator ENZI. Mr. Chairman, there does seem to be a growing

problem at the SBA where front-line staff who are supposed to be

helping small businesses obtain government contracts are unable

to do their jobs because they do not have sufficient travel funds.

I know that our colleague, Senator Coverdell, was pursuing an investigation into the use of travel funds at the SBA. If it is OK with

you, I would like to pick up the work where Paul left off.

Chairman BOND. I would appreciate that. I think that is very important. Mr. Czerwinski has just raised a major problem and I

would ask that you work with the GAO and the SBA on this question.

Senator ENZI. Thank you. In particular, I am concerned about a

report recently provided to the Committee by the SBA Inspector

General. The report details how the SBA maintains a second set

of budget books where appropriated funds for SBA programs are

skimmed off into a separate account to support unrelated activities

at the SBA and the report suggests that some of these appropriated

funds were used to support some overseas travel.

Last night, we received some documents—actually, I think it was

this morning—from the SBA at the Committee’s request that gives

the Agency’s ledger, which details transactions from this separate

account, which I want to get more details on, and which the SBA

refers to as its reserve account. The SBA provided the Committee

with two versions of the reserve account. One of them is marked

‘‘confidential’’ and one does not carry the confidentiality label. I believe these documents are important as our Committee reviews the

Agency’s use of this offline account, and I would request that the

version of the ledger that is titled ‘‘Sorted by Function’’ and not

marked ‘‘confidential’’ be included in the record today.

Chairman BOND. Without objection.

[The information of Senator Enzi follows:]

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Senator ENZI. Mr. Chairman, the accountant in me says that we

need to look further into the report. I am particularly interested in

how this comes about and how it shows up on the Federal Financial System. It would seem to me that the Inspector General at the

SBA would be the appropriate office to turn to for help. Seeing the

people from the SBA, I assume that somebody from the Inspector

General’s office is here.

Chairman BOND. Is there somebody from the Inspector General’s

office here?

Mr. MCCLINTOCK. Yes, Sir.

Chairman BOND. And your name is, Sir?

Mr. MCCLINTOCK. I am Peter McClintock, Deputy Inspector General.

Chairman BOND. Mr. McClintock, thank you.

Senator ENZI. According to the advisory memorandum, your

audit of the Administrator’s reserve account covered a period ending April 1999. I believe that is even on your website. Would it be

possible for you to audit the activities of that reserve account since

the last report and covering the remainder of the fiscal year 1999

and 2000, bringing it up to date, and would it be possible for that

to be done by August 7 so we can be reviewing it during the recess?

Mr. MCCLINTOCK. We would be glad to do whatever we can and

I could meet with the staff in order to work out the details.

Senator ENZI. I would appreciate it. Thank you.

Thank you, Mr. Chairman.

Chairman BOND. Thank you, Senator Enzi. Thank you, Mr.

McClintock.

Senator Kerry.

Senator KERRY. I am puzzled by that foreign travel thing here.

Is there something out of the ordinary about some foreign travel?

Mr. CZERWINSKI. We have not looked at foreign travel in any

parts of our reviews.

Senator KERRY. I remember I was down in Buenos Aires for the

climate control meetings and while I was there I happened to meet

with the ministers of trade and others and they were very excited

about a visit from our Treasury officials and, I think, our small

business officials. They wanted to know how to do small business

the way we do it in our country and they were particularly looking

forward to sort of learning how we do our SBIC, SBIR, where to

start, what is the relationship and so forth.

It seems to me, and I wear the hat on both the Foreign Relations

Committee and Intelligence Committees, that that is precisely

what we are trying to do in terms of encouraging other countries

to become capitalist and democratic, and the more we can encourage them to be able to embrace our business practices and learn

from us, the stronger it is for us.

So I am puzzled by it. I will certainly wait to see what the interest is or what the ramifications are, but do you not have anything

to share with us at this point in time about that?

Mr. CZERWINSKI. No. We have never looked at that issue at all.

Senator KERRY. Let me ask you another question. I assume that

the capacity of people to be able to get out and get around the

country and do the things they need to do is clearly a function of

the overall budget of the Agency.

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Mr. CZERWINSKI. Absolutely.

Senator KERRY. Now, is it your judgment that the overall budget

of the Agency is adequate?

Mr. CZERWINSKI. I am not going to pass judgment on their overall budget.

Senator KERRY. I mean, can they do the tasks you are criticizing

them for without resources?

Mr. CZERWINSKI. We are talking about targeting the resources

the SBA already has. Let us just take the 8(a) program as an example of how to use the Agency’s budget and resources most effectively, and we think they could do things more effectively. If the

8(a) program had a better sense of what its customers’ needs and

expectations were, if the SBA had better ways of tracking the service it provided and then measuring the results, that would then

lead to a more efficient use of the resources and greater accomplishments in terms of meeting customers’ needs.

Senator KERRY. Have you made a specific recommendation of

how to go about that?

Mr. CZERWINSKI. Yes, we have. We have a series of recommendations.

Senator KERRY. Could you share with me quickly what you think

should be done?

Mr. CZERWINSKI. Sure. The very first step is for the SBA to periodically do what we did: survey its customers. What they need to

do is to find out exactly what the profile of the 8(a) firms is and

what the firm’s needs are. That just gives them a starting point.

That gives the SBA essentially a mission, a strategy for meeting

the firms needs: essentially outreach, focusing assistance in certain

areas, in this case contracting.

Then what is very important is to have in place information systems that capture the amount of assistance provided in terms of

contracts, training, technical assistance. That then feeds back into

measurements that the SBA needs to establish for accomplishing

each of those things, which then cycles back to what the customers

are needing. So it should be a customer-driven system. That is

what our recommendations essentially state.

Senator KERRY. Just based on my experience, that sounds like a

relatively labor-intensive effort.

Mr. CZERWINSKI. I think especially in the information systems,

you are talking about a fair amount of work. Mr. Willemssen can

give more details.

Senator KERRY. It seems to me that what you are talking about

is a combination of labor-intensive and capital, I mean, equipmentintensive. Information technology requires the software, it requires

the computers and so forth. Is there some kind of conflict here between what you recommend and the drastic cuts that have taken

place to the 7(j) funds? Did you measure that?

Mr. CZERWINSKI. We did not look at what impact the cuts in 7(j)

funds had, but we would suggest that the SBA should take the

model that we provide, and use that model to come up with a budget. I suspect that when all is said and done, yes, it will take more

resources, but we think the SBA could then have a compelling case

for asking for resources.

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Senator KERRY. Good. Well, I will be interested to hear their

point of view on that, but that sounds like a fair observation in the

abstract, if you are acknowledging that it may take some additional

resources.

Mr. CZERWINSKI. Absolutely.

Senator KERRY. Thank you, Mr. Chairman.

Chairman BOND. Thank you, Senator Kerry.

I have asked Senator Enzi to go participate in the vote and come

back so that we will have minimal disruption, and then you and

Senator Enzi can carry on, but I will ask a few more questions before I have to go to vote.

Mr. Czerwinski, I had a number of questions about the 8(a) program. I believe you have addressed those in your testimony. Since

1992, the GAO reported that only a small number of firms participating in the 8(a) program received most of the 8(a) awards. Now

the SBA reports that it has reduced the concentration of 8(a)

awards among the top 10 firms by 40 percent between fiscal years

1997 and 1998. Has the concentration of contracts among a small

number of firms really improved?

Mr. CZERWINSKI. Concentration was a problem and still is a

problem. There are two points that I would like to make on the

measure that the SBA uses.

For one, the SBA talked about the top 10 firms. If you will recall,

there are 6,000 firms in the program. I think the SBA needs to

have a deeper measure than 10 of 6,000 firms. That is why, when

we talked about concentration, we talked about 50 percent of the

firms and what kind of coverage they have. In addition to that, the

SBA’s number talks about 1997 to 1998. Preliminary numbers for

1999 indicate that the trend has reversed and that concentration

is pretty much where it was.

Chairman BOND. So a small number of firms are really winning.

Can you give us an idea of what would be a cutoff? How many contracts are going to a small number of firms?

Mr. CZERWINSKI. We found there are $6 billion contract dollars.

But the key is dollars.

Chairman BOND. Dollars, yes.

Mr. CZERWINSKI. That is what drives these folks. Dollars, not

numbers of contracts. There are $6 billion being made in contracts

annually. There are 6,000 firms out there competing for those. We

found that approximately 200 firms got $3 billion.

Chairman BOND. Wow.

Mr. CZERWINSKI. So the other 5,800 got the balance. Of those

5,800 that got the balance, we found that 3,000 got none at all.

Chairman BOND. So 200 shared in $3 billion.

Mr. CZERWINSKI. That is correct.

Chairman BOND. The SBA, I believe, would state that the Agency could have access to better data under the 8(a) program if Congress were to permit it to move forward quickly on systems modernization. Let me ask about the systems. Has the SBA made sufficient progress in its information technology planning so that we

can be assured that such funds will be used effectively and efficiently, or do you believe it is time to move ahead?

Mr. WILLEMSSEN. We still have 13 outstanding recommendations

related to SBA’s planned loan monitoring system. Eight of those

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focus particularly on the system, five on more cross-cutting areas.

The SBA is committed to implementing the majority of those recommendations. Just within the last week, they have again supplied

us with a great deal of information that we are currently analyzing

to make judgments as part of our ongoing review as to whether

they are ready or not.

Chairman BOND. You examined, Mr. Willemssen, several projects

on information technology. Is there a problem with a lack of documented practices and procedures and does that have any impact on

cost increases, schedule delays, or unacceptable performance?

Mr. WILLEMSSEN. When these generally accepted procedures and

practices are not in place, it can have an impact. We have identified a couple of examples. For example, there was an effort known

as Smart Stream within the CFO’s office where about $2.4 million

was spent on a commercial off-the-shelf package for personnel actions, financial management, and procurement. That encountered a

lot of software problems. The personnel component was abandoned

after 18 months and the other two components were never implemented. So that is just one example of why it is important to have

routine procedures in place so that there is a way of doing business

to avoid situations such as that.

Chairman BOND. To give me a better understanding, what kind

of procedures would you have proscribed that would likely have

avoided essentially wasting $2.4 million?

Mr. WILLEMSSEN. Yes, Sir.

Chairman BOND. What kind of procedures were not in place that

should have dealt with that?

Mr. WILLEMSSEN. Before major information technologies are embarked upon, there is a process where top leadership buys in and

says, ‘‘Yes, we want this particular project. It is clearly worth the

cost. It links to the mission we want to achieve. The risks are manageable. Let us go ahead with it.’’ Once that project is initiated,

there needs to be continued monitoring of that project. To the extent that it gets off the rails, gets off track, there needs to be corrective action. And then once the project is implemented, you need

to do a post-mortem assessment to see if it is indeed fulfilling the

goals that were intended.

Without that kind of process, every project can get started without the kinds of controls that are necessary. Additionally, softwareintensive projects need those kinds of controls to reduce the risk

that they also will be over cost and not come in on budget.

Chairman BOND. Obviously, we are at the post-mortem state on

that software package. That fell off the rails. Did the SBA fail by

not having the top level people implementing the system buy into

the process or where was it that it went wrong?

Mr. WILLEMSSEN. Yes, not looking at it from an investment management perspective, not having software acquisition practices in

place, and then making sure that it could operate in an integrated

fashion with the other systems that the SBA had.

Chairman BOND. Given the concerns you outlined and the reports that you gave us that are documented on this chart, I am

concerned that some of the deficiencies could adversely affect the

SBA’s ongoing development of its loan monitoring system. Is this

a reasonable concern?

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Mr. WILLEMSSEN. It is a reasonable concern and it is the primary

reason why planning for the loan monitoring system has been

stretched out to some degree. The SBA, I believe, has been very responsive to issues that we have raised. We, along with the SBA,

do not want to see a failure as it pertains to the loan monitoring

system. We want it to be done right, and clearly, the SBA does, too.

So they have taken the extra step. They have not bitten off too

much at one time. They are taking a piecemeal approach to try to

do it right. By not having those instituted processes in place, it

therefore has stretched out a little bit longer than probably the

SBA would have liked.

Chairman BOND. In response to the GAO report, the SBA states

that it has been recommended that the SBA adopt practices not

utilized by other Federal agencies, and, therefore, comparing the

SBA with other agencies, there is not a problem with SBA current

practices.

Let me ask you a three-part question. First, what are the standards against which SBA performance is judged and are these reasonable for a Federal agency to follow? Second, is the SBA’s claim

true that the GAO conducted its study based on standards that are

ideal rather than practical? Third, should we in Congress be satisfied if it is true that the SBA performs as well as other Federal

agencies with respect to IT?

Mr. WILLEMSSEN. Taking your first question, we used a range of

criteria in assessing the SBA. Generally speaking, what we considered is standard industry practice, in addition to legal and regulatory requirements. The Clinger-Cohen Act, passed in 1996, was

a major piece of criteria that we used, the intent of the Act is to

try to end the cycle of failures of information technology projects.

We also used guidance from the Software Engineering Institute associated with Carnegie-Mellon University, specifically in the software development and acquisition area. We also used guidance

from the IEEE, also the National Institute for Standards and Technology, and OMB guidance.

So there is a range of guidance out there. We have used this

guidance for some time. The part of our report today that is a little

different is the display of the circles. That was a prototyping effort

as part of this project we did at the SBA.

But I think the criteria are generally accepted. It provides the

SBA with a road map for where they need to go to better manage

information technology. I think these are the appropriate criteria

to use. I would be the last person to say that the criteria should

be the standards other Federal agencies are adhering to because

having done this for the better part of the last 20 years, I can tell

you, we repeatedly see problems across government. Therefore, I

would not hold Federal agencies out as the standard. We need to

strive beyond that and go to generally accepted practices and what

the industry sees that should be done.

Chairman BOND. One quick anecdote. When I came to the Senate

in 1987, the young people that came with me who had been using

information technology with me previously during the campaign

had to forget their skills and move backward several generations

to deal with the equipment that we had in the Senate.

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With that, let me turn the gavel over to Senator Enzi. I will return but meanwhile, we will keep the hearing going. Thank you

very much.

Senator ENZI [presiding]. I always enjoy hearing those words

‘‘generally accepted.’’ Of course, I like ‘‘accounting practices’’ to be

thrown in there.

I do not have any more questions for this panel. If anyone does,

everyone has the opportunity to submit some additional post-hearing questions. So we thank you for your testimony and your answers to the questions.

Senator ENZI. At this point, we will go to the Administrator of

the Small Business Administration, Aida Alvarez. We appreciate

her attendance this morning and her participation.

But first, we will have a short recess.

[Recess.]

Senator ENZI. I call the hearing back to order and turn it over

to Administrator Alvarez for her testimony.

STATEMENT OF THE HONORABLE AIDA ALVAREZ, ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, WASHINGTON,

D.C.; ACCOMPANIED BY PETER MCCLINTOCK, DEPUTY INSPECTOR GENERAL, SMALL BUSINESS ADMINISTRATION,

WASHINGTON, D.C.; JAMES BALLENTINE, ASSOCIATE DEPUTY ADMINISTRATOR FOR GOVERNMENT CONTRACTING,

MINORITY ENTERPRISE DEVELOPMENT, SMALL BUSINESS

ADMINISTRATION, WASHINGTON, D.C.; AND KRIS MARCY,

CHIEF OPERATING OFFICER, SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C.

Ms. ALVAREZ. Thank you so much, Senator. I appreciate the opportunity to speak on behalf of the SBA. I have lengthy testimony

which hopefully will be entered into the record.

Senator ENZI. Your entire statement will be included in the

record, without objection.

Ms. ALVAREZ. I would rather make more informal remarks. First

of all, I want to begin by joining with the others in expressing my

heartfelt sense of loss at the passing away of Senator Coverdell,

who was a good man and a very important Member of the Committee. He will be missed. I want to extend the condolences of the

SBA family to the Coverdell family.

Senator ENZI. Thank you.

Ms. ALVAREZ. I also, Senator, want to thank you for the time

that you have taken on GPRA and the really very good meeting

that we had at the SBA. I appreciated your coming to the SBA and

just taking the time. I know how busy you are, but I think it really

is just a mark of the priority that you give to this sort of thoughtful

process, and I look forward to working with you and moving forward. We do take GPRA and these planning processes very seriously.

I also want to comment that I shared David Walker’s feeling that

the relationship between the SBA and the GAO has been a very

constructive one. I would say it has been a win-win relationship.

We take their expertise and their dedication very seriously and I

believe that they have felt that we are eager to be responsive. So

it has been a win-win situation for us.

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Many of the findings in the audits were the outcome of a joint

effort between the SBA and the GAO. They obviously arrived at

those conclusions as a result of the collaboration, so there really

were no surprises, and I would say in most cases, we shared their

conclusions and are looking to implement their recommendations.

In some cases, we have been implementing them all along. So that

is where we are with respect to this process.

I thought that it was significant in appreciating the importance

of these audits to put them in the context of the bigger picture, because in the end, as has been said here before and as Mr. Walker

said, we are here to serve the public. Ultimately, it is about outcomes and how effectively we serve the public and so for all the imperfections of trying to run an agency with many employees and

particularly in a time of transformation, I think that this hearing

offers us the opportunity to reflect on some very significant accomplishments that have occurred on behalf of small business.

I think the best way to gauge performance is by looking at the

results, and so I also brought some charts so that we could look at

the results of the SBA’s activities over the past decade.

To begin, I think it is important to note the kind of loan activity

that has occurred over this decade. This first chart shows the dramatic increase in SBA loan activity over the decade. Since 1993,

the SBA has helped about 375,000 small businesses get more than

$80 billion in loans. Important to note, that is more dollars than

in the previous 39 years combined, and so many of those loans are

going to those in greatest need.

I want to thank Senator Kerry for his sponsorship of the New

Markets legislation. I am very pleased that there is action planned

in the Senate on New Markets legislation and that the Chairman

has scheduled a Senate Small Business Committee markup on the

New Markets venture capital and BusinessLinc legislation for next

Wednesday. I really am hopeful that the Congress will enact this

bipartisan proposal this session. It is very important to Americans

around the country.

The second chart points out the ways in which we have helped

those borrowers who in the past were underserved. Loans to

women, for example, between 1973 and 1989, we made 57,000

loans worth $5.7 billion. In just the past 7 years, more than 80,000

loans to women worth over $12.2 billion. That is more than double

the previous 19 years combined. I think that again is a mark of effectiveness and success.

Loans to minorities, this chart shows that in just the past 7

years, we have made nearly 80,000 loans to minorities, more than

$18 billion, again, more than doubling the previous 39 years.

In the area of venture capital, the next chart shows the outstanding growth of our Small Business Investment Company program. Since its beginning in 1958, the SBIC program has put almost $30 billion in venture capital financing in the hands of small

business owners. About two-thirds of the $30 billion has been invested since 1993.

The following chart shows that this program, the SBIC program,

is remarkable in many ways. For example, since 1995, it has returned $224 million in profits to the taxpayers through the participating securities program. These are dollars that have gone back

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into the Treasury. And if you think of the cost of this program,

$224 million actually would cover 9 years’ worth of costs of the

SBIC program. So this is a program that more than pays for itself.

In the area of 8(a) contract awards, and I know we will be talking more about that, we can judge performance by results. The 8(a)

program has delivered. As you can see, during this time the total

Federal contracting picture has remained stable, there really has

been very little growth in Federal contracting, there has been governmentwide downsizing of contracting personnel. There has been

acquisition reform. There has been contract bundling. All of that

notwithstanding, the 8(a) contract awards increased 81.5 percent,

from $3.4 billion to $6.2 billion.

Doing more with less, I think that is a good way to describe what

the SBA is doing. The next chart demonstrates that over the past

decade we have reduced our staff level by approximately 24 percent, from just over 4,100 employees to around 3,100 employees in

1999. Again, bear in mind that at the same time, the SBA loan

portfolio has doubled from $25 billion in 1993 to nearly $50 billion

in the year 2000.

Providing more loans at less cost to the taxpayer. I think this

chart is really illustrative of the terrific bargain that the SBA represents to the public. Not only are we doing so much more, doubling our portfolio, but since Federal credit reform was enacted, the

cost to taxpayers of SBA loans has gone down from almost $5 per

$100 loaned in 1992 to a little over $1 today. Today, a $1.16 is the

cost of lending $100 in the SBA program.

Everybody likes report cards and everybody likes to see ‘‘A’’s on

their report cards and we have been talking about the use of technology as a very important part of the future of all businesses and

government. The SBA has a terrific report card on our website. You

can see that ours is an outstanding award-winning website. Forbes

rated it as one of the best of the web in the year 2000. Lycos listed

it in its top 5 percent. The comments are outstanding, and so it

should be no surprise that the SBA website has crossed a new

threshold and we are now receiving an amazing 9.5 million hits per

week on our website.

Of course, we are very proud of our four clean, or unqualified financial audit opinions, because throughout this period of growth,

when things can sometimes get very demanding and slip through

the cracks, we have maintained a strong commitment to the safety

and soundness of our portfolio. Additionally the SBA was the first

Federal Credit agency to receive an unqualified opinion on its financial statements and it is the only Federal credit agency to receive unqualified opinions 4 years in a row.

So I think you can see that we have been taking care of business.

We have been keeping our eye on the important mission of the

SBA, helping small businesses succeed. There is certainly room for

improvement and that is why we welcome this hearing, we welcome the insights of the GAO, and we are looking forward to getting better all the time.

Thank you, Mr. Chairman. Thank you.

Chairman BOND [presiding]. Thank you very much, Madam Administrator, and thank you very much for joining us today and for

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gratulate you on the ‘‘A’’ report on the website and the clean audits

and I think that you should be gratified, as I was, to hear from the

General Accounting Office. They felt that there was a constructive

working relationship, and while there are problems, they indicated

that the SBA is working with them and we hope that after the root

canal is completed that this will enable you to improve the performance of the Agency.

I apologize to my colleagues. We did not get the testimony until

last night, so we will make your full testimony a part of the record

and we will keep the record open for any questions that other Committee Members may have.

[The prepared statement of Ms. Alvarez follows:]

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Chairman BOND. Let me turn to the question of appropriations.

Looking at the chart, you mentioned that additional funds are

needed in a number of areas. As I look at a chart of the SBA’s

budget requests and the actual appropriation for 1997, 1998, and

1999, the appropriation was significantly larger in all 3 of those

years. For the current year, there was a $250 million, or a 33 percent increase, in the request. The actual appropriation was about

$100 million more than the previous year.

What we are concerned about is the SBA’s priorities for spending

the money. Why has the SBA not made effective program operation

a priority? Part of the question the GAO raised was the allocation

of resources. Are you allocating the resources that you get to these

priority areas?

Ms. ALVAREZ. Absolutely. I think our budget and the budget request fully reflect the priorities of the Agency. We carefully monitor

our fiscal resources to ensure that these funds are going to those

priorities.

There are some key areas that have been looked at by the GAO

where we have made budget requests. We are fearful that, based

on history, when funding was not forthcoming, that going forward,

the funding will not be forthcoming as well. For example, we requested money for, it is a technical term, seat management in the

information technology area. We have outdated computers and we

have requested $7 million to purchase replacement computers and

the necessary infrastructure. We cannot go forward and implement

plans without the appropriate computers, but so far, we have zero

coming from the deliberations about our budget.

In the area of workforce transformation, last year, we requested

$5 million to allow us to support transformation requiring training.

It is expensive, and we requested $5 million. We got zero. This

year, we requested $4 million. It looks like we will receive zero.

In the 7(j) program, which is very important to the development

of 8(a) companies, we have consistently asked for funding and have

gotten a fraction of what we requested. We are hopeful, since I see

that we requested $5 million and it looks like the Senate is being

responsive and we really appreciate it. We need the money if we

are going to provide the kind of technical assistance and training

that these 8(a) companies need. We cannot do what we need to do

in 7(j) without the funding.

In the area of asset sales, I see that we have a funding request.

We are very proud of our asset sales. There is going to be a $1 billion asset sale taking place next week and this will be our second

sale. Then there will be a third sale for approximately $1 billion.

We need money to make these things happen. We requested $1.5

million. So far, zero is forthcoming.

So there are some key strategic areas that are tied to these GAO

recommendations that require funding.

Chairman BOND. Let me just focus on one. The GAO talked

about the concern by 8(a) firms on getting access to contracts. In

light of the SBA argument that it quit tracking business development activities because of funding cuts, why does the SBA use the

available 7(j) funds for executive training programs, which apparently are a much lower priority and benefit only a few select firms?

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velopment tools that would help more 8(a) firms, especially those

with limited management experience, in getting the contracts? It

seems to me that this is one area where the GAO says, change the

allocation of the funds you have.

Ms. ALVAREZ. Senator, there are lots of issues implicit in that

question. First of all, the statute specifies that getting 8(a) certification does not guarantee contracts, and that is an up-front advisory.

Chairman BOND. No question about that.

Ms. ALVAREZ. We are aware that there is concentration in terms

of 8(a) contracts for a variety of reasons. By the way, we delegated

the decisionmaking on awarding of contracts to agencies. We do not

make those awards. We did it because we wanted to speed up the

process and get out of the way. So that decisionmaking rests with

the individual agencies. We also issued regulations a few years ago

that limited both the size and the number of contracts that could

be awarded sole source, trying to address the concentration issue.

With respect to 7(j) funding, unfortunately, or fortunately, before

we even start out, with the funding we do get, quite a bit of it already has been targeted for specific programs that various Members of Congress feel are important for their constituents. So we actually end up having about, I think it is, James, is it $800,000?

James, you may want to join me if we are going to talk about 8(a).

About $800,000 to serve the entire nation. The rest of it has been

designated for programs in different parts of the country. So we

really are very underfunded in that area.

Chairman BOND. Thank you, Ms. Alvarez.

Senator Kerry.

Senator KERRY. I think it is important to note that when we

measure the budget and we talk about the request, the request is

what the administration sends up.

Ms. ALVAREZ. Right.

Senator KERRY. But that is a request that has been pared and

vetted and fundamentally decided upon by OMB in conjunction, obviously, with the White House. It almost never reflects what you

have asked for from them, correct?

Ms. ALVAREZ. Yes, Sir.

Senator KERRY. So as you sit there and say, here is what I need

to do my job, we are really living in this artificial world in Washington now. I mean, to a degree it is artificial. It is real because

the numbers are real, the budget law is real, but Mr. Chairman,

you and I were talking about this just coming back from the vote.

You have got a budget allocation for VA-HUD that is literally impossible to live with and you are not going to report out a bill until

you get more money.

She does not have that luxury. She is told by OMB, here is your

budget. Operate. And that is the request that comes up here. Regrettably, it rarely reflects what is needed to do the job. Then we

sit up here and we start beating away and saying, ‘‘Well, why can

you not do this? Why do you not have that money?’’

There is a total disconnect, frankly, and it is not just true of this.

I find this in the Commerce Committee with the Transportation

Department, with budgets for the Coast Guard. And the admirals

all come up here and they are given marching orders over at the

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Pentagon and they all have to look nice and feel nice and tell us

wonderful things about the budget when they know damn well they

cannot do the job with the budget. That is how it is working here

in this city nowadays.

So it is terrific for the politicians who want to sit up here and

say, ‘‘Well, you know, you are not living up to what the budget requires, but the fact is that we are all the victims of this system

that nobody wants to break out of or challenge.’’

I have a simple question. It seems to me that there are some legitimate complaints, if you want to call them complaints, or legitimate observations by the GAO, but the question is, what does it

take to respond to them? Do you have adequate capacity for information technology? Do you have enough people? I mean, you have

just told me. It has gone down from what to what?

Ms. ALVAREZ. From 4,100 to 3,100.

Senator KERRY. From 4,100 to 3,100, so one-fourth reduction. So

you have had a 25-percent reduction, and what is the increase in

the amount of lending?

Ms. ALVAREZ. It is double the loan portfolio.

Senator KERRY. And what is the increase in the 8(a) program?

Ms. ALVAREZ. Eighty-one percent increase in the 8(a) program.

Senator KERRY. And yet we are supposed to go out and do all

this measuring of all these people and take a survey. Can you take

a survey today? Can you do that kind of work?

Mr. BALLENTINE. Yes, Sir.

Senator KERRY. You could do that? So you have enough people

there to be able to do the kinds of analyses that have been recommended?

Mr. BALLENTINE. I will identify myself, Sir. My name is James

Ballentine. I am Associate Deputy Administrator for Government

Contracting, Minority Enterprise Development. We would be able

to do a survey. It would be another responsibility of our business

opportunity specialists, which GAO pointed out are already very

much overworked. They would have to take a great deal of the

work to carry out such a survey, but we could do it.

Senator KERRY. What suffers as a result, anything?

Mr. BALLENTINE. Well, obviously, they are very much overworked

now. They do not have the resources to travel as we would like for

them to. They obviously would not be able to do that. If they were

provided those resources, they obviously could do it. But they also

have regular annual reviews that they must do on their portfolio

within a given area. For example, in the Washington, D.C. area,

the portfolio is very large. If they were charged with another task,

those annual reviews may suffer as a result.

Senator KERRY. So what you are saying is, physically, conceptually, you can do it, but it is going to be a hardship and something

else is going to suffer as a result.

Mr. BALLENTINE. Exactly. Priorities must be put in place.

Senator KERRY. Given the current personnel levels.

Mr. BALLENTINE. That is correct.

Senator KERRY. Have you tried to do it? I mean, what steps have

you taken? Would you perhaps state for the record what steps you

have taken to strengthen the 8(a) program at this point?

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Mr. BALLENTINE. We were actually in the process of doing a survey when the GAO came to the Agency, and we actually assisted

the GAO in putting together their survey because we had begun

the process to do one on our own. We have also, and the Administrator asked us to do this some months ago, to begin to look at

really anything we could do to improve the 8(a) program. You must

keep in mind that this program is 31 years old, and as Senator

Bond has mentioned and as the GAO mentioned, as SBA is in transition, this program is in transition, as well.

Senator KERRY. It is my understanding that in 1995, you issued

regulations to eliminate a loophole that allowed firms to circumvent the competitive threshold, right?

Mr. BALLENTINE. That is correct.

Senator KERRY. And in 1998, you delegated contracting authority

to acquisition agencies to streamline the program.

Mr. BALLENTINE. That is correct.

Senator KERRY. And you revised the regulations to allow for better enforcement of companies’ competitive business mix.

Mr. BALLENTINE. That is correct.

Senator KERRY. And you provided means for 8(a) firms to joint

venture more easily.

Mr. BALLENTINE. Yes, Sir.

Senator KERRY. So you have actually been undertaking a series

of steps.

Mr. BALLENTINE. We have been attempting to, and they have

been very effective.

Senator KERRY. Are there more that you want to do?

Mr. BALLENTINE. We would love to do more, and we currently

have a working group in-house and we are also working with several agencies to see how we can make the program work even better.

Senator KERRY. What is the restraint on your achieving—and I

will make this the last question, the light is on—what is the restraint on achieving the legitimate observation of the GAO regarding the more contracting that they would like to do versus the

management component? How do you respond to that?

Mr. BALLENTINE. The restraint is resources. It would also be a

culture change, so to speak, for our business opportunity specialists. They currently provide annual reviews, as I said. They would

need to be trained a little more on providing the type of procurement assistance that is needed.

Senator KERRY. Is there any reason not to do that?

Mr. BALLENTINE. No. I think it is a very good idea and we have

agreed with GAO that this would be a better way to focus the 8(a)

program. So we are in agreement on that, but we would need some

training dollars for our business opportunity specialists who work

hand-in-hand with the 8(a) companies.

Senator KERRY. Thank you, Mr. Chairman.

Chairman BOND. Thank you, Senator Kerry.

I believe that we heard from the GAO that there needs to be

more emphasis put on business development for 8(a) and there

ought to be travel funds, and that an allocation can be made within

the budget for these areas.

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We are going to be shutting down because there has been an objection to conducting hearings 2 hours after the Senate has come

into session, so I am going to turn to Senator Enzi for the last series of questions.

Senator ENZI. We usually do not have enough time anyway, but

I thank you for the opportunity to ask some questions. With the

limited amount of time, I cannot dwell on the positive things, and

I appreciate you having all of those in the report. I have to say that

your charts that you presented are very impressive.

One of the things that GPRA concentrated on was outcomes instead of outputs, and I notice that most of the charts deal with outputs. Is there additional data that would show more closely how

the outcomes fit with the PAR?

Ms. ALVAREZ. I am asking Kris Marcy, who is my Chief Operating Officer, to join me.

Senator ENZI. Sure.

Ms. MARCY. Actually, I think the charts do reflect some of the

outcomes and really get at the heart of the Agency’s mission. We

are creating new businesses and supporting those new businesses,

providing capital to those new businesses. We are providing technical assistance that allows those businesses to be created and developed and sustained. The Administrator spoke about the return

to the taxpayer in terms of the SBIC program. So we have struggled very hard to show what we have been able to accomplish in

GPRA terminology.

Ms. ALVAREZ. If I might be so bold, there have been studies that

have shown we have 22-million new jobs in this country and there

are studies that have shown that the majority of new jobs have

been created by small business. I think that is a significant outcome that is the result of all of those, call them outputs if you will,

but all of that in the aggregate is a reflection of the success that

we are experiencing in this country. It contributes to the success

that has led to a booming economy.

Senator ENZI. I would have to agree that those results are the

outcomes, but the charts reflect the outputs, the number of loans,

which does not translate directly on the charts to the number of

jobs that are done.

Ms. ALVAREZ. Yes. I agree. We need another set of charts, but

it would cut into our hearing time.

Senator ENZI. That is the part that I would really be interested

in——

Ms. ALVAREZ. I agree.

Senator ENZI [continuing]. You know, the results that are out

there, because we heard earlier today that these people expect to

have more contract consultation, more help with getting that.

Ms. ALVAREZ. Yes.

Senator ENZI. The number of reports that are filed by those businesses do not demonstrate that——

Ms. ALVAREZ. I totally agree with you, Sir.

Senator ENZI [continuing]. And so it is probably selling your employees short, and that is why I wanted to make a point out of

that.

Ms. ALVAREZ. I agree.

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Senator ENZI. On your website, you are to be congratulated for

that.

Ms. ALVAREZ. Thank you.

Senator ENZI. There have been a lot of plaudits for it. I did not

notice anything on there about security, though, and as one of the

computer buffs around here——

Ms. ALVAREZ. Oh, yes. That is a key issue——

Senator ENZI [continuing]. I noted that you had been hacked and

wondered if there was something being done on that.

Ms. ALVAREZ. Yes, absolutely, and I would be happy to address

that, if you are interested. Larry Barrett, who is our Chief Information Officer, could add to my comments. Information security is a

top priority for us. We have actually not only hired about 11 people—Larry, would you like to come up here? I am sorry, six people,

as well as invested $800,000 in a contract with top specialists who

are looking at five key systems, and we are close to completion of

the review of those systems. Larry, would you want to comment?

Senator ENZI. I do not have much time here. I did notice that you

are given some credit in those charts, and I have to agree with you

that the pie chart could have some additional things done with it

that would be more definitive on what has been done. But it was

the management side that I looked at in the information technology

and noticed that all the circles were blank.

Ms. ALVAREZ. We hope to have them all filled in soon.

Senator ENZI. We appreciate that. I would appreciate more information on——

Ms. ALVAREZ. There is a lot in progress there.

Senator ENZI [continuing]. On how that will be done.

Ms. ALVAREZ. Yes.

Senator ENZI. Just a final comment. Something else that I have

been interested in that did not show up in any of these reports, of

course, is the SBIR rural outreach program. I noticed that it was

not funded in the 2001 budget and this is something that is very

important to the rural places, particularly where I am from——

Ms. ALVAREZ. Absolutely.

Senator ENZI [continuing]. And I am hoping that something can

be done to reinstate that so that the good work that was started

that has a lot of outcomes can continue to happen.

Ms. ALVAREZ. I would be pleased to have Art Collins brief your

staff, and I would be pleased to do it myself, to tell you what we

have been doing in the area of rural initiatives, because we have

spent a lot of time in this area. We are very acutely aware of the

needs. And we consider the Rural Initiatives part of the New Markets initiative.

Senator ENZI. I would appreciate the briefing of my staff and myself.

Ms. ALVAREZ. We would be happy to do that. We would like to

do that.

Senator ENZI. We want to be sure that rural is rural, and we

have a little different sense of rural in Wyoming than most places

have.

Ms. ALVAREZ. Exactly.

Senator ENZI. I thank you for being here today and taking our

questions.

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Ms. ALVAREZ. Thank you, Sir.

Senator ENZI. Thank you, Mr. Chairman.

Chairman BOND. Thank you very much, Mr. Enzi. When it comes

to rural, Missouri probably qualifies as rural in SBIR program, as

well, and certainly supporting and sustaining the SBIR program is

not something that depends upon additional legislation. We expect

that the SBA will put the emphasis on it and we are working on

a good SBIR reauthorization bill that we think will provide additional tools, but there is no reason to wait for that legislation to

get the job done and we look forward to working with you to do

that.

Ms. ALVAREZ. Yes, Sir.

Chairman BOND. My thanks, Madam Administrator, to you and

your people for being with us today. This has been a long process,

but I trust it has been a productive process. We have heard encouraging words from GAO and certainly from the SBA on your accomplishments. I want to thank General Walker for his leadership,

Stan Czerwinski, Michael Brostek, Joel Willemssen, and Susan

Campbell for their good work from the GAO.

There are problems, no question about it. I am glad to say that

the GAO reports that SBA is working with them to utilize the information available. This information is helpful to us in the oversight sense, but we are not driving the bus. You are driving the bus

and this information should be very helpful to you.

We had many of these same discussions at our hearing on the

SBA budget proposal last February. We stressed then the importance of SBA placing priority on ensuring that core programs are

running efficiently and effectively, and again, we heard from the

GAO that it is a question of assigning priorities and making sure

that instead of creating new programs or embellishing in lowpriority areas, that the Agency focus the resources it has, whether

bountiful or scarce, on the programs that are important.

We trust that with the benefit of the PAR review, SBA can move

toward the goal of being a model executive agency, and I think if

you are able to implement the recommendations, it will be an important step toward the goal. We are going to be following with you

the progress that you make carrying out the PAR and working with

GAO, and as Senator Enzi has asked, we will look for the Inspector

General to answer the questions regarding the reserve account by

the week of August 7.

We thank all of you.

Ms. ALVAREZ. Mr. Chairman, if I may—— Chairman BOND. Yes, Ma’am.

Ms. ALVAREZ. I just want to thank you and your colleagues for

your help in improving the SBA, both through legislative changes

and oversight. I do believe that when I tout the record of the SBA

over the past decade, that it is a record of shared success and I

think that the work that has been done under your leadership has

meant a great deal to our continuing to improve what we have to

offer the American people. So I just want to thank you.

Chairman BOND. We appreciate your testimony. We are always

delighted to hear the head of an agency be able to tout the successes. I will have to say that your predecessors were some of the

greatest touters I have ever seen.

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[Laughter.]

Ms. ALVAREZ. I will tell them you said that.

Chairman BOND. You tell the Ambassador I said that.

Ms. ALVAREZ. I will tell the Ambassador.

[Laughter.]

Chairman BOND. I am from Missouri and I need to be shown.

So with that, the hearing is adjourned.

Ms. ALVAREZ. Thank you.

Chairman BOND. Thank you very much.

[Whereupon, at 11:43 a.m., the Committee was adjourned.]

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