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STATEMENT

of the

Honorable Nydia Velazquez, Ranking Member

House Committee on Small Business

“Placing Federal Tax Dollars at Risk: How the Small Business Administration Mismanages the Modernization of its Information Technology”

Wednesday, February 8, 2012

I thank the Chairman for yielding.

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 forty 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 founding it increasingly more difficult to maintain data integrity, keep information secure, and accurately account for loans.  Although SBA has pursued various efforts to upgrade and modernize the Legacy Systems, these efforts have met with minimal success. 

Those of us who have been on the committee for some time are well acquainted with the agency’s struggles to modernize these loan management systems.  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 database.  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 that act were never fully realized.  In 2001, GAO reported that SBA’s efforts to develop and implement upgrades for the Legacy Systems 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 its systems operational. 

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, 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 Systems, 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 21^st century and beyond.

In examining the current state of SBA’s 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 and little to show for it, 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 the takeaway from today’s hearing.

I’d like to thank both Ms. Johns and Mr. Powner for being here for this discussion. I know we all look forward to hearing what they have to say.