U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

76–460 2012

PLACING FEDERAL TAX DOLLARS AT RISK: 

HOW THE SMALL BUSINESS ADMINISTRATION 

MISMANAGES THE 

MODERNIZATION OF ITS INFORMATION 

TECHNOLOGY 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

FEBRUARY 8, 2012 

Small Business Committee Document Number 112–052 

Available via the GPO Website: www.fdsys.gov 


erowe on DSK2VPTVN1PROD with E:\Seals\Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

CHUCK FLEISCHMANN, Tennessee 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, General Counsel 

MICHAEL DAY, Minority Staff Director 


erowe on DSK2VPTVN1PROD with 
(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Sam Graves ..................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

The Honorable Marie Johns, Deputy Administrator, United States Small 

Business Administration, Washington, DC ....................................................... 3 

Mr. David Powner, Director, Information Technology Management Issues, 

United States Government Accountability Office, Washington, DC ................ 5 

APPENDIX 

Prepared Statements: 

The Honorable Marie Johns, Deputy Administrator, United States Small 

Business Administration, Washington, DC ................................................ 16 

Mr. David Powner, Director, Information Technology Management Issues, 

United States Government Accountability Office, Washington, DC ......... 19 

Questions for the Record: 

Rep. Owens Questions for Marie Johns .......................................................... 29 

Answers for the Record: 

Marie Johns QFR Response to Rep. Owens ................................................... 30 


erowe on DSK2VPTVN1PROD with 

erowe on DSK2VPTVN1PROD with 
(1) 

PLACING FEDERAL TAX DOLLARS AT RISK: 

HOW THE SMALL BUSINESS ADMINISTRATION MISMANAGES THE MODERNIZATION 

OF ITS INFORMATION TECHNOLOGY 

WEDNESDAY, FEBRUARY 8, 2012 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 1:10 p.m., in room 2360, 

Rayburn House Office Building. Hon. Sam Graves (chairman of the 

Committee) presiding. 

Present: Representatives Graves, West, Vela ́zquez, Schrader, 

Owens. 

Chairman GRAVES. Good afternoon. I bring this hearing to order. 

As Administrator Mills has pointed out in testimony before this 

Committee, the Small Business Administration provides credit 

counseling and contracts to America’s entrepreneurs. Today’s hearing focuses on the agency’s ability to manage its role as a provider 

or guarantor of credit to small businesses. 

While the subject of today’s hearing may not be riveting, it is vitally important. The subject, the SBA’s capacity to manage modernization of its financial systems, is crucial to ensure that the 

agency can oversee the lending of capital to small businesses without placing taxpayers at an undue risk for default. 

The SBA has utilized a combination of computerized and manual 

procedures for managing its capital access programs since the 

1970s. Those systems, according to outside consultants and the Inspector General, need serious updating. 

The SBA began its modernization effort in 2005. Shortly thereafter, the SBA fell behind schedule and faced cost overruns. Despite apparent mismanagement, the SBA was given significant 

sums to continue revamping its computer systems in the President’s stimulus bill. The additional funds did not lead to any improvement in the agency’s modernization effort. 

In late 2009, the SBA then spent more than half a million dollars 

on management consultants in an effort to improve the process. A 

further review in the summer of 2010 led to the realization that 

the SBA could not perform the updates as originally outlined, nearly five years after the SBA started the modernization effort. This 

is simply unacceptable. 

Today we hear from the Government Accountability Office 

whether the SBA even has the capacity and procedures in place to 

manage a scaled-down modernization effort. Furthermore, GAO 


erowe on DSK2VPTVN1PROD with 
2 

will explain to us the risks that still remain in the SBA loan management accounting system. 

Little doubt exists among the members of this Committee that 

the SBA plays an important role in providing the capital to small 

businesses. However, I also firmly believe that every member of 

this Committee expects the SBA to manage its information technology in a manner that does not waste taxpayer dollars and ensures that it can obtain accurate information on a loan portfolio in 

excess of $80 billion. 

With that, I turn to Ranking Member Vela ́zquez for her opening 

statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Last week the Department of Labor reported that unemployment 

fell to the lowest level in three years. This is not only an encouraging sign that the recovery is gaining strength but also a powerful 

reminder of the role that small businesses play in our economy. Accounting for more than 6 out of every 10 new jobs, small firms are 

the engine that will continue driving this recovery forward. However, for this to happen they need access to abundant and affordable capital. The SBA’s loan and investment programs can help in 

this effort, but behind every successful program must be strong internal checks to manage an agency’s use of taxpayer dollars. 

Today we will examine whether the SBA’s Loan Management 

Systems are prepared to meet this challenge and whether reforms 

that were passed more than 15 years ago have been fully implemented by the agency. 

When the SBA’s Loan Management Systems were first developed 

in the 1970s, they were state of the art. Although it has been more 

than 40 years since then, many of these Legacy Systems are still 

in service. Today they manage more than $90 billion in credit, investments, and loan guarantees, far more than when they were 

first put in place. As they have grown more obsolete, the SBA has 

found it increasingly more difficult to maintain data integrity, keep 

information secure, and accurately account for loans. Although the 

SBA has pursued various efforts to upgrade and modernize the 

Legacy System, these efforts have met with minimal success. Those 

of us who have been on this Committee for some time are well acquainted with the agency’s struggles to modernize this Loan Management System. 

The current efforts date back to 1997 when growing concern over 

the risks posed by the Legacy Systems prompted Congress to pass 

legislation directing the SBA to upgrade its risk management data. 

That law laid the foundation for important reforms to the Loan 

Management System and should have put the agency on the path 

to a fully upgraded IT system today, more than 15 years since the 

law was enacted. 

Unfortunately, many of the reforms mandated in the act were 

never fully realized. In 2001, GAO reported that the SBA’s efforts 

to develop and implement upgrades for the Legacy System were 

not consistent with the 1997 act. Without these basic building 

blocks for program management, the agency has stumbled from one 

initiative to another making only marginal changes to keep the system operational. 


erowe on DSK2VPTVN1PROD with 
3 

The most recent initiative dubbed the Loan Management Accounting System began seven years ago with a projected cost of 

$217 million. Already, however, this program has begun to suffer 

the same delays and cost overruns that have characterized previous modernization efforts. As we will hear today, these shortcomings are the direct result of poor management practices and lax 

executive oversight, the same problems that have repeatedly been 

identified by this Committee, the Government Accountability Office, the SBA’s Inspector General, and private consultants. 

Perhaps most troubling, however, is the fact that even if successfully implemented LMAS will not result in a fully modern Loan 

Management System for SBA. Instead of a complete replacement 

of the Legacy System, SBA has undertaken a scaled back effort of 

limited upgrades. When all is said and done, the SBA will still rely 

upon a Loan Management System that is more than four decades 

old. It is difficult to see how this will position the agency for success in the 21st century and beyond. 

In examining the current state of the SBA Loan Management 

Systems, there can be no doubt that modernization is desperately 

needed. The question is how the agency can get it done quickly and 

get it done right. With millions already spent in this effort, SBA 

cannot continue to throw good money after bad. The key to this will 

be strong management, thorough planning, and effective oversight 

at the highest levels within the agency. I hope that these lessons 

will be taken away from today’s hearing. 

I would like to thank Ms. Johns and Mr. Powner for being here 

for this discussion. And I know we all look forward to hearing what 

they have to say. 

Thank you, Mr. Chairman. 

Chairman GRAVES. Thank you. 

STATEMENTS OF THE HONORABLE MARIE JOHNS, DEPUTY 

ADMINISTRATOR, UNITED STATES SMALL BUSINESS ADMINISTRATION; DAVID POWNER, DIRECTOR OF INFORMATION 

TECHNOLOGY, UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE 

Chairman GRAVES. Our first witness is The Honorable Marie 

Johns, who is the deputy administrator of the United States Small 

Business Administration. She is responsible for overseeing the dayto-day management of the SBA. Thank you for coming in, Ms. 

Johns. 

STATEMENT OF MARIE JOHNS 

Ms. JOHNS. Thank you very much, Chairman Graves, Ranking 

Member Vela ́zquez, members of the Committee. As always, it is an 

honor to testify before you. 

The Small Business Administration provides access to capital for 

tens of thousands of small business and disaster victims each year. 

SBA’s $90 billion loan portfolio plays an important role in the 

small business economy. Our loan programs help small businesses 

who have been left out of traditional credit markets gain access to 

the capital that they need to grow and create jobs. Today, over 80 

percent of our flagship loan programs are processed electronically 

compared with none 10 years ago. Thus, upgrading our loan manVerDate Mar 15 2010 09:06 Nov 09, 2012 Jkt 076460 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 E:\HR\OC\A460.XXX A460

erowe on DSK2VPTVN1PROD with 
4 

agement and accounting systems, or LMAS, while ensuring security and without disruption to our current lending process, has 

been a major priority at SBA. 

In 2005, out of concerns about security, cost, and flexibility, the 

SBA administrator approved a project to update this 35 year old 

Legacy System. In 2006, the agency requested development funding 

for the complete overhaul of LMAS. Work continued in 2007, and 

in 2008, a contract was awarded to an integration firm to begin 

transferring SBA’s processes to a commercial off-the-shelf program. 

However, after 12 months of planning and completion of a pilot, 

SBA identified new concerns about cost, time, and risk associated 

with the transfer to a commercial off-the-shelf system. The planning and pilot resulted in a revised development cost estimate of 

$156 million and time-to-completion estimate of nine years. Due to 

these concerns, SBA commissioned an outside study of the LMAS 

project which was delivered in December 2009. 

In addition to SBA’s concerns, the study showed that implementing a commercial off-the-shelf program would require retrofitting our loan-making processes to match the software which 

could potentially be disruptive to our loan-making efforts. 

Based upon all of this, the LMAS Executive Steering Committee, 

that is the council charged with overseeing the upgrade of LMAS, 

decided to change course in May of 2010. This decision coincided 

with the June 2010 Office of Management and Budget Memorandum M1026, which directed agencies to reduce the cost and 

scope of large automation projects. 

In September 2010, SBA requested authority from OMB’s Financial System Advisory Board, or FSAB, to rescope LMAS with a series of more focused and more cost effective improvements to the 

existing system, which we call LMAS Incremental Improvement 

Projects or IIPs. The IIPs were approved by FSAB in January 2011 

and will address the most important issues surrounding the upgrade of LMAS in a less costly, less risky, and more efficient manner. 

Instead of a complete overhaul, the IIPs involve upgrading the 

hardware and software of our financial systems infrastructure to 

support our secure web-based loan making and financial reporting. 

We estimate development for this new approach will total $39 million, which is an overall savings of $117 million from the LMAS 

budget estimated in 2009. 

The incremental improvement approach is better tailored to 

SBA’s current needs and goals. It allows us to make upgrades to 

LMAS while continuing to make and process loans. Our lenders 

can still continue to make loans through our web-based process at 

a record pace while we upgrade the loan accounting software and 

hardware in the backend. 

In May 2011, SBA completed the first IIP, upgrading our administrative accounting system to the latest software release. During 

this time, SBA also implemented changes to our loan programs 

brought about by the American Reinvestment and Recovery Act 

and the Small Business Jobs Act. We have also phased out or converted 275 Legacy programs to a web environment. This year we 

anticipate completing additional improvements to enhance the 

functionality offered to lenders, disaster borrowers, and small busiVerDate Mar 15 2010 09:06 Nov 09, 2012 Jkt 076460 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 E:\HR\OC\A460.XXX A460

erowe on DSK2VPTVN1PROD with 
5 

nesses while moving the back office loan accounting and financial 

reporting processes to a standardized, non-proprietary hardware 

and software solution. 

In its audit, the Government Accountability Office stated that 

there is room for improvement. We at SBA agree there is always 

room for improvement. One example of the improvement is the 

strengthening of executive involvement in the project. The LMAS 

Executive Steering Council has met 17 times from May 2010 to 

January 2012. Additionally, SBA has improved documentation of 

the project’s progress. I know these improvements because I have 

chaired the LMAS Executive Steering Council since December 

2010. 

While we are undertaking these improvements, I wanted to remind the members of the Committee that Fiscal Year 2011 was a 

record year for the SBA. We supported over $30.5 billion in lending 

to over 61,000 small businesses. We were able to implement parts 

of the IIP without any impact to our lending partners or to our borrowers. We recognize the importance of not only continuing to meet 

the capital needs of small businesses while continuing to upgrade 

our system, but we are also doing it in a way that is most costeffective and least disruptive to our lending partners and small 

business owners. 

Thank you for the opportunity to testify. I look forward to your 

questions. 

Chairman GRAVES. Thank you very much. 

Our next witness is David Powner. 

Mr. POWNER. Correct. 

Chairman GRAVES. He is the director of information technology 

at the United States Government Accountability Office. In that capacity he directs GAO’s assessment of federal agency adoption and 

use of computer technology. Welcome. 

STATEMENT OF DAVID POWNER 

Mr. POWNER. Chairman Graves, Ranking Member Vela ́zquez, 

and members of the Committee, it is a pleasure to be here this 

afternoon to discuss GAO’s findings and recommendations on SBA’s 

Loan Management and Accounting System. 

In order to strengthen small business, SBA relies extensively on 

IT systems to support loan accounting and to track loans. The current loan accounting systems are antiquated, expensive to maintain, require extensive data reconciliations, and do not provide efficient loan servicing. 

In late 2005, SBA initiated the Loan Modernization Program, a 

$200+ million acquisition that was to take nine years to complete. 

In late 2009–2010, the federal chief information officer, OMB’s Financial Systems Advisory Board, and an independent contractor 

found major issues with SBA’s approach and management, including stakeholders not being aligned with the projects, undefined 

business requirements, resource gaps in program management, 

weak executive governance, and a lack of a target architecture for 

loan accounting and financial management. In addition, these 

groups recommended that SBA reduce the scope of the effort by focusing on migrating off the expensive to maintain mainframe and 

putting in place a modern database. 


erowe on DSK2VPTVN1PROD with 
6 

SBA, to its credit, is implementing this reduced approach in 

seven planned increments that are to be completed by mid-2013 at 

a cost of around $30 million. One point I would like to make here 

though is that the cost that you are going to hear today are all over 

the board and it is very clear that we do not have a clear baseline 

when it comes to the cost for this program. Every time we turn 

around there seems to be another number that is floated around 

in terms of the total cost. We just heard 39. We had 28. One time 

it was 43. So that is something we need to get to the bottom of. 

Specifically, the increments include migrating off the mainframe 

platform, migrating the COBAL (Common Business Oriented Language) code from the mainframe to a client server environment, 

and migrating to a modern database. This incremental, more manageable approach is consistent with current IT and financial reform 

efforts. Some of the increments are planning efforts to define additional out year projects to address SBA’s loan management and accounting weaknesses. 

So to be clear, the first seven increment approaches is a start to 

modernization. There are more incremental approaches to come. Of 

the seven increments, one is complete, three are in flight, and three 

have not begun. Of the four completed, our review revealed that 

the schedules are slipping and costs are increasing. 

The success of SBA’s efforts depends on the ability to address 

key management weaknesses. First, SBA needs to strengthen its 

program management. Several areas where improvements need to 

be made include requirements. All requirements for the increments 

where contracts have been let have not been completely defined. 

Risk management. Not all risks are categorized, nor are all mitigation plans in place. In human capital, SBA needs to better address 

outstanding human capital needs. 

Second, SBA needs to strengthen executive level governance that 

Ms. Johns mentioned. There are two governing bodies overseeing 

this acquisition and we made several recommendations in this 

area. Specifically, SBA should clarify the different boards’ responsibilities and ensure that the boards perform aggressive oversight 

of the programs, risks, and progress. 

In summary, Mr. Chairman, the good news is going smaller and 

more incremental could position SBA for a successful modernization, but several of these essential program management and governance basics need to be solidified to position SBA to deliver a 

modernized loan and financial management system on time and on 

budget. I would like to stress the importance of executive-level 

oversight driving these improvements. The Deputy Administrators’ 

Executive Steering Committee is the group to make this happen. 

Driving change from the top, being rigorous in its approach, holding contractors accountable, and planning beyond 2013 are essential for SBA’s successful IT modernization. 

Mr. Chairman, this concludes my statement. Thank you for your 

leadership on this important topic and I will be pleased to respond 

to questions. 

Chairman GRAVES. Thank you very much. 

I started college 30 years ago and we were learning—that is the 

punch cards—the little cards. You do a whole bunch of them and 

you punch them and is that how you program the computer? That 


erowe on DSK2VPTVN1PROD with 
7 

is amazing. I am sorry. I am just absolutely—it kind of takes me 

back to the old days. 

My question to you is, Ms. Johns, when you are going through 

this evaluation process, have you figured out—and you are trying 

to streamline. How many of your lending partners out there are 

still using COBOL? 

Ms. JOHNS. Actually, Chairman Graves, a number of our lending 

partners use COBOL. And COBOL was around when I was in college as well, which has been some time ago. However, COBOL, 

even though it is a time-tested computer language, it is still widely 

used, particularly for the kinds of operations where the SBA needs 

it. That is to provide the technology platform for some of our back 

office operations. 

As I am saying, in addition to the SBA, many of our lenders use 

COBOL. In fact, the House of Representatives system for payroll 

management for members and staff uses COBOL. It is still a very 

widely used language. But that is just a part of our modernization 

efforts; COBOL, that is. We also use other computer languages. 

JAVA. We use Oracle. And so COBOL is a part of a very comprehensive and complicated architecture. 

Chairman GRAVES. I guess the question that I have, the basic 

question is if you have got a consultant and the consultant suggested changes, why did you not implement—why did you spend all 

these taxpayer dollars and not implement the changes? I mean, 

why was the money spent then? 

Ms. JOHNS. Well, if I may, I would like to provide a bit of context 

going back to—referencing back to my testimony. If you pick up the 

story in 2005, there was a path that the SBA was going down that 

was looking at a comprehensive, off-the-shelf product for basically 

a wholesale change out of the loan accounting system. The agency 

did research; actually, undertook a pilot. And what quickly was evidenced by that information was that continuing to go down that 

path would be more costly, more risky, and more time consuming 

for the agency. 

And so at that point another study was done to say, all right, 

what do we need to do here? And it was a result of that second 

study that led us to go the incremental improvement project route. 

And that was also substantiated by OMB, who in their statements 

talked about concerns about major overhaul projects and how the 

incremental approach was much more effective. 

The issues that we are trying to balance always, Chairman 

Graves and members of the Committee, is that we do not have the 

luxury of just putting the agency on hold and doing a complete 

overhaul of the system. At one time leaders in the agency thought 

that that might be feasible but it is not. We still have a $90 billion 

loan portfolio to manage. We also have to implement the will of 

this body as a result with the Recovery Act as an example, the 

Small Business Jobs Act. Each of those major pieces of legislation 

required changes to the system. And we had to implement the modernization, manage the agency, continue to make loans to small 

businesses, and in fact, last year we had a record loan of over $30 

billion to small businesses at a time when the economy really needed that capital to our small business job creators in the country. 


erowe on DSK2VPTVN1PROD with 
8 

So those are the important issues that we have to manage. Modernization, maintaining the agency, and ensuring that we are doing 

that having the very best use of the taxpayer dollar. 

Chairman GRAVES. Going back to COBOL, my staff called the 

lenders, your lending partners, and none of them use it for their 

lending practices. They may use it for other reasons or other purposes but they do not use it for their lending practices. And if you 

are still using it though to do your lending stuff then it is just 

not—— 

Ms. JOHNS. If I may—— 

Ms. VELA ́ ZQUEZ. Mr. Chairman, if you will yield—— 

Chairman GRAVES. Sure. 

Ms. VELA ́ ZQUEZ. You made reference to the money that was given 

to you under the Recovery Act. Right? 

Ms. JOHNS. Chairman, I made reference to the fact that the 

agency was responsible for administering the Recovery Act at the 

same time that we were modernizing. That was the point that we 

have growing concern. 

Ms. VELA ́ ZQUEZ. And you asked for $25 million from the Recovery 

Act to continue to implement the modernization. 

Ms. JOHNS. That is subject to check but—what question? I am 

sorry. 

Ms. VELA ́ ZQUEZ. You asked. We did not give it to you. 

Ms. JOHNS. All right. 

Ms. VELA ́ ZQUEZ. The administration asked for the money for you. 

Okay. 

Ms. JOHNS. But if I could get back to the issue in COBOL, when 

you say loan practices I am not sure what you mean by that. Most, 

80 percent of our loans are managed through a web interface. So 

in 10 years we have gone from zero web presence to 80+ percent 

of our loans being managed through a web interface. So the 

COBOL part of our system is a relatively small part of the system 

and it serves more of a back office function. And that, indeed, is 

similar to many of our lending partners. 

Chairman GRAVES. Well, as far as the guaranteed lending goes, 

none of them use it for their lending practices. 

Real quick, Mr. Powner, and then I am going to turn to Ranking 

Member Vela ́zquez, how many of the recommendations did the 

SBA implement from their consulting firm? 

Mr. POWNER. There were—first of all, they consulted along with 

others. They recommended that you take this incremental approach to focus on getting off of COBOL and the mainframe. So 

this is clearly where we have a start to both of those, you know, 

migrating off the mainframe. And I think the desire is to get out 

of the COBOL world, Mr. Chairman. So those are clearly in the 

works. 

Now, the recommendations on improved governance and program 

management, there were clear recommendations in those two areas 

and we found similar weaknesses where those two areas greatly 

need to be strengthened. 

Chairman GRAVES. Ranking Member Vela ́zquez. 

Ms. VELA ́ ZQUEZ. I do not know where to start. This is really troubling, especially for members who have been on this Committee for 

decades now. You know, I remember in 1997 we instructed—we 


erowe on DSK2VPTVN1PROD with 
9 

asked you to start the modernization of the loan system. So here 

we are, 2012, after the GAO report in 2001 that found problems 

with implementation of required upgrades. In 2007, the IG found 

deficiencies in lender monetary system. In 2009, the IG found 

shortcomings in the management of the LMAS initiative. In 2009, 

SBA paid a private consultant $500,000. In 2010, the IG found no 

actions were taken to improve the quality assurance management 

of the project. 

We understand the challenges because you manage a big port- folio. But because $90 billion in investment and loans is why you 

need to take this seriously. And seriously means from the top 

down. And I agree with the GAO conclusion that someone has to 

be in charge. And I do not think that the directive is coming from 

the top down. Otherwise, we will not find ourselves almost 15 years 

after so much money being spent in this predicament. 

So under the scaled back approach to LMAS, SBA will make limited upgrades and keep the COBOL self-aware program which is 

now more than 50 years old. And because it is old it is becoming 

more expensive also. It is not cheap to maintain. How long does the 

SBA plan to keep this antiquated system? 

Ms. JOHNS. Chairwoman, we have—we are—— 

Ms. VELA ́ ZQUEZ. Ranking member. 

Ms. JOHNS. I am sorry? 

Ms. VELA ́ ZQUEZ. I am the ranking member. 

Ms. JOHNS. Ranking Member. Yes, forgive me. 

The COBOL reporting, which is one of the seven LMAS IIP 

projects, is actually a project to upgrade to a newer version of 

COBOL, which is a non-proprietary version that is open to ensuring that we can use all of the advances in COBOL that are available to us. Part of the problem previously was we were tied to one 

vendor and were not able to take advantage of advances that were 

in the—— 

Ms. VELA ́ ZQUEZ. Okay. Yes, I know. I know. But look, you just 

cannot come here every year, report after report, and talk about 

the obstacles. You are asking for money; we give you the resources. 

And we are telling you this is serious business. 

Mr. Powner, what are some of the risks and costs associated with 

continuing to use COBOL programs rather than moving to more 

modern software? 

Mr. POWNER. Well, clearly the cost to maintain COBOL code, 

even the newer versions, there are not many programmers out 

there that understand that language. So you will see many federal 

agencies trying to get off the COBOL, out of the COBOL world. If 

you look at the goals of the modernization, I still think it is to migrate off of the mainframe. Even though we have ported COBOL 

code to a client server environment, I would imagine that down the 

road that future increments would be to get out of COBOL entirely, 

along with modernizing the loan system. So that is what is really 

important to take away here. 

These first seven increments, four of them have deliverables; 

three of them are studies. And those studies actually will lay the 

groundwork and the path for future modernization. And that is 

very important. I would bet that COBOL will come up as part of 

those future efforts. 


erowe on DSK2VPTVN1PROD with 
10 

Ms. VELA ́ ZQUEZ. Mr. Chairman, yes, I will come back with some 

other questions. 

Chairman GRAVES. All right. Mr. West. 

Mr. WEST. Thank you, Mr. Chairman. And also Ranking Member. Thanks to the panelists for being here today. 

Honorable Johns, you said three things that kind of hearken 

back to the previous career I had. You said that you had to balance 

modernization, maintaining the organization, and steward the taxpayer dollars. And that sounds like the organization I spent 22 

years with, the United States Army, and I saw us go from a jeep 

to a Humvee, armored personnel carriers to Bradleys, M60 tanks 

to M1 tanks. You know, you name it. 

So we are talking about new systems integration. And one of the 

things that, of course, we looked at, do you have a new systems integration implementation plan with an execution timeline with 

measures of effectiveness? One thing I am concerned about is that 

who is the singular bellybutton that is responsible for this? Because that is part of unity of effort and unity command. So can you 

kind of walk me through, you know, what is the plan out there 

and, you know, timeline so that you can execute this and we do not 

have these overruns? And what are the measures of effectiveness 

as you go through? I mean, do we have a phase plan of integration? 

Ms. JOHNS. Yes, Congressman. Thank you for the question. 

We do, indeed. Part of the GAO report addressed the issue of 

governance. There are two bodies who have been involved with the 

oversight for the LMAS program. We have an oversight body called 

the BTIC, the Business Technology Investment Council or Committee. And that oversight body has responsibility for technology 

improvement, technology upgrades enterprise-wide. So they look 

across the SBA and manage new technology. Are we making the 

right investments? How is that moving? How does that fit within 

the enterprise architecture? And so on. 

And so when the decision to go down the road of LMAS incremental improvement projects, the BTIC approved that approach. 

But then we realized as an agency that we needed to have an oversight body that was singularly focused because this was a project 

of such magnitude and cut across the entire operations of our agency. We wanted to make sure that we had an entity that was focused on LMAS IIP. And that led to the creation of the Executive 

Steering Council. 

So that is the explanation of why there are two bodies. There 

really is no confusion about that. They have distinct responsibilities and there is significant operational overlap because many of 

the individuals who serve on the BTIC are also part of the Executive Steering Committee Council. The CIO, the head of our office 

of Cap Access, for example, the CFO. Those are examples of individuals who serve on both bodies. 

Mr. WEST. But who is the one person in charge? 

Ms. JOHNS. Well, I chair the ESC. 

Mr. WEST. Okay. So everyone reports back to you? 

Ms. JOHNS. That is correct. 

Mr. WEST. Okay. 

Ms. JOHNS. Now, you asked about a plan and a timeline. We 

have a plan. The timeline is that we have committed to completing 


erowe on DSK2VPTVN1PROD with 
11 

these incremental improvement projects by the end of Fiscal Year 

13. We have had some slippage of due dates within that process. 

That is not unusual for a project of this magnitude. And yet we are 

on the—we are continuing with making progress toward our commitment to have these seven projects done by the end of Fiscal 

Year ’13. 

And if I may say a word about this issue of cost overruns. As Mr. 

Powner indicated in his testimony, GAO audit has found that the 

SBA can do a better job in terms of how it presents information 

and how that information is labeled. And because we have recognized—there has been some confusion about how data has been 

used to draw certain analyses in the past. The fact of the matter 

is we were on a path to spend $156 million. The path that we are 

on currently is $39 million and represents a savings of $117 million 

to the taxpayer. 

In fact, since our IIP approach was approved we have actually 

had a $4 million reduction from the baseline because our budget 

was cut. So we are very cognizant of our responsibility to report 

back to this body and to the public at-large that we are using this 

money as effectively as possible, maintaining the schedule for modernization, and running an agency that gets capital in the hands 

of small businesses. 

Mr. WEST. What is your percentage measure of effectiveness on 

this implementation plan? Is it around 100 percent? Where would 

you say you are? 

Ms. JOHNS. Congressman, I really—I cannot give you a number 

in that regard. What I can say is that we have completed the first 

project under the IIP. We have made substantial progress on most 

of the other projects. We have three additional projects that are bit 

more downstream where we are still in the planning phase and 

have not yet awarded a contract, but we are meeting on a regular 

basis and the team assures me that we are on pace to meet the 

2013 implementation. 

Mr. WEST. Let me just say this. If I was standing before a general and I could not tell him what the measure of effectiveness percentage was where we were in the project, I would be relieved of 

command. I would be fired. So please, I would say if you are having 

these council meetings, the first question you should ask is what 

is our measure of effectiveness. 

Mr. Powner, do you have anything you want to add? And then 

I will yield back. 

Mr. POWNER. Well, no, I think that is clear. I want to make it 

clear also, too, that these first seven increments—and we talk 

about the $39 million and comparing that to the 156. There is a 

difference in scope because the 156 included modernizing some of 

the loan programs. This is really focused on infrastructure changes; 

putting in place a database, migrating off the mainframe, importing COBOL code. We still have to modify applications to modernize 

our financial systems and the loan systems. So it is important that 

we are talking apples to apples and we talk 156 to 39. 

Ms. VELA ́ ZQUEZ. Will the gentleman yield? 

Mr. WEST. You are in charge. Yes. 

Ms. VELA ́ ZQUEZ. I am glad to hear that. 


erowe on DSK2VPTVN1PROD with 
12 

Mr. Powner, going back to the $39 million, right, in cost savings 

by terminating existing LMAS projects, should the agency really be 

claiming this savings when the final costs and completion date are 

under considerable risk of overruns? 

Mr. POWNER. I think the total cost is a big TBD. So when you 

look at the seven increments, three of the increments, one is 

prioritizing additional projects. Next is implementing those additional projects. The third is documenting processes so that the business keeps up with the technology. Those additional projects will 

comprise modernizing SBA’s loan accounting system. Okay? So the 

total cost is still TBD when you look at modernization overall. 

Ms. VELA ́ ZQUEZ. Thank you. Thank you, gentleman, for yielding. 

Mr. SCHRADER. Thank you, Mr. Chairman. 

Well, let us get back to the number and what constitutes—what 

are the elements of the number? I mean, we have got information 

here that $100 million has already been spent. We have only completed one piece of the IT program. Am I to understand, Mr. 

Powner, that you are saying that $100 million was used for other 

improvements that we are not talking about? 

Mr. POWNER. No, I do not think it was used for other projects. 

I think we have just a fairly significant de-scoping of the project. 

Mr. SCHRADER. But we already spent $100 million. 

Mr. POWNER. You mean historically? Historically. Oh, the answer 

is yes. Well, on the predecessor. 

Mr. SCHRADER. So my concern is the original, to change the 

whole bloody system out was supposed to be $217 million. We 

spent $100 million. We actually spent more than that because we 

already spent a little bit of the 39 or whatever the magic number 

is. So we have already spent half of the total turnout for one 

project out of seven. And I am very concerned that if we have more 

studies going on, I mean, we could study this. We will be on 

COBOL 15, which is, I think, totally unacceptable by every member of this Committee. If I was to poll this Committee I do not 

think there is a single person here that thinks a new version of 

COBOL is appropriate for the Small Business Administration going 

forward. 

You are a relatively small agency. You have the unique opportunity to be more nimble than many, many others. And I think 

while the incremental approach is understood, there is a limited 

number of dollars out there. I get that. But to base it on going to 

COBOL 54 or whatever your new number is, I think that is not 

good. What I would like is a report back to the Committee about 

what the different elements are and what you think they will cost, 

beyond just the IT piece also. I want to know is the number 28? 

The number, the sheet we have in our packet here, Table 2, the 

numbers do not add up to 39. They add up to like 28, maybe 30. 

So I am as confused as everyone else about what the IT piece is. 

And if I read this correctly and listen to the testimony correctly, 

you have talked about studies. What costs are we going to incur 

as a result of what the studies recommend the Small Business Administration do? I think it is really important this Committee have 

a full understanding of the scope of what is in front of it so we do 

not, frankly, assume you are gaming us down the line. If you give 


erowe on DSK2VPTVN1PROD with 
13 

us honest information up front about the total scope, we can have 

that discussion now and not be loggerheads, I think, in the future. 

Mr. POWNER. Congressman, to your point, one of the increments 

is titled ‘‘root cause analysis.’’ And what it is is it is a prioritization 

of those additional projects you would like to see. There is a June 

2012 delivery date that our report points out. I think that is very 

important that we get that game plan going forward to your point 

on what those additional projects are and what the associated costs 

are. 

Mr. SCHRADER. And why are we not going to a web-based technology? I mean, why go through all this? This is pretty simple 

stuff. I mean, you know, you can get this stuff off the shelf. Any 

business gets this sort of information. Has loan portfolios. Banks 

do this. I mean, I do not think too many banks, I assume, are not 

on COBOL. You could correct me but there has got to be a smarter 

way to go about this. Anticipating the cloud. Why are we not thinking like that? 

Ms. JOHNS. Well, Congressman, actually, we are. As I said in my 

testimony, 80 percent of our interface with our lenders is webbased. So there is a lot of discussion about COBOL that is taking 

up a lot of the attention of the Committee, and certainly you have 

the right to investigate whatever you choose. But COBOL is a very 

small piece of this overall project, set of projects. As I said earlier, 

it is a part of the back office operation. We are doing that in concert with other—many of our lender partners who also use COBOL 

in the same manner. COBOL is used, as I mentioned, by this 

House of Representatives for certain financial systems. 

Mr. SCHRADER. Yes, but the House of Representatives, we are 

antiquated. We are so back in the Dark Ages. You are comparing 

us with dinosaurs. I would like to be compared with the Maseratis, 

you know, the Morgans, some fancy car that is moving into the 

21st century. 

Ms. JOHNS. All right. The Air Force, Defense Logistics Agency. 

The point is we did not set out to look for the low standard. We 

set out to figure out how to make sure that we were modernizing 

our systems, running a good agency, getting capital out there, and 

doing all that in the most cost-effective and the most risk-averse 

way. And that is what led us to the incremental improvement 

projects, which is in concert with what OMB/GAO are saying is the 

route we should be taking. And COBOL is a small piece of that 

overall very comprehensive plan. 

Mr. SCHRADER. Well, in my business, perception is reality. I 

would get rid of COBOL. Man, you would look a lot better right off 

the bat. You are talking about going forward. Just the real world. 

And I think your own office, you would be better off. 

Ms. JOHNS. I appreciate that. I appreciate that, Congressman. 

Our view is that we do not want—we would rather make the case 

for why we are going a route that we think is prudent and is getting the best bang for the buck. 

Mr. SCHRADER. All right. I appreciate that. 

I will yield back. Thank you. 

Chairman GRAVES. I am trying to figure out the time. 

Go ahead. Shoot. 


erowe on DSK2VPTVN1PROD with 
14 

Mr. OWENS. In terms of the Committees you have set up to administer or to monitor this program, do you have anybody sitting 

on those committees who has a prior institutional experience of an 

entity of this size of doing the type of conversion that you are now 

going through? 

Ms. JOHNS. Yes, Congressman. We have our CIO is on the Executive Steering Council. Our CFO. The head of our Office of Capital 

Access, as well as other senior leadership from the Office of Capital 

Access. 

Mr. OWENS. Now, they have had prior experience in another institution making a computer conversion of this magnitude? 

Ms. JOHNS. These are all people who bring exceptional experience to this project. I cannot give you details about their experience 

in other organizations but they are very experienced in terms of 

SBA, the history of this project, and have been excellent thought 

partners in how we need to move forward in terms of balancing all 

the critical objectives that I have spoken to earlier. Risk, cost, and 

timeliness. 

Mr. OWENS. I understand you folks may have excellent skills, but 

because of the magnitude, the size of the agency, the dollars involved, the complexity, it would seem to me that having someone 

who had prior institutional experience in this type of conversion 

would be very appropriate to be leading it. 

Ms. JOHNS. Well, in addition to the individual that I mentioned, 

Congressman, we also have outside consultants who are subject 

matter experts and bring state-of-the-art expertise bear as well. 

Mr. OWENS. Who might those be? 

Ms. JOHNS. I can provide the names of the companies if you 

would like me to do that. 

Mr. OWENS. That would be very helpful. 

Ms. JOHNS. Certainly. 

Mr. OWENS. Well, thank you. I yield back. 

Ms. VELA ́ ZQUEZ. May I ask—— 

Chairman GRAVES. Yes. Absolutely. Go ahead. 

Ms. VELA ́ ZQUEZ. Ms. Johns. 

Ms. JOHNS. Yes. 

Ms. VELA ́ ZQUEZ. Is the CIO on that? Who is responsible? Who is 

in charge? 

Ms. JOHNS. Yes. Yes, Ranking Member. The chief information officer is a member. He chairs the BTIC and he is a member of the 

Executive Steering Council. 

Ms. VELA ́ ZQUEZ. Is that position being vacated or not? 

Ms. JOHNS. No. 

Ms. VELA ́ ZQUEZ. Okay. So let me ask you, OMB had a role in 

scaling back the LMAS project and approving the current set of 

projects. To what extent is OMB involved in the planning for future 

improvements? 

Ms. JOHNS. Well, we report regularly to OMB about our progress. 

And even the inspector general. We have—we regularly keep the 

inspector general apprised of how we are proceeding. And have not 

even invited a member from the Office of Inspector General to join 

our Executive Steering Council meetings. We hope that that will 

happen, but that invitation remains open to them. 


erowe on DSK2VPTVN1PROD with 
15 

And in fact, I am hoping—looking forward to Mr. Powner joining 

us as well at a meeting because we are—clearly it is my intent that 

we draw from all the expertise that we can across the government 

and outside of the government because certainly not on my watch 

would I want to endanger our ability to serve our small businesses 

and make sure that our loan management accounting system is 

functioning as effectively as possible. 

Ms. VELA ́ ZQUEZ. It may not be under your watch but it has taken 

15 years basically, 1997. So maybe 15 years later under somebody’s 

watch. 

Ms. JOHNS. Well, I am working very hard to lay a very strong 

foundation. 

Ms. VELA ́ ZQUEZ. I yield back, Mr. Chairman. 

Chairman GRAVES. I want to thank both of you for coming. In 

light of the time constraint with votes, we will go ahead and close 

the hearing. But I expect the Committee is going to continue to examine the SBA as it continues to update its financial systems because we want to protect the taxpayer. That is the biggest thing. 

I would ask unanimous consent that all members have five legislative days for advising the extent of their marks. Without objection, so ordered. 

This hearing is adjourned. 

[Whereupon, at 1:50 p.m., the Committee hearing was adjourned.] 


erowe on DSK2VPTVN1PROD with 
16 


erowe on DSK2VPTVN1PROD with Insert offset folio 43 here 76460A.001
17 


erowe on DSK2VPTVN1PROD with Insert offset folio 44 here 76460A.002
18 


erowe on DSK2VPTVN1PROD with Insert offset folio 45 here 76460A.003
19 


erowe on DSK2VPTVN1PROD with Insert offset folio 46 here 76460A.004
20 


erowe on DSK2VPTVN1PROD with Insert offset folio 47 here 76460A.005
21 


erowe on DSK2VPTVN1PROD with Insert offset folio 48 here 76460A.006
22 


erowe on DSK2VPTVN1PROD with Insert offset folio 49 here 76460A.007
23 


erowe on DSK2VPTVN1PROD with Insert offset folio 50 here 76460A.008
24 


erowe on DSK2VPTVN1PROD with Insert offset folio 51 here 76460A.009
25 


erowe on DSK2VPTVN1PROD with Insert offset folio 52 here 76460A.010
26 


erowe on DSK2VPTVN1PROD with Insert offset folio 53 here 76460A.011
27 


erowe on DSK2VPTVN1PROD with Insert offset folio 54 here 76460A.012
28 


erowe on DSK2VPTVN1PROD with Insert offset folio 55 here 76460A.013
29 


erowe on DSK2VPTVN1PROD with Insert offset folio 56 here 76460A.014
30 


erowe on DSK2VPTVN1PROD with Insert offset folio 57 here 76460A.015