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| <title> - CHALLENGES IN SBA'S STATE TRADE EXPANSION PROGRAM</title> | |
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| [House Hearing, 116 Congress] | |
| [From the U.S. Government Publishing Office] | |
| CHALLENGES IN SBA'S STATE TRADE EXPANSION PROGRAM | |
| ======================================================================= | |
| HEARING | |
| before the | |
| SUBCOMMITTEE ON RURAL DEVELOPMENT, AGRICULTURE, TRADE, AND | |
| ENTREPRENEURSHIP | |
| OF THE | |
| COMMITTEE ON SMALL BUSINESS | |
| UNITED STATES | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED SIXTEENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD | |
| MARCH 12, 2019 | |
| __________ | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| Small Business Committee Document Number 116-010 | |
| Available via the GPO Website: www.govinfo.gov | |
| _________ | |
| U.S. GOVERNMENT PUBLISHING OFFICE | |
| 35-333 WASHINGTON : 2019 | |
| HOUSE COMMITTEE ON SMALL BUSINESS | |
| NYDIA VELAZQUEZ, New York, Chairwoman | |
| ABBY FINKENAUER, Iowa | |
| JARED GOLDEN, Maine | |
| ANDY KIM, New Jersey | |
| JASON CROW, Colorado | |
| SHARICE DAVIDS, Kansas | |
| JUDY CHU, California | |
| MARC VEASEY, Texas | |
| DWIGHT EVANS, Pennsylvania | |
| BRAD SCHNEIDER, Illinois | |
| ADRIANO ESPAILLAT, New York | |
| ANTONIO DELGADO, New York | |
| CHRISSY HOULAHAN, Pennsylvania | |
| ANGIE CRAIG, Minnesota | |
| STEVE CHABOT, Ohio, Ranking Member | |
| AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member | |
| TRENT KELLY, Mississippi | |
| TROY BALDERSON, Ohio | |
| KEVIN HERN, Oklahoma | |
| JIM HAGEDORN, Minnesota | |
| PETE STAUBER, Minnesota | |
| TIM BURCHETT, Tennessee | |
| ROSS SPANO, Florida | |
| JOHN JOYCE, Pennsylvania | |
| Adam Minehardt, Majority Staff Director | |
| Melissa Jung, Majority Deputy Staff Director and Chief Counsel | |
| Kevin Fitzpatrick, Staff Director | |
| C O N T E N T S | |
| OPENING STATEMENTS | |
| Page | |
| Hon. Abby Finkenauer............................................. 1 | |
| Hon. John Joyce.................................................. 3 | |
| WITNESSES | |
| Ms. Kim Gianopoulos, Director of International Affairs and Trade, | |
| Government Accountability Office, Washington, DC............... 4 | |
| Mr. Hannibal ``Mike'' Ware, Inspector General, United States | |
| Small Business Administration, Washington, DC.................. 6 | |
| APPENDIX | |
| Prepared Statements: | |
| Hon. Jim Hagedorn, Minnesota................................. 15 | |
| Ms. Kim Gianopoulos, Director of International Affairs and | |
| Trade, Government Accountability Office, Washington, DC.... 16 | |
| Mr. Hannibal ``Mike'' Ware, Inspector General, United States | |
| Small Business Administration, Washington, DC.............. 29 | |
| Questions and Answers for the Record: | |
| Questions from Hon. Nydia Velazquez to Mr. Hannibal ``Mike'' | |
| Ware and Responses from Mr. Hannibal ``Mike'' Ware......... 37 | |
| Additional Material for the Record: | |
| None. | |
| CHALLENGES IN SBA'S STATE TRADE EXPANSION PROGRAM | |
| ---------- | |
| TUESDAY, MARCH 12, 2019 | |
| House of Representatives, | |
| Committee on Small Business, | |
| Subcommittee on Rural Development, Agriculture, | |
| Trade, and Entrepreneurship, | |
| Washington, DC. | |
| The Subcommittee met, pursuant to call, at 10:11 a.m., in | |
| Room 2360, Rayburn House Office Building. Hon. Abby Finkenauer | |
| [chairwoman of the Subcommittee] presiding. | |
| Present: Representatives Finkenauer, Chabot, Hagedorn, and | |
| Joyce. | |
| Chairwoman FINKENAUER. Good morning. The Subcommittee will | |
| come to order. | |
| It is a pleasure to have our witnesses testifying before | |
| our Subcommittee this morning. I commend you for your | |
| commitment to public service. I also want to take a minute to | |
| thank Ranking Member Dr. John Joyce of Pennsylvania. He | |
| introduced himself to me very early on and expressed how | |
| important trade and rural development was to his district. I am | |
| glad we share that as a common priority, and I look forward to | |
| working with him in a bipartisan fashion on this Subcommittee. | |
| As someone who grew up in a small town in Iowa--as I like | |
| to say, in a town with more cows than people--I am thrilled to | |
| be leading this Subcommittee focused on rural development. We | |
| have an opportunity to give folks in districts like mine and | |
| Ranking Member Joyce's a seat at the table for important | |
| conversations like the one we are having today on helping | |
| farmers and small businesses export their products. | |
| It is no secret that for rural entrepreneurs and family | |
| farmers in states like Iowa, the ability to do business | |
| overseas is key to economic success here at home. Trade should | |
| help us export goods but also protect our workers and our | |
| communities. | |
| Despite the economic rewards that come with exporting | |
| products overseas, only 1 percent of our nation's 30 million | |
| small businesses are able to do so. | |
| With 95 percent of the world's consumers living outside of | |
| the United States, small businesses are missing out on | |
| opportunities to better support their families and communities, | |
| create jobs, and expand our economy. | |
| Today, we have a chance to hear from some of our nation's | |
| leading experts on a federal program that aims to help small | |
| businesses enter new markets around the globe. This initiative, | |
| the State Trade and Expansion Program (STEP), was initially | |
| created in 2010 as a 3-year pilot program. Five years later, | |
| Congress enacted the Trade Facilitation and Trade Enforcement | |
| Act to make the STEP program permanent and authorize $30 | |
| million in funding through fiscal year 2020. | |
| STEP provides matching funds to states and territories to | |
| help small businesses enter new markets, access export | |
| financing, and go on trade missions. | |
| Since its inception, the Small Business Administration has | |
| awarded approximately $139 million in funding to almost every | |
| state in the country. | |
| In the 2018 annual report, SBA reported that the agency | |
| awarded 44 grants totaling $18.9 million in fiscal year 2016. | |
| The rate of return was 31 to 1 for every dollar invested, | |
| states reported $31 in sales. | |
| STEP has the potential to unlock opportunities in the | |
| global marketplace for small businesses in a town like | |
| Maquoketa in my district, whose owners may want to sell | |
| products overseas but could lack the staff capacity or even an | |
| idea of where to start. | |
| Having said that, the reports and audits conducted by our | |
| nation's watchdogs raise some concerns over the implementation | |
| of the STEP program and show areas for improvement as we look | |
| at the need for reauthorization in 2020. Work by the Government | |
| Accountability Office found that SBA lacks a strong process to | |
| ensure states are complying with the program's requirements. | |
| GAO also found states face serious and ongoing challenges in | |
| trying to utilize the funds with some even giving the funds | |
| back. Problems range from short application windows and | |
| difficult reporting requirements to a lack of timely | |
| communication from SBA. | |
| The Inspector General's audits uncovered similar problems | |
| and determined more work needs to be done to improve the | |
| program's performance measures and oversight. Moreover, the | |
| report showed that SBA is at risk of not fully realizing the | |
| potential of the program. | |
| My office had a chance last week to hear from the Iowa | |
| Economic Development Authority about problems in utilizing the | |
| funds. In one instance, Iowa was awarded a STEP grant on | |
| September 21st with a start date of September 29th, just 8 days | |
| later. | |
| In another instance, SBA announced a grant opportunity on | |
| April 2nd only to post a second announcement with new and more | |
| accurate information on April 18th. SBA did not respond to | |
| Iowa's questions about the application until April 27th, but | |
| the deadline for applying for the STEP grant was May 16th. That | |
| is a pretty tight turnaround. | |
| While this is frustrating, STEP is a needed initiative, and | |
| I look forward to hearing other states' ideas for improving it | |
| and hopefully getting some of our states on record in the | |
| future about how we can make STEP work better. | |
| In Congress, we ought to be making it easier for farmers | |
| and small businesses to succeed in the international | |
| marketplace-- not harder--while also protecting our workers. | |
| STEP has the potential to help Iowa's entrepreneurs and | |
| entrepreneurs around the country tap into new markets. | |
| If utilized properly, this program stands to provide small | |
| businesses with the tools they desperately need to expand, | |
| create jobs, and boost wages throughout America, especially in | |
| rural areas that quite frankly have been ignored for too long. | |
| Let me close by saying how grateful I am to have the | |
| opportunity to Chair this Subcommittee. I look forward to | |
| working with my colleagues on both sides of the aisle to | |
| harness the feedback we receive today to make much needed | |
| improvements to the STEP program for all of our communities, | |
| small businesses, and hard-working families. | |
| I want to thank our witnesses for being here for what I | |
| hope will be a productive discussion. | |
| I would like to now yield to the Ranking Member, Dr. Joyce, | |
| for his opening statement. | |
| Mr. JOYCE. Thank you, Madam Chairwoman Finkenauer. | |
| Small businesses eying international markets face daunting | |
| obstacles, such as insufficient manpower, lack of external | |
| resources, inadequate access to financing, and clearly, | |
| bureaucratic red tape. The Small Business Administration (SBA) | |
| is one of the six agencies that offer export promotion programs | |
| specifically for small businesses. | |
| The SBA Office of International Trade, often referred to as | |
| OIT, is responsible for a variety of programs that provide | |
| training, counseling, and export financing for small | |
| businesses. We are here today to review just one unique program | |
| within an exceptionally complex network of trade promotion | |
| programs. | |
| The statutes governing the State Trade Expansion Program, | |
| known as STEP, are very specific to ensure each dollar hits its | |
| target. Since its creation as a pilot program in 2010, SBA OIT | |
| has struggled to comply with STEP's strict legal requirements. | |
| One of Congress's most vital roles is not only to exercise | |
| fiscal responsibility when spending taxpayer dollars but also | |
| to ensure that the taxpayer dollars we allocate are being spent | |
| wisely and reaching their maximum impact. | |
| I appreciate the cooperation between all agencies and their | |
| commitment to seeing that SBA fulfills its goals relating to | |
| this program and maximizes every dollar received to help small | |
| businesses reach their potential in the international market. | |
| This hearing resumes the Committee's oversight of OIT and | |
| the STEP program. Our witnesses represent the Government | |
| Accountability Office (GAO) and SBA's Office of Inspector | |
| General (OIG). They are our eyes and our ears. They are here to | |
| present the issues plaguing the STEP program. I am encouraged | |
| by the dedication shown by all parties to expanding the | |
| opportunities for small businesses and farmers, and I look | |
| forward to working with you to achieve our common goal of | |
| reducing barriers to small businesses participating in global | |
| trade. | |
| Thank you again to our distinguished witnesses and I yield | |
| back. | |
| Chairwoman FINKENAUER. Thank you, Dr. Joyce. The gentleman | |
| yields back. | |
| If any Subcommittee members have an opening statement | |
| prepared, we ask that you submit it for the record. | |
| Now I would like to just take a minute to explain the | |
| timing rules. Each witness will have 5 minutes to testify and | |
| each member will have 5 minutes for questioning. There is a | |
| lighting system to assist you. The green light will be on when | |
| you begin and the yellow light will come on when you have one | |
| minute remaining. The red light will come on when you are out | |
| of time, and we ask that you stay within the timeframe to the | |
| best of your ability. | |
| I would now like to introduce the witnesses. | |
| Our first witness is Ms. Kimberly Gianopoulos. Ms. | |
| Gianopoulos serves as the director for international trade | |
| issues in the International Affairs and Trade Team at the | |
| Government Accountability Office (GAO). She has a distinguished | |
| career and has provided leadership in a number of efforts to | |
| improve government programs, including contributions to GAO's | |
| high-risk series. Ms. Gianopoulos has also received a number of | |
| awards, including a Meritorious Service Award, a Client Service | |
| Award, an Assistant Comptroller General's Award, and several | |
| Results through Teamwork Awards. Welcome, Ms. Gianopoulos. | |
| Our second witness is the Honorable Hannibal ``Mike'' Ware, | |
| the inspector general of the Small Business Administration. Mr. | |
| Ware was sworn in as the inspector general of the Small | |
| Business Administration in May 2018. He is responsible for | |
| independent oversight of SBA's programs and operations, which | |
| encompass more than $100 billion in guaranteed loans and nearly | |
| $100 billion in federal contracting dollars. Mr. Ware has 28 | |
| years of experience within the OIG community and has received | |
| numerous awards throughout his career, including several awards | |
| from the Council of Inspectors General on Integrity and | |
| Efficiency in recognition of his significant work in the | |
| inspector general community. Welcome, Mr. Ware. | |
| Ms. Gianopoulos, you are recognized for 5 minutes. | |
| STATEMENTS OF KIM GIANOPOULOS, DIRECTOR OF INTERNATIONAL | |
| AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE; HANNIBAL | |
| ``MIKE'' WARE, INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS | |
| ADMINISTRATION | |
| STATEMENT OF KIM GIANOPOULOS | |
| Ms. GIANOPOULOS. Thank you. | |
| Chairwoman Finkenauer, Ranking Member Joyce, and members of | |
| the Subcommittee, thank you for the opportunity to be here | |
| today to discuss our recent work on SBA's State Trade Expansion | |
| Program. | |
| As you know, Congress established STEP to help small | |
| businesses export. Many states report that STEP is important to | |
| their export promotion operations. However, concerns have been | |
| raised related to the management of the program, including | |
| SBA's processes for administering and monitoring grants, and | |
| the effectiveness of the program in reaching its goals. | |
| My testimony today is based on our report, which is being | |
| released at this hearing. Today, I will discuss two items: one, | |
| the extent to which SBA's STEP grants management process | |
| provides reasonable assurance of compliance with selected | |
| requirements of applicable law, and two, the extent to which | |
| SBA has responded to states' challenges in using grant funds. | |
| First, we found that SBA does not provide reasonable | |
| assurance that STEP grant recipients meet two of the three | |
| Trade Facilitation and Trade Enforcement Act requirements that | |
| we reviewed before the grant is closed out. | |
| The first requirement states that SBA must limit the amount | |
| given to the 10 states with the largest numbers of eligible | |
| small businesses. SBA demonstrated reasonable assurance that | |
| this first requirement was being met. | |
| The second requirement is that states must provide either a | |
| 25 or 35 percent total match to the Federal grant amount. We | |
| identified four instances where according to SBA's | |
| documentation, states did not report sufficient total matches. | |
| Nevertheless, SBA closed these grants. | |
| The third requirement is that a state's match cannot be | |
| less than 50 percent cash. SBA collects information about the | |
| matching funds, including the proportion provided in cash. | |
| However, it does not monitor states' compliance with this | |
| requirement. Additionally, SBA considers the salaries of state | |
| trade office staff who work on administering the grant to be a | |
| form of cash and most states use staff salaries as their total | |
| match, including the required cash portion. | |
| SBA does not ensure that states that do this are not also | |
| using grant funds from STEP to pay for portions of these | |
| salaries. As a result, SBA cannot consistently determine | |
| whether states are meeting the cash match requirement. | |
| In our report, we recommend that SBA establish a process to | |
| ensure documentation of states' compliance with the total match | |
| requirement and develop a process to determine states' | |
| compliance with the cash match requirement. SBA agreed with | |
| these recommendations. | |
| Our second finding is related to the overall use of grant | |
| funds and the challenges that states report in using their | |
| allocations. We found that nearly 20 percent of grant funds go | |
| unused each year despite SBA officials stating that they seek | |
| 100 percent use of these funds. For example, in 2016, across 41 | |
| of the 43 recipient states, combined grant use was about 82 | |
| percent, leaving nearly $3.2 million unused. This includes one | |
| state that left nearly 95 percent of its funds unused that | |
| year. | |
| SBA made some changes to the program that could improve | |
| states' abilities to use all their grant funds, such as | |
| extending the fund's usage period to 2 years; allowing certain | |
| flexibilities, including travel; and reducing the length of the | |
| technical proposal. | |
| The 12 states we interviewed cited numerous challenges, | |
| including timing of the application and award processes, | |
| administrative burden, and communication between the states and | |
| SBA. We heard about variable and short application timeframes, | |
| inflexible application requirements, a difficult process for | |
| repurposing funds, burdensome and changing reporting | |
| requirements, and delayed and inconsistent communication of | |
| requirements from SBA. SBA does not assess and address the risk | |
| posed by some states' low use of funds. Also, SBA officials | |
| told us that while they informally collect feedback from | |
| states, there is no process to collect states' perspectives on | |
| challenges with the program. We recommended that SBA assess | |
| this risk to achieving program goals posed by some states' low | |
| grant fund use rates. We also recommended that SBA enhance | |
| collection and sharing of best practices among states. SBA | |
| agreed with these recommendations. | |
| Thank you again for the opportunity to testify. I am happy | |
| to answer any questions you may have. | |
| Chairwoman FINKENAUER. Thank you, Ms. Gianopoulos. | |
| Mr. Ware, you are now recognized for 5 minutes. | |
| STATEMENT OF HANNIBAL ``MIKE'' WARE | |
| Mr. WARE. Thank you, Chairwoman Finkenauer, Ranking Member | |
| Joyce, and distinguished members of the Subcommittee. Thank you | |
| for the opportunity to be here today and for your continued | |
| support of the Office of Inspector General. I am proud to | |
| represent the dedicated men and women of my office and speak to | |
| you about their important work. | |
| We have published three reports and written one management | |
| advisory regarding what is now known as the State Trade | |
| Expansion Program, or STEP. Across these three reports, we made | |
| 22 recommendations, all of which are now considered closed. | |
| While the STEP program has benefitted from congressional | |
| scrutiny, OIG oversight, and most recently oversight by my | |
| colleagues at GAO, my office has identified systemic risks to | |
| SBA's grant management practices that are important in context | |
| of today's discussion. | |
| Our first STEP review was conducted pursuant to the Small | |
| Business Jobs Act of 2010, which authorized SBA to establish a | |
| STEP grant program as a 3-year pilot to increase the number of | |
| eligible small business concerns in states that export and to | |
| increase the export value of those eligible small businesses | |
| that already export. In 2015, Congress authorized STEP as a | |
| full-fledged program through the Trade Facilitation and Trade | |
| Enforcement Act of 2015. Our two most recent reports were | |
| mandated by the 2015 act. | |
| We conducted our 2012 audit of the pilot program to | |
| determine the extent to which the grant recipients were | |
| measuring program performance. To achieve our objectives, we | |
| reviewed the Small Business Jobs Act of 2010 and the Fiscal | |
| Year 2011 STEP program announcement. We judgmentally selected | |
| all STEP grants exceeding $1 million to review. Six grant | |
| recipients met this threshold. We conducted site visits to | |
| California, Pennsylvania, Washington, Michigan, and Illinois. | |
| We found that STEP grant recipients did not implement adequate | |
| metrics to measure program performance and issued nine | |
| recommendations for corrective action. In addition, SBA granted | |
| more than $1 million to an ineligible applicant, the | |
| Commonwealth of the Northern Mariana Islands, which was the | |
| subject of our advisory report. In response, Congress included | |
| an expanded definition of state in the 2015 act which resolved | |
| the issue in the advisory. | |
| Our second STEP review was performed to determine how STEP | |
| funds were used. We requested grant award and expenditure | |
| totals from SBA, queried STEP data from usaspending.gov, and | |
| selected 15 grant awards totaling $15.2 million. We found that | |
| SBA could not provide consistent STEP award and expenditure | |
| data and did not update usaspending.gov. We did, however, find | |
| that SBA implemented new reporting requirements for the fiscal | |
| year 2014 STEP program that significantly improved controls | |
| over the quality of the grant recipients' performance and | |
| financial reports. We issued three recommendations based on our | |
| review findings. | |
| Our final report we issued was also issued pursuant to the | |
| 2015 act authorizing STEP. The objectives of the audit were to | |
| determine the extent to which STEP recipients measure program | |
| activity performance and the results of those measurements. It | |
| is noteworthy that Congress included certain performance | |
| measures within the 2015 authorization as a follow-on to our | |
| findings that SBA lacked adequate metrics in the pilot stage. | |
| We selected five cooperative agreement awards totaling $3.9 | |
| million, conducted site visits and obtained documentation from | |
| recipients in California, North Carolina, Washington, and | |
| Mississippi. We also interviewed and obtained documentation | |
| from cooperative agreement officials for Illinois. | |
| We found SBA has made significant progress in improving the | |
| overall management and effectiveness of STEP since our audit of | |
| the pilot program in 2012; however, SBA could utilize existing | |
| data to further improve its performance measures and program | |
| oversight. We issued six recommendations based on our review | |
| findings. | |
| It is safe to say the STEP program has evolved since its | |
| inception and has benefitted from oversight review from my | |
| office, GAO, and congressional scrutiny. Nonetheless, our | |
| reviews of SBA's grant programs continue to identify systemic | |
| issues with SBA's accuracy of grant data for both financial and | |
| performance reporting, ineffective oversight, and inadequate | |
| standard operating procedures. | |
| In our most recently published, most serious management and | |
| performance challenges facing SBA in fiscal year 2019, we | |
| identified grant management as an agency challenge for the | |
| first time. SBA officials acknowledge that there are systemic | |
| issues with its grant management processes and have documented | |
| plans to address them. That said, we will continue to perform | |
| reviews and make recommendations for corrective action to | |
| promote efficiencies and effectiveness within SBA's grant | |
| programs. | |
| Thank you for the opportunity to speak to you today. I look | |
| forward to your questions. | |
| Chairwoman FINKENAUER. Thank you, Mr. Ware. | |
| You guys are very good on time. Oh, my goodness. | |
| Mr. WARE. Exactly on the 5 minute mark. | |
| Chairwoman FINKENAUER. Exactly. Thank you all. We really | |
| appreciate everything you have shared with us. | |
| I will begin the questioning by recognizing myself for 5 | |
| minutes. | |
| The first question is for Ms. Gianopoulos. Trade is | |
| obviously a priority for me and for the state of Iowa, which is | |
| why I am so pleased that our first hearing is on how small | |
| business trade assistance programs can work better for farmers | |
| and small businesses but also our states. Iowa is the number | |
| one export state for corn and pork, and number two for | |
| soybeans. Iowa is also number two in the country overall for | |
| commodities behind California. I am sure the administration | |
| shares the goal of improving small business trade assistance | |
| programs, as well, so I hope this is a bipartisan issue. | |
| For GAO's report, you interviewed 12 states that left at | |
| least 25 percent of their grant funds unused. Why do some | |
| states spend all their money while others are struggling to do | |
| so? | |
| Ms. GIANOPOULOS. When we spoke with the states, they gave | |
| us a variety of responses as far as the barriers and challenges | |
| that they experienced in trying to use some of the grant monies | |
| that they received from SBA. I touched on them a little bit in | |
| my oral testimony but they included everything from the, as you | |
| mentioned earlier in your opening statement, Chairwoman, the | |
| application deadline. It is not always the same day or the same | |
| week every year so some folks who have very small state trade | |
| offices cannot plan in advance when to dedicate their time to | |
| this application process. | |
| As you also noted, sometimes things change. The reporting | |
| requirements change. In other cases, the states have difficulty | |
| in repurposing funds. For example, we heard one story where a | |
| state was unable to attend a trade conference overseas because | |
| things had changed or certain companies had dropped out and | |
| they had a very difficult time getting those funds repurposed | |
| through SBA. So in some cases it is the timing that works | |
| against the states and in other cases it has to do with the | |
| management of the program itself. | |
| Chairwoman FINKENAUER. Got it. Thank you. | |
| My next question is for Mr. Ware. You also found that grant | |
| recipients did not expend all the funds awarded. In response to | |
| your findings, SBA enhanced its oversight procedures so that | |
| the program managers are monitoring states to ensure they are | |
| meeting their quarterly goals. What could SBA do to make it | |
| easier for recipients to use funds? Has the appropriations | |
| process impacted states' abilities to utilize the funds? | |
| Mr. WARE. I believe that the appropriations process has | |
| impacted the states' ability. I mean, the states are on record | |
| as my colleague stated of discussing the difficulties they have | |
| with the short timeframe, and it is compounded, of course, when | |
| the short timeframe is made even shorter. Relative to spending, | |
| I think one of the things that SBA did was after our last | |
| audit, they increased the period of performance time which | |
| should take some of the pressure off the states in terms of | |
| spending. But I caution that that does come with its own set of | |
| challenges that I could get into but I am sure that answers | |
| your question, or I hope it does. | |
| Chairwoman FINKENAUER. Great. Thank you. | |
| I thank both of you for being here. This is enlightening | |
| and there is clearly a lot that we need to be doing better. | |
| STEP is a great program and we need to make sure that it is | |
| implemented in a way that our states and our small businesses | |
| can get what they need to be able to grow. I really appreciate | |
| your time and look forward to ongoing discussions. | |
| With that, I am going to yield back my time. The Ranking | |
| Member, Dr. Joyce, is now recognized for 5 minutes. | |
| Mr. JOYCE. Thank you, Madam Chairwoman. | |
| My first question is for Mr. Ware. The SBA's OIG identified | |
| what truly were systemic issues with the SBA's financial and | |
| performance oversight. These grant programs and the elevation | |
| of this by this review show that these issues into 2019 had | |
| management and performance challenges in the report. How do | |
| STEP's management issues compare to other SBA grant programs? | |
| Mr. WARE. Thank you. It goes hand in hand. The same type of | |
| problems we find in STEP, we find in the other programs. It is | |
| basically two things. So it is inaccurate data and it is not | |
| enough oversight or inadequate oversight. And when I say they | |
| go together it is that those problems are what we find | |
| systematically across just about every grant program that we | |
| look at, which was the reason why we elevated it to a top | |
| management challenge and notified the agency. | |
| Mr. JOYCE. Has the SBA Office of Grants Management made any | |
| changes based on the recommendations in the report, and how | |
| long will it take for this reform to take place? | |
| Mr. WARE. They have made changes. And I will give you some | |
| of the ways they did. They did the earlier detection in terms | |
| of a risk management process by which they visit states based | |
| on risk that are not spending on time based on the quarterly | |
| reviews of the performance data now. And they also came up with | |
| an agency-wide data quality plan that they are supposed to | |
| implement across the board on all their grant programs. They | |
| provided us with sufficient documentation to prove that they | |
| have put those things in place. We have not done the work yet | |
| to determine the impact of those changes. | |
| Mr. JOYCE. How can Congress monitor SBA implementation | |
| progress? | |
| Mr. WARE. One way Congress can monitor the implementation | |
| progress is by the work that both GAO and the Office of | |
| Inspector General does in terms of that. | |
| Mr. JOYCE. And finally, how will grant management reforms | |
| impact the STEP program? | |
| Mr. WARE. It should impact it significantly, mainly because | |
| we want a transparent, well-functioning program that has the | |
| right level of oversight on it and that is providing the type | |
| of performance measures data that Congress can use to provide | |
| the type of oversight. And I think that based on our work, they | |
| have come a long way in terms of that. Like, for example, in | |
| the past they only did the rate of return on investment as the | |
| true measurement. They have since stepped that up based on our | |
| recommendations to provide measures more in line with what the | |
| authorizing language asks for. | |
| Mr. JOYCE. And will the better management help states use | |
| these funds, fully implement the access to these funds? | |
| Mr. WARE. I believe so, especially in regard to the early | |
| detection of states who are struggling to use their funds. | |
| Mr. JOYCE. Thank you very much. | |
| My next questions are for Ms. Gianopoulos. Your report | |
| found that the SBA does not have sufficient processes to ensure | |
| that states meet the total and cash match requirements mandated | |
| by the statute. Can you explain total and cash match | |
| requirements and why they are mandated? | |
| Ms. GIANOPOULOS. Sure. So the total matching requirement | |
| that a state has to meet is 25 percent of the total amount that | |
| they are going to receive. So, for example, if a state was | |
| going to spend $100 on export promotion, $75 of that could come | |
| from the STEP program and $25 would come from the state itself. | |
| And of that $25, $12.50 would have to be in cash and the other | |
| $12.50 could be either in cash or by some other way, either an | |
| indirect or an in-kind contribution, that sort of thing. So | |
| that is what TFTEA, the Trade Facilitation and Trade | |
| Enforcement Act requires when it updated the program and made | |
| it a permanent program. So what we found were there were some | |
| difficulties that SBA had in not only confirming that the match | |
| had been met, but also that the cash match was being met with | |
| actual cash. As I explained in my statement, there were some | |
| issues having to do with staff salaries being used as part of | |
| that or all of the cash match, and it was unclear to us whether | |
| that was actually following the guidance that was put forward | |
| in order to meet the requirements of TFTEA. | |
| Mr. JOYCE. Now, you mentioned indirect costs and in-kind | |
| contributions. Can you tell me more about that? Can you | |
| directly address what representation of that would be? | |
| Ms. GIANOPOULOS. Sure. So, indirect costs and in-kind | |
| contributions are the noncash options that a state can use to | |
| help provide its portion of the program. So they could offer a | |
| conference space for a meeting. They could use the utility of | |
| their travel offices to arrange overseas travel for some of | |
| these conferences. It is the different types of services that | |
| the state can provide that would not be something you would see | |
| on a balance sheet but could be valued in various ways by the | |
| states to meet their requirement. | |
| Mr. JOYCE. And how do you monitor the---- | |
| Chairwoman FINKENAUER. Thank you. The gentleman's time has | |
| expired but we will allow for more questions after this as | |
| well. | |
| Mr. JOYCE. I yield back. Thank you. | |
| Chairwoman FINKENAUER. Yes, thank you. | |
| The gentleman, Mr. Hagedorn, from Minnesota, is now | |
| recognized for 5 minutes. | |
| Mr. HAGEDORN. I thank the Chair and the Ranking Member and | |
| the witnesses. Appreciate all the work done by staff, including | |
| my own. Thanks for putting this together. | |
| It is a timely hearing. This is National Agriculture Week, | |
| so anything we can do to help our farmers and agribusinesses, | |
| especially expand in area of trade, is very important. And as | |
| somebody who also sits on the Agriculture Committee, I have a | |
| vested interest in this in a number of ways. | |
| Our farmers and agribusinesses, not just in Southern | |
| Minnesota where I represent that district, but across the | |
| country, many of them have been in recession one way or another | |
| for the better part of 5 years. We have had low commodity | |
| prices, high input costs, and all this predates anything with | |
| the trade issue. | |
| And so what we try to do, at least my goals with | |
| agriculture and being here, three things for our farmers: Make | |
| sure that we can do everything possible to reform the Federal | |
| Government so we have good government policies in the areas of | |
| regulation, health care, taxes, energy, you know, work | |
| requirements for welfare, whatever, to make sure that we drive | |
| down the cost of farming as much as possible, and make sure | |
| that we have the workforce there for our farmers. Secondarily, | |
| we want to sustain our farmers when times are tough, and we do | |
| that with implementation of the 5-year Farm Bill, E-15 year- | |
| round, things of that nature. And third, and this is the | |
| critical part where we have an opportunity at the Federal | |
| Government, the Federal role, expand our exports. Drop down | |
| those barriers. Make sure that we have new markets around the | |
| world. | |
| In southern Minnesota, we have about 20,000 farms. It is a | |
| highly rural area. It happens to also have the urban spot of | |
| Rochester where we have the preeminent institution of medicine | |
| in all the world, the Mayo Clinic, but mostly farms. A lot of | |
| good crop and livestock producers. The second largest hog | |
| production congressional district in the whole country. And so | |
| each one of those farms, each one of those farmers is producing | |
| enough to feed about 165 people. And we see that that reach is | |
| not just across the country but the whole world. | |
| And so when we get into what is going on with these | |
| programs and how they can be better utilized, do you think we | |
| should track closer as to how much of this money it spent on | |
| direct work trying to promote farmers and agribusinesses and | |
| our commodities? And secondarily, and I will ask both of you, | |
| do you work closely with USDA to try to implement these things? | |
| Are there measures that we should take to make sure that we are | |
| not duplicating costs but we are using our monies as | |
| efficiently and effectively as possible? | |
| Mr. WARE. I believe your first question was should we track | |
| what goes to the farms differently? | |
| Mr. HAGEDORN. Well, just how do you track the money? For | |
| instance, in Minnesota, we spent, I think it was like $150,000, | |
| something like that. Do we track exactly what we are trying to | |
| do with those monies or do you get to that level in your | |
| reports? | |
| Mr. WARE. In my reports, we stay programmatic in line with | |
| the mandate for us. We did not go into exactly what the states | |
| were using the money for. | |
| Mr. HAGEDORN. Should we do more in that area of tracking | |
| the money? What would that require? How would we get that done? | |
| Mr. WARE. Well, it is a different scope for us if we were | |
| to do that. The act says that we are supposed to look at XYZ. | |
| In order for us to do something like that it would just be a | |
| different focus, a different scope. And if the member wanted to | |
| request of my office that we did something like that, we are | |
| definitely open to it. | |
| Mr. HAGEDORN. Okay. | |
| Ms. GIANOPOULOS. So when we started our work, as you know, | |
| we looked at the 12 states that used less than 75 percent of | |
| their allocation in 2015. And I am just looking now at my | |
| statistics. Your home state Minnesota was actually the one that | |
| used only 23.3 percent of its 2015 STEP allocation. We did | |
| pursue possibly looking into the kinds of things that each STEP | |
| grant was used for, but because the IG identified the issues | |
| with the reliability of the data that SBA had, we were unable | |
| to do that. Now, anecdotally, when we spoke with the 12 | |
| different states, we did hear a number of different industries | |
| that were benefitting from the STEP program, such as heavy | |
| manufacturing, medical equipment, food and beverage, consumer | |
| appliances, that sort of thing, but that is purely anecdotal | |
| and cannot be generalized. So we do not have specific | |
| information but I did want to share that with you that your | |
| state was one of the ones that we spoke with about the low use | |
| rate. | |
| Mr. HAGEDORN. Well, that is very useful, and we will follow | |
| up on that. I appreciate your testimony. I yield back. | |
| Chairwoman FINKENAUER. Thank you. Now we will go into a | |
| second round of questions. There is a lot to talk about here | |
| today. I will begin by recognizing myself for another 5 | |
| minutes. My first question, again, will be for Ms. Gianopoulos. | |
| According to your report, SBA told you that it does not | |
| formally facilitate the sharing of best practices between | |
| states. You recommend that SBA enhance its identification and | |
| sharing of best practices. How might this improve the program? | |
| And do you have any thoughts on how this can be achieved? | |
| Ms. GIANOPOULOS. Well, we did not specifically tell SBA how | |
| it should be achieved because we wanted them to work within the | |
| parameters and the resources that they had available to them. | |
| But there are a number of ways, and we have noted in other | |
| reports some suggestions of how not only states but also | |
| agencies can share best practices and information. What the SBA | |
| officials told us is that they perhaps informally-- | |
| anecdotally--speak with a particular state regarding the | |
| difficulty it might be having in using its grant funds but | |
| there is no systematic way. And when we spoke with the 12 | |
| states they told us there is no systematic way that they can | |
| learn from each other--other than through outside organizations | |
| such as State International Development Office (SIDO) and that | |
| sort of thing--to learn from each other what it is that is | |
| working and not working for a particular state. And we realize | |
| that every state's situation is a little bit different, but | |
| because the 12 states we talked to were so variable, they were | |
| small states, large states, urban and rural, all different in | |
| and of themselves, there should be some way that SBA could | |
| facilitate that sharing of information in order to better use | |
| the money and better achieve the program goals. | |
| Chairwoman FINKENAUER. Absolutely. Thank you. | |
| Mr. Ware, metrics are obviously a very valuable tool in | |
| measuring the success of a program, but they also let us know | |
| where to make improvements. How can we better measure the | |
| success of the program in terms of increasing exports and the | |
| number of small businesses that export? | |
| Mr. WARE. Right. That is a good question. And I think it is | |
| a question that we asked based on our recommendations for SBA | |
| to do. And we believe that they have now done that in terms of | |
| addressing what the mandate was, which was to increase the | |
| small businesses that do exports. As I think I said earlier, | |
| they were focused so much on the return on investment that was | |
| being reported, and as a matter of fact, that is what was | |
| mandated to be reported. What the body could possibly do is in | |
| the new version is to make some of those measurements, the ones | |
| that they are now doing as a result of our recommendations, | |
| perhaps make those mandatory as well. And on top of that there | |
| is a lot of room out there for outcome-based recommendations | |
| and there are other, like someone said, six other places that | |
| are doing this. So there should be best practices, like we were | |
| just discussing, out there on how best to measure this program | |
| if you are really focused on determining the true impact of the | |
| program in the states. | |
| Chairwoman FINKENAUER. Great. Thank you. | |
| I will yield back the rest of my time. | |
| And I would like to again recognize the Ranking Member, Dr. | |
| Joyce, for 5 minutes. | |
| Mr. JOYCE. Thank you, Madam Chairwoman. | |
| This is for Mr. Ware. We heard earlier that the | |
| Commonwealth of the Northern Mariana Islands was awarded a STEP | |
| grant and they were actually an ineligible recipient at that | |
| time. Testimony says that OIT personnel did not have the | |
| experience or training required to manage and administer such a | |
| complex grant program. What has SBA OIT done to ensure its | |
| staff now fully understands STEP's statutory requirements? | |
| Mr. WARE. At the time that happened, it was still in the | |
| pilot. So it was very much in the beginning. As a result of our | |
| recommendations, they did implement a training program and | |
| trained all the grant managers across the board. Now, that | |
| being said, keep in mind that it is not like contracting | |
| officers where they have a requirement to do annual training or | |
| anything like that. They did training at that time and they | |
| have implemented steps to make sure that they provide the | |
| training going forward. And that is something that they are | |
| doing across the board for all the grant programs right now. | |
| Mr. JOYCE. So along that same line, how are the states made | |
| aware and held accountable for the STEP's legal requirements? | |
| Is that training extended to individual states? | |
| Mr. WARE. We did not look at the training to the individual | |
| states. However, the grant managers from a systematic | |
| standpoint of SBA's oversight of the program, that was covered | |
| in the training. | |
| Mr. JOYCE. This question is for Ms. Gianopoulos. | |
| Several states claim that STEP reporting requirements were | |
| much more detailed and burdensome than grants from the | |
| Department of Commerce and other agencies. Can you provide me | |
| with more details on this, please? | |
| Ms. GIANOPOULOS. Well, what we heard from the 12 states | |
| that we interviewed is that some of the difficulties in using | |
| all of their funds had to do with the level of detail with | |
| which they had to report back the use of those funds or to ask | |
| for reimbursement. So, for example, one of the states told us | |
| that when a group of trade folks were traveling say to a | |
| conference, in order to request reimbursement of that money, if | |
| they were all in a cab together they had to divide the cost of | |
| the cab and claim it individually by person, which made for-- | |
| and that was only one example--a great deal of administrative | |
| burden for them and made it very difficult. And in some cases | |
| they were even having second thoughts about applying for the | |
| grant the next year because of the amount of burden it was on | |
| them--to request that money back. And in some cases that money | |
| is such a small amount, even though it is important to them, | |
| they had to do a cost-benefit analysis as to whether it was | |
| worth their time in order to get that money back as part of the | |
| STEP grant. | |
| Mr. JOYCE. Do find that then states apply for less | |
| burdensome application processes? Are they reaching out in | |
| other directions when facing such obstacles? | |
| Ms. GIANOPOULOS. We did not really get into a lot of detail | |
| with where they put their efforts, but because the size of the | |
| state trade offices varies so widely, the very small state | |
| trade offices have to make choices as to where they are going | |
| to put their time. And as I mentioned earlier, because this | |
| program does not follow a set standard routine every year, it | |
| is not available on the same day every year, it is not the same | |
| amount of time every year, they have to make those types of | |
| choices state by state by state as to what they are going to | |
| apply for and how they are going to use their resources. | |
| Mr. JOYCE. Would you presume that they do reach out to less | |
| burdensome application processes? | |
| Ms. GIANOPOULOS. I have not talked with them about that, | |
| but if I were making a decision as far as what I was going to | |
| do with my resources and my time, I would want the most bang | |
| for my buck. | |
| Mr. JOYCE. That makes sense. | |
| Thank you both for your concise answers. I yield back my | |
| time. | |
| Chairwoman FINKENAUER. Thank you. Thank you very much to | |
| both of you for being here today, for your public service, and | |
| for taking out so much time out of your schedule. It really | |
| means a lot, and this was a very informative day. Ms. | |
| Gianopoulos and Mr. Ware, we are very grateful. | |
| As we have heard today, STEP offers many promising | |
| opportunities for entrepreneurs and farmers in Iowa and across | |
| the country to succeed. Over the past decade, STEP has grown | |
| from a 3-year pilot program to a permanent, successful program | |
| in SBA that with some improvements will be a critical piece of | |
| a trade assistance portfolio. I appreciate your work in | |
| identifying some of the systemic issues that we need to | |
| resolve. It has led to significant improvements in the | |
| implementation of the law. More work, obviously, needs to be | |
| done. In my role as the Chairwoman of the Subcommittee on Rural | |
| Development, Agriculture, Trade, and Entrepreneurship, I look | |
| forward to working with my colleagues on both sides of the | |
| aisle to make much-needed improvements in STEP. I am committed | |
| to making life easier for small business owners in Iowa and | |
| across rural America so that they can grow their small | |
| businesses and better support their families and our rural | |
| communities. | |
| I would ask unanimous consent that members have 5 | |
| legislative days to submit statements and supporting materials | |
| for the record. | |
| Without objection, so ordered. | |
| If there is no further business to come before the | |
| Committee, we are adjourned. Thank you. | |
| [Whereupon, at 11:58 a.m., the subcommittee was adjourned.] | |
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