Small Business Administration
Additional Steps Needed to Enhance Agency Preparedness for Future Disasters Gao ID: GAO-07-114 February 14, 2007The Small Business Administration (SBA) is the federal government's primary provider of disaster loans to businesses, homeowners, and renters. In a previous report (GAO- 06-860), GAO found that SBA's limited information systems planning contributed to delays in processing disaster loans for the victims of the 2005 Gulf Coast Hurricanes (Katrina, Rita, and Wilma). To provide further insight into how SBA's disaster preparedness could be enhanced, this second report, initiated under the Comptroller General's authority, assesses other logistical issues (e.g., staffing and space acquisition) that may have affected the efficiency of the agency's response to the hurricanes. Specifically, this report (1) assesses SBA's logistical planning efforts prior to the Gulf Coast hurricanes and current planning efforts and (2) discusses SBA's outreach services to hurricane victims. GAO reviewed disaster planning reports, interviewed SBA officials, and visited the Gulf Coast region.
SBA engaged in limited logistical disaster planning prior to the Gulf Coast hurricanes, which, in retrospect, likely contributed to the initial challenges that the agency faced in processing the related surge in disaster loan applications on a timely basis. GAO reports, reports by other investigative agencies, and disaster management experts have stated that comprehensive planning and the supplementary use of sophisticated techniques (e.g., simulations of varying disaster scenarios) can help organizations prepare for potential disasters and mitigate their effects. However, SBA did not engage in or complete comprehensive disaster plans prior to the Gulf Coast hurricanes, in part, due to the view by headquarters agency officials that such planning yielded limited benefits and that local agency officials were in the best position to estimate logistical requirements. With better planning, available evidence suggests the agency could have been better positioned to provide initial disaster assistance to hurricane victims in an organized and efficient manner. In particular, SBA faced challenges in training and supervising thousands of temporary employees hired to process loan applications, had not taken steps to help ensure additional trained staff would be available, and encountered difficulties in obtaining suitable office space for the expanded workforce. In the wake of the Gulf Coast hurricanes, SBA officials said that they recognized the importance of disaster planning and have initiated a planning process designed to address key areas, which includes cross-training other agency staff to provide disaster assistance and recruiting and training a reserve of potential temporary employees. SBA has also taken steps to expedite the process for disbursing approved disaster loans. However, GAO continues to have concerns about several limitations in SBA's current planning process, including the lack of a timetable for competing key elements of its disaster management plan and the fact that the agency has not assessed whether its disaster plan would benefit from the supplemental use of disaster simulations or catastrophe models. SBA took a variety of steps under trying conditions to inform victims of the Gulf Coast hurricanes about its assistance programs, but several factors may have limited the effectiveness of these outreach efforts. SBA staff members reached out to disaster victims by speaking at about 600 organized events and advertising. However, the effectiveness of SBA's outreach efforts may have been reduced by, among other things, both the extensive damage and victim relocations associated with the hurricanes. According to SBA officials, the agency has initiated an internal review of the outreach that it provided to victims of the Gulf Coast hurricanes and is developing a plan to better provide such outreach in future disasters.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-114, Small Business Administration: Additional Steps Needed to Enhance Agency Preparedness for Future Disasters
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Report to Congressional Addressees:
United States Government Accountability Office:
GAO:
February 2007:
Small Business Administration:
Additional Steps Needed to Enhance Agency Preparedness for Future
Disasters:
GAO-07-114:
GAO Highlights:
Highlights of GAO-07-114, a report to congressional addressees
Why GAO Did This Study:
The Small Business Administration (SBA) is the federal government‘s
primary provider of disaster loans to businesses, homeowners, and
renters. In a previous report (GAO-06-860), GAO found that SBA‘s
limited information systems planning contributed to delays in
processing disaster loans for the victims of the 2005 Gulf Coast
Hurricanes (Katrina, Rita, and Wilma). To provide further insight into
how SBA‘s disaster preparedness could be enhanced, this second report,
initiated under the Comptroller General‘s authority, assesses other
logistical issues (e.g., staffing and space acquisition) that may have
affected the efficiency of the agency‘s response to the hurricanes.
Specifically, this report (1) assesses SBA‘s logistical planning
efforts prior to the Gulf Coast hurricanes and current planning efforts
and (2) discusses SBA‘s outreach services to hurricane victims.
GAO reviewed disaster planning reports, interviewed SBA officials, and
visited the Gulf Coast region.
What GAO Found:
SBA engaged in limited logistical disaster planning prior to the Gulf
Coast hurricanes, which, in retrospect, likely contributed to the
initial challenges that the agency faced in processing the related
surge in disaster loan applications on a timely basis. GAO reports,
reports by other investigative agencies, and disaster management
experts have stated that comprehensive planning and the supplementary
use of sophisticated techniques (e.g., simulations of varying disaster
scenarios) can help organizations prepare for potential disasters and
mitigate their effects. However, SBA did not engage in or complete
comprehensive disaster plans prior to the Gulf Coast hurricanes, in
part, due to the view by headquarters agency officials that such
planning yielded limited benefits and that local agency officials were
in the best position to estimate logistical requirements. With better
planning, available evidence suggests the agency could have been better
positioned to provide initial disaster assistance to hurricane victims
in an organized and efficient manner. In particular, SBA faced
challenges in training and supervising thousands of temporary employees
hired to process loan applications, had not taken steps to help ensure
additional trained staff would be available, and encountered
difficulties in obtaining suitable office space for the expanded
workforce.
In the wake of the Gulf Coast hurricanes, SBA officials said that they
recognized the importance of disaster planning and have initiated a
planning process designed to address key areas, which includes cross-
training other agency staff to provide disaster assistance and
recruiting and training a reserve of potential temporary employees. SBA
has also taken steps to expedite the process for disbursing approved
disaster loans. However, GAO continues to have concerns about several
limitations in SBA‘s current planning process, including the lack of a
timetable for competing key elements of its disaster management plan
and the fact that the agency has not assessed whether its disaster plan
would benefit from the supplemental use of disaster simulations or
catastrophe models.
SBA took a variety of steps under trying conditions to inform victims
of the Gulf Coast hurricanes about its assistance programs, but several
factors may have limited the effectiveness of these outreach efforts.
SBA staff members reached out to disaster victims by speaking at about
600 organized events and advertising. However, the effectiveness of
SBA‘s outreach efforts may have been reduced by, among other things,
both the extensive damage and victim relocations associated with the
hurricanes. According to SBA officials, the agency has initiated an
internal review of the outreach that it provided to victims of the Gulf
Coast hurricanes and is developing a plan to better provide such
outreach in future disasters.
What GAO Recommends:
To help ensure that SBA is better prepared to provide disaster
assistance, GAO recommends that the agency (1) establish time frames
for completing key elements of its disaster management plan and (2)
assess whether use of disaster simulations and models could enhance
disaster planning efforts. SBA agreed with these recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-114].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William B. Shear at (202)
512-8678 or shearw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
SBA's Limited Planning Likely Contributed to Initial Delays in
Processing Gulf Coast Hurricane Disaster Loan Applications, and
Announced Disaster Planning Improvements Also Have Potential
Limitations:
SBA Utilized a Variety of Outreach Approaches during the Gulf Coast
Hurricanes, but Several Factors May Have Limited Their Effectiveness:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Small Business Administration:
Appendix III: GAO Contact and Staff Acknowledgments:
Figures:
Figure 1: SBA's Realigned Disaster Loan Operation as of June 1, 2006:
Figure 2: SBA Ft. Worth Loan Processing Staffing Levels:
Figure 3: Example of an SBA Print Ad for Hurricane Katrina Victims:
Abbreviations:
ACP: Association of Contingency Planners:
AIR: Applied Insurance Research:
DCMS: Disaster Credit Management System:
DHS: Department of Homeland Security:
FEMA: Federal Emergency Management Agency:
GSA: General Services Administration:
IHP: Individuals and Households Program:
SBA: Small Business Administration:
USGS: U.S. Geological Survey:
United States Government Accountability Office:
Washington, DC 20548:
February 14, 2007:
Congressional Addressees:
While the Small Business Administration (SBA) is generally known for
the financial support it provides to small businesses, the agency also
plays a critical if less publicized role in assisting the victims of
natural and other disasters. Specifically, SBA provides financial
assistance through its Disaster Loan Program to help homeowners,
renters, and businesses of all sizes recover from disasters such as
earthquakes, hurricanes, and terrorist attacks. In 2005 and 2006, SBA
faced unprecedented demand for its disaster loan assistance services in
the wake of Hurricanes Katrina (which made landfall in late August
2005), Rita, and Wilma, which battered the U.S. Gulf Coast region. The
Gulf Coast hurricanes caused more than $80 billion in estimated insured
and uninsured property damages and over 1,400 deaths.[Footnote 1] Nine
months following Hurricane Katrina, SBA had approved more than 148,700
disaster assistance loans totaling $9.7 billion to individuals and
businesses that suffered losses from the Gulf Coast hurricanes.
However, Congress and press reports expressed concerns that SBA's
response to the hurricanes was slow, leaving many disaster victims
without the timely assistance that they needed. In fact, as we
previously reported, as of late May 2006, SBA took, on average, about
74 days to process disaster loan applications as compared with the
agency's goal of processing all disaster loan applications within 21
days.[Footnote 2]
In July 2006, we reported, that while the unprecedented volume of
disaster loan applications contributed substantially to the challenges
that the agency faced in providing disaster relief on a timely basis,
limited information technology planning also played a significant
role.[Footnote 3] In particular, we concluded that SBA had not fully
planned for the implementation of its new disaster loan processing
system--the Disaster Credit Management System (DCMS), which the agency
implemented in January 2005. For example, SBA planning was limited for
the maximum number of staff that would need to concurrently use DCMS
during a disaster situation. In planning for the maximum user capacity
of DCMS, we found that SBA relied on data on the volume of disaster
loan applications it had received from victims of the most severe
disaster in the agency's experience--the Northridge, California,
earthquake of 1994--and other agency historical data. If SBA had
considered information available from disaster simulations and risk
modeling firms (particularly potentially more severe disaster scenarios
than the Northridge earthquake), we concluded that the agency may have
acquired additional capacity for DMCS that would have allowed it to
process Gulf Coast hurricane-related applications on a timelier
basis.[Footnote 4] We recommended, among other things, that SBA
reassess DCMS's maximum user capacity based on lessons learned from the
Gulf Coast hurricanes and information from catastrophe risk modeling
firms, among other sources. Although SBA took issue with some of our
analysis that supported this recommendation, the agency generally
agreed to implement it.
We have prepared this second report under the Comptroller General's
authority to conduct evaluations on his own initiative as part of a
continuing effort to assist Congress in reviewing how SBA's
preparedness for future disasters can be enhanced. This report
generally focuses on SBA's disaster planning and preparations prior to
the Gulf Coast hurricanes for logistical areas other than DCMS, such as
hiring of additional staff necessary to process applications in large
disaster situations, space acquisition, obtaining telecommunication and
other necessary technologies, and efforts to inform disaster victims of
the agency's relevant loan programs. Specifically, our objectives were
to (1) assess SBA's logistical planning efforts prior to the Gulf Coast
hurricanes and current disaster planning efforts and (2) discuss
outreach efforts that SBA provided to Gulf Coast hurricane victims.
To address the first objective, we reviewed our previous reports and
reports from other organizations that have investigated the federal
response to the Gulf Coast hurricanes, including the Association of
Contingency Planners and the Office of Inspector General of the
Department of Homeland Security.[Footnote 5] We also interviewed
disaster management experts, SBA officials in headquarters and agency
field offices, and state officials in Mississippi and Louisiana.
Further, we reviewed SBA documents that pertain to the agency's
disaster planning process. For the second objective, we reviewed SBA
documentation that describes the agency's outreach efforts during the
Gulf Coast hurricanes and discussed these outreach efforts with SBA
officials. Further, we discussed SBA's current plans to evaluate its
disaster outreach program with agency officials. Appendix I explains
our objectives, scope and methodology in greater detail.
We conducted our work in Washington, D.C., at SBA's headquarters and at
agency field offices that played a role in the agency's response to the
Gulf Coast hurricanes, including the disaster loan processing center in
Ft. Worth, Texas, the satellite loan processing facility in Sacramento,
California, the disaster loan customer service call center in Buffalo,
N.Y., and the Atlanta field office, which along with the Sacramento
office, is responsible for disaster services outreach, among other
duties. Additionally, we visited the DCMS operations center in
Virginia, and SBA's Georgia District Office. We also visited state and
local disaster response offices in Louisiana and Mississippi. Our work
was conducted from November 2005 to January 2007 in accordance with
generally accepted government auditing standards.
Results in Brief:
SBA engaged in limited logistical disaster planning prior to the Gulf
Coast hurricanes, which, in retrospect, likely contributed to the
initial challenges that the agency faced in processing the related
surge in disaster loan applications on a timely basis. Our reports,
including the report on SBA's limited planning for the implementation
of DCMS, other investigative reports, and disaster management experts
have stated that comprehensive planning, to include detailed staffing
plans, and the supplementary use of sophisticated techniques as
appropriate (e.g., using the results of disaster simulations and
catastrophe models), can help organizations better prepare for
potential disasters and thereby mitigate their effects. However, SBA
did not engage in or complete comprehensive disaster plans prior to the
Gulf Coast hurricanes, in part due to the view by headquarters
officials that such centralized planning yielded limited benefits and
that local agency officials were in the best position to estimate
logistical requirements. While SBA had developed some estimates of
staffing and other logistical requirements, it largely relied on the
expertise of agency staff and previous disaster experiences (none of
which reached the magnitude of the Gulf Coast hurricanes) in doing so
and had not leveraged other resources, including the results of
disaster simulations or catastrophe models. As a result, available
evidence suggests that SBA could have been better positioned to provide
initial disaster assistance to Gulf Coast hurricane victims in an
organized and efficient manner as described below:
* SBA faced challenges in establishing a workforce to process the surge
in disaster loan applications, which could potentially have been
mitigated through better planning. For example, during the immediate
aftermath of Hurricane Katrina, SBA had to move urgently to hire more
than 2,000 temporary staff, largely through newspaper and other
advertisements, at its Ft. Worth disaster loan processing center, which
previously had a permanent and temporary staff of about 325 on board
including 40 supervisors. SBA officials said that ensuring the training
and supervision of this large influx of temporary staff proved very
difficult. Prior to the Gulf Coast hurricanes, SBA had not taken steps
to help ensure the availability of additional trained and experienced
staff such as (1) cross-training agency staff not normally involved in
disaster assistance to provide backup support or (2) maintaining the
status of a reserve of potential temporary employees trained in the
agency's disaster policies and systems (SBA officials said that the
disaster reserve corps had shrunk from about 600 individuals in 2001 to
less than 100 in August 2005).[Footnote 6]
* SBA had not thoroughly planned for the office space requirements that
would be necessary in a disaster the size of the Gulf Coast hurricanes.
For example, SBA only had the capacity to house about 500 employees at
its facility in Ft. Worth, so it had to identify another facility in
the city after Hurricane Katrina made landfall (which had not been
configured with technology to meet the agency's needs) with the
assistance of the General Services Administration (GSA) to house the
remaining approximately 2,000 employees.[Footnote 7] Fortunately, SBA
was also able to quickly reestablish its satellite loan processing
facility in Sacramento, which was in the process of being closed under
an agency reorganization initiative, to help to reduce the application
backlog.[Footnote 8]
In the wake of the Gulf Coast hurricanes, SBA officials said that they
recognized the importance of enhanced disaster planning and have
planned or implemented several measures to better prepare for and
respond to potential disasters. For example, SBA officials said the
agency is developing enhanced systems, largely based on previous agency
experiences including the Gulf Coast hurricanes, to estimate staffing
and other logistical requirements when particular disasters occur. SBA
is also developing procedures to help ensure additional experienced and
trained staff are available to respond to a disaster, which include
cross-training other agency staff, reestablishing the disaster reserve
corps, and reaching agreements with private lenders to provide disaster
loan processing capacity. Additionally, SBA has significantly revised
its approach for disbursing approved disaster loans, which agency
officials said substantially reduced the disbursement backlog
associated with Gulf Coast hurricane-related applications and should be
similarly effective in future catastrophes.[Footnote 9] However, we
have also identified several apparent limitations in SBA' disaster
planning process, including that the agency has not: (1) established a
time frame for implementing key elements of its disaster management
plan such as cross-training other SBA staff to provide backup support,
(2) assessed whether the agency's disaster planning process could
benefit from the supplemental use of available resources--such as the
results of disaster simulations or catastrophe models--to help develop
estimates of its logistical requirements under varying disaster
scenarios (particularly worse case scenarios), and (3) developed a long-
term strategy to help ensure its capacity to obtain suitable office
space in a disaster situation.[Footnote 10]
SBA took a variety of steps under trying conditions to inform victims
of the Gulf Coast hurricanes of the agency's assistance programs, but
several factors may have limited their effectiveness. SBA staff members
reached out to disaster victims (many of whom had relocated to other
parts of the country) by speaking at about 600 organized events,
advertising through the media, staffing disaster recovery centers, and
making follow-up phone calls. However, SBA officials said that
informing and educating the public about the agency's disaster services
can be challenging because (1) it is not normally associated with
providing such services and (2) the federal government's disaster
relief programs are complex (e.g., both SBA and the Federal Emergency
Management Agency [FEMA] provide financial assistance to disaster
victims). Further, due to the extent of the disasters, SBA lacked the
resources necessary to comply with an informal agency policy of
conducting follow-up phone calls with all disaster victims to whom they
mailed loan applications and, therefore, could not reach approximately
800,000 individuals.[Footnote 11] According to SBA officials, the
agency has initiated an internal review of the outreach that it
provided to victims of the Gulf Coast hurricanes and is developing a
plan to better provide such outreach in future disasters.
To help ensure that SBA is better prepared to provide critical
assistance to victims of future disasters, this report recommends,
among other steps, that the agency (1) establish a time frame for
completing key elements of its disaster management plan and a long-term
strategy to help ensure its capacity to obtain suitable office space
and (2) assess whether available resources--such as the results of
disaster simulations or catastrophe models--could enhance its disaster
planning efforts.
We provided a draft of this report to SBA for its review and comment.
In its written responses, SBA described a number of measures that the
agency has initiated to better respond to a future disaster. SBA also
agreed to implement the recommendations in the report, including (1)
establishing time frames for completing key disaster planning
initiatives and (2) assessing whether available disaster simulations
and external catastrophe models could enhance the agency's disaster
planning process. Additionally, SBA officials said the agency has taken
steps to help ensure the availability of additional office space
configured to meet its requirements in a future disaster.
Background:
The Gulf Coast hurricanes formed a catastrophe that was one of the most
devastating natural disasters in U.S. history. In August 2005,
Hurricane Katrina struck first on the East Coast of Florida before
hitting the northern Gulf Coast region, including Louisiana and Texas,
resulting in a substantial loss of life and widespread devastation. The
storm also caused substantial damage in the Florida panhandle, Georgia,
and Alabama. In September 2005, Hurricane Rita caused substantial
devastation and deaths near the Texas and Louisiana border. In October
2005, Hurricane Wilma made landfall in Florida, and also caused
fatalities and created a significant amount of damage and destruction
there.
The federal government provides funding and assistance to individuals
and businesses after disasters, primarily through FEMA and SBA. FEMA is
responsible for coordinating response and recovery efforts under
presidential disaster declarations. FEMA works with other federal,
state, and local agencies to assist victims after major disasters, and
volunteer organizations such as the American Red Cross also participate
in these efforts. Following a presidential disaster declaration, FEMA
will open Disaster Recovery Centers where disaster victims can meet
with representatives, obtain information about the recovery process,
and register for federal disaster assistance. Victims may also register
with FEMA by telephone or via FEMA's Internet site. FEMA provides
housing assistance to disaster victims through the Individuals and
Households Program (IHP).[Footnote 12] Under the IHP, FEMA can make
grants available to repair or replace housing damaged in a disaster
that is not covered by insurance. However, the IHP is a minimal repair
program that is designed to make the victim's home habitable and
functional, not to restore the home to its predisaster condition. When
disaster victims register for FEMA assistance, they are asked to
provide their approximate household income. If the applicant's income
exceeds certain thresholds, FEMA automatically refers them to SBA's
Disaster Loan Program.[Footnote 13]
SBA's Disaster Loan Program is the primary federal program for funding
long-range recovery for private sector, nonfarm disaster victims and
the only form of SBA assistance not limited to small businesses. The
Small Business Act authorizes SBA to make available the following two
types of disaster loans:
* Physical disaster loans--These loans are for permanent rebuilding and
replacement of uninsured or underinsured disaster-damaged property.
They are available to homeowners, renters, businesses of all sizes, and
nonprofit organizations. These loans are intended to repair or replace
the disaster victims' damaged property to its predisaster condition.
* Economic injury disaster loans--These loans provide small businesses
with necessary working capital until normal operations resume after a
disaster declaration. They cover operating expenses the business could
have paid had the disaster not occurred. The act restricts economic
injury disaster loans to small businesses only.
A key element of SBA's loan program is that the disaster victim must
have repayment ability before a loan can be approved. If SBA determines
that a victim cannot afford a loan, SBA will automatically refer the
individual back to FEMA where they may be eligible for other grant
assistance. FEMA may be able to provide funds for "other than housing"
needs, however, this additional help is not available to
businesses.[Footnote 14] FEMA's additional help is intended to meet
necessary expenses and serious needs not met by any other form of help,
including insurance and SBA disaster loans.
In 2004, SBA began a process to realign its Office of Disaster
Assistance's organizational structure (referred to as "workforce
transformation") that was designed to allow the agency to better
provide disaster assistance, leverage technology such as DCMS, and
reduce operating costs. Previously, SBA maintained four area offices
nationwide that generally operated independently of one another. For
example, each area office had its own customer service duties and loan
processing functions, and provided administrative support within a
geographic area. As a result of its transformation effort, SBA
centralized its Disaster Loan Program's customer service function in
its Buffalo office and its loan processing function in its Ft. Worth
office. Additionally, SBA established two field operations centers in
both Sacramento and Atlanta that are responsible for all disaster field
operations, public information, and congressional relations functions.
The centers also provide space for SBA's Field Inspection Team, which
conducts property inspections in order to verify loan applicants'
losses. SBA collocated its administrative and personnel support center
in Herndon, Va., with the DCMS operations center. Figure 1 shows SBA's
revised structure as of June 2006.
Figure 1: SBA's Realigned Disaster Loan Operation as of June 1, 2006:
[See PDF for image]
Sources: GAO, based on SBA's Workforce Transformation Blueprint (data);
MapArt (map).
[End of figure]
Prior to Hurricane Katrina, SBA's Office of Disaster Assistance had a
staff of approximately 800 individuals, including about 350 to 400
permanent staff and about 400 temporary staff (who had generally been
hired to process disaster loan applications associated with the four
hurricanes that struck Florida in 2004). However, due to the volume of
disaster loan applications associated with the Gulf Coast hurricanes,
SBA had increased the size of its disaster loan staff to more than
4,300 employees by January 2006, primarily through hiring temporary
employees. SBA largely hired these temporary employees through
advertisements in newspapers and on local radio stations.
SBA's Limited Planning Likely Contributed to Initial Delays in
Processing Gulf Coast Hurricane Disaster Loan Applications, and
Announced Disaster Planning Improvements Also Have Potential
Limitations:
Our previous reports and reports of others as well as disaster experts
have stated that advance contingency planning is a crucial element in
helping organizations function and respond to large-scale disasters.
However, we found that prior to the Gulf Coast hurricanes, SBA had
generally not engaged in such comprehensive planning efforts in either
headquarters or in field offices. SBA had not (1) taken practical steps
to help ensure that there would be additional trained and experienced
staff available to process applications, (2) established plans to
secure additional office space configured to meet the needs of the
agency, and (3) established adequate telecommunications support for the
customer call center in Buffalo. While SBA partnered with GSA on an ad
hoc basis to help address these challenges, in some cases it was
fortunate to obtain the necessary logistical capacity. In the wake of
the Gulf Coast hurricanes, SBA officials said that they had initiated
steps to better plan and prepare for potential disasters, including
developing more advanced disaster forecasting techniques and
establishing measures to help ensure the availability of additional
trained and experienced staff. SBA has also taken steps to expedite the
process for disbursing approved disaster loans. However, SBA's planning
approach appears to be limited in that the agency has not established a
time frame for completing key aspects of its comprehensive disaster
management plan, such as cross-training other agency staff to provide
backup support in a disaster and has not assessed whether it could
leverage outside resources--such as the results of disaster simulations
or catastrophe models--to enhance its disaster planning processes.
Further, SBA has not developed a strategy to help strengthen its long-
term ability to obtain suitable office space in the event of a major
disaster.
Various Sources Cite Planning as a Critical Element in Helping
Organizations Prepare for Potential Large-Scale Disasters:
As we have stated in a previous report and in testimony, the ability of
the United States to prepare for, respond to, and recover from
catastrophic disasters can be enhanced through strong advance
contingency planning, both within and among organizations responsible
for responding to such disasters.[Footnote 15] Our work has also
identified instances where advance planning allowed federal agencies to
respond effectively to the Gulf Coast hurricanes.[Footnote 16] For
example, we found that the Coast Guard, Social Security Administration,
and the National Finance Center were able to continue their services to
Gulf Coast disaster victims with minimal interruptions because of their
disaster planning initiatives.[Footnote 17] In contrast, our work
identified other federal agencies, which did not engage in
comprehensive planning prior to the Gulf Coast hurricanes, and thereby
faced significant challenges in fulfilling their disaster response and
recovery obligations.[Footnote 18] For example, as discussed
previously, our July 2006 report found that SBA's limited information
technology planning prior to the Gulf Coast hurricanes negatively
affected the agency's capacity to process disaster loan
applications.[Footnote 19] SBA based its information technology
processing requirements primarily on the Northridge earthquake
experience of 1994, which was the largest disaster that the agency had
previously experienced, and did not evaluate the consequences of other
potentially more severe disaster scenarios that were available from
existing disaster simulations or catastrophe risk model
results.[Footnote 20] For example, SBA did not take part in the
Hurricane Pam disaster simulation, which FEMA organized in 2004 to help
prepare for a hurricane striking New Orleans.[Footnote 21] In an
earlier report, we found that a lack of advance planning at all levels
of government hindered response and recovery efforts to Hurricane
Andrew, which struck South Florida in 1992.[Footnote 22]
In addition to findings from our previous studies, other studies have
concluded that a lack of contingency planning can affect an
organization's ability to carry out its mission and meet program goals
at the time of a major disaster, and that there is no substitute for
thorough preparation.[Footnote 23] Thus, these reports, such as
Department of Homeland Security studies, congressional and White House
reports, as well as private studies all identified the necessity for
conducting rigorous planning. For example, a study by the Association
of Contingency Planners (ACP) emphasized the need for organizations to
formally train their staff in disaster planning and engage in thorough
disaster simulations, particularly worst case scenarios, to help ensure
adequate preparation. In addition, the Department of Homeland Security
Inspector General reported, in March 2006, that FEMA lacked final plans
that specifically addressed the types of challenges the agency could be
expected to face in catastrophic circumstances. The Inspector General
recommended that FEMA develop a comprehensive plan to aid in responding
to potential disasters.
Disaster experts we interviewed agreed that sound planning can help
organizations--such as federal agencies--prepare for potential
disasters. The experts said that the failure to have an established
plan can negatively affect an agency's response and recovery efforts.
Additionally, the experts said that the failure to establish a plan
requires agencies to relearn experiences from one disaster to the next,
thereby further slowing agency recovery efforts. One expert stated
that, to provide for an effective agency response to a disaster, a
comprehensive plan should address, to a certain extent, components of
command, operations, logistics, finance, and administrative needs. For
example, the expert said that the logistical component should entail a
detailed staffing plan to help ensure an organization's ability to
fulfill its mission at the time of a major catastrophe. The individual
noted that most organizations, including federal agencies, did not have
staffing plans in place at the time of the Gulf Coast hurricanes.
However, the experts cautioned that an agency's disaster contingency
plan must be a flexible blueprint that can respond to changing
circumstances and disaster scenarios. In estimating the potential
consequences of varying disaster scenarios, another expert advised that
organizations could benefit from the further use catastrophe models,
given that such technology has been available for about 20 years.
SBA Did Not Engage in Comprehensive Disaster Planning Prior to Gulf
Coast Hurricanes:
As was the case with SBA's limited planning efforts for the
implementation of DCMS, the agency also did not engage in comprehensive
disaster planning for other logistical areas prior to the Gulf Coast
hurricanes. For example, SBA had not completed a formal, centralized
staffing plan to help manage the surge in disaster loan applications
that could be anticipated under various disaster scenarios. SBA
headquarters officials said that they had not developed agency wide
disaster planning guidance due to their view that field office staff
were in a better position to plan their response in the event of a
crisis. That is, the SBA headquarters staff said that agency field
office staff had a vast level of knowledge and experience that allowed
them to establish plans for a range of potential disaster scenarios and
that, given the uncertainty of disaster scenarios, centralized advance
planning would likely yield limited benefits. SBA management said they
considered this decentralized approach as appropriate and viewed
headquarters' role as being more of a resource that the field offices
could rely on for policy and high-level strategic guidance. However, at
the time of the Gulf Coast hurricanes, SBA field offices had not
completed written plans to guide their efforts in the event of a
disaster. One field office official said, while SBA headquarters
encouraged field offices to establish written disaster plans, field
offices were not required to do so. While SBA had not engaged in
comprehensive contingency planning, the agency had projected various
logistical requirements during a disaster largely based on the
expertise of its staff and experiences in responding to previous
disasters (none of which reached the magnitude of destruction of the
Gulf Coast hurricanes, as discussed earlier). SBA officials said that
they did not use other information--such as the results of disaster
simulations or catastrophe models--in developing their logistical
projections.
SBA Faced Logistical Challenges during its Initial Response to Gulf
Coast Hurricanes:
We recognize that even if SBA had engaged in comprehensive planning
prior to the Gulf Coast hurricanes, it likely would have encountered
logistical challenges (staffing, space acquisition, and technological
support) in providing timely disaster assistance due to the volume of
loan applications, including erroneous applications.[Footnote 24]
However, information obtained during the course of our review indicates
that SBA's limited disaster planning process, including the lack of a
written plan for staffing requirements associated with surges in loan
applications under varying disaster scenarios, further impeded the
efficiency of the agency's response. For example, officials at SBA's
Ft. Worth disaster loan processing center said that they developed
staffing requirements as Hurricane Katrina struck the Gulf Coast and in
its immediate aftermath. The officials said they initially estimated
that the hurricane would require enough staff to process 150,000 to
200,000 loan applications, but they doubled the staffing estimate after
the levees in New Orleans failed, based on reports from the media,
FEMA, and SBA loss verification teams.[Footnote 25] During the
immediate aftermath of Hurricane Katrina, SBA had to move urgently to
hire more than 2,000 staff by January 2006 at the Ft. Worth center,
which previously had a permanent and temporary staff of about 325 on
board including 40 supervisors (see fig. 2).[Footnote 26] SBA officials
said that most of the individuals hired to work in the Ft. Worth center
were temporary employees who received notice of the job opportunities
through SBA advertisements in newspapers and other media
outlets.[Footnote 27] Additionally, the SBA officials said that
ensuring the appropriate training and supervision in hiring such a
large number of inexperienced staff proved challenging.
Figure 2: SBA Ft. Worth Loan Processing Staffing Levels:
[See PDF for image]
Sources: GAO, based on information provided by SBA. The figure
represents approximate SBA staffing levels at particular points in time
rather than hiring data by month.
[End of figure]
Moreover, in preparing for potential disasters, SBA did not take
practical steps to help ensure the availability of additional trained
and experienced staff as described below:
* SBA did not have a system for "cross-training" its staff so that
individuals not normally associated with disaster assistance could help
out in the case of an emergency. With such cross-training, SBA could
have potentially quickly leveraged the expertise of loan officers who
are normally involved in the agency's other small business lending
programs to help process disaster loan applications. We note that,
subsequent to Hurricane Katrina's landfall, SBA's former Administrator
directed some of the agency's district offices to request that staff
not normally involved in disaster assistance volunteer to process
disaster loans. However, SBA officials at one district office we
visited said that staff who volunteered to processes disaster loans
lacked access to the agency's loan processing system--DCMS--and,
consequently, this presented further challenges in their ability to
process disaster loan applications in a timely manner. For example,
without access to DCMS, the district staff needed to take additional
time to contact SBA's Ft. Worth disaster loan processing center to
verify data and other information contained in disaster applications.
Moreover, the Ft. Worth staff, as mentioned in our previous report, had
to engage in a labor-intensive process of shipping files to the
district office and manually inputting information into DCMS because
the district office staff lacked access to the system.
* SBA did not maintain the status of a reserve group of potential
voluntary employees with expertise in the agency's disaster assistance
programs. According to an SBA official, in approximately 2001, the
agency had in place a disaster reserve corps of about 600 individuals,
who had a background in areas such as finance, accounting, property
inspections, and customer service who could be asked to volunteer as
temporary employees in the event of a crisis. SBA officials said that
the agency's disaster reserve corps includes retirees and students who
must be willing to locate within 48 hours of notification that their
services are required to assist in an emergency. As discussed in our
2003 report, SBA officials believed that the disaster reserve corps
facilitated the agency's capacity to process the surge in disaster loan
applications associated with the September 11, 2001, terrorist
attacks.[Footnote 28] However, SBA officials said that the agency did
not subsequently maintain the status of the disaster reserve corps
afterwards, and after the terrorist attacks, it largely dissolved.
While an official said that SBA was in the process of rebuilding the
corps when Hurricane Katrina struck, a senior agency official said the
corps had fewer than 100 individuals at that time.
Moreover, SBA did not have adequate plans in place to help ensure that
it had adequate office space to house its expanded workforce--
particularly in the Ft. Worth and Buffalo offices--or
telecommunications support in Buffalo. While SBA partnered with GSA on
an ad hoc basis to address its logistical challenges after Hurricane
Katrina made landfall, in some cases, the agency was fortunate to
quickly obtain the needed capacity. The following provides specific
information regarding SBA's Ft. Worth and Buffalo offices at the time
of and after the Gulf Coast hurricanes:
* At the Ft. Worth office, SBA did not initially have adequate space to
accommodate the more than 2,000 employees that were hired to process
disaster loans or an established plan to acquire such space (e.g., the
Ft. Worth center could only accommodate 500 out of the 2,700 staff that
were ultimately employed, by September 2006, to process Gulf Coast
hurricane-related disaster loan applications). In September 2005, SBA
worked with GSA on an ad hoc basis in an effort to locate additional
space for the newly hired staff and was able to identify available
offices near its existing facility. However, SBA officials said that
the newly acquired space was not configured to serve as a disaster loan
processing center, so the agency had to upgrade the space to
accommodate its needs. Even so, we note that SBA still lacked
sufficient capacity in Ft. Worth to process the growing backlog of
disaster loan applications. To address this challenge, SBA was also
able to reestablish the loan processing function at its Sacramento
office, which had previously been discontinued as a result of its
workforce transformation initiative. The Sacramento office space was
available shortly after Hurricane Katrina struck because the lease had
not yet expired. SBA established a workforce of approximately 250
individuals at the Sacramento office, and the office played a
significant role in reducing the backlog of Gulf Coast hurricane
disaster loan applications.[Footnote 29] In June 2006, SBA also leased
a 60,000 square foot facility in Ft. Worth, which, upon acquisition,
was configured to meet the agency's needs to house the staff that are
processing disaster loans associated with the Gulf Coast hurricanes,
according to officials.
* SBA's Buffalo office did not initially have sufficient space to serve
as a customer call center in a catastrophic disaster situation. In June
2005, SBA closed a loan processing facility in Niagara Falls, New York,
and opened a facility in Buffalo, with the intention of it becoming the
agency's customer service center (i.e., call center) at a later date.
While SBA provided us with planning documents that recognized that the
Buffalo office lacked sufficient space in order to expand during an
emergency, the agency did not develop a contingency plan to guide its
efforts in identifying suitable space to accommodate an expanded
workforce if a major disaster occurred. As was the case in Ft. Worth,
SBA collaborated with GSA on an ad hoc basis after Hurricane Katrina
and was able to locate nearby available space in a federal office
building.[Footnote 30]
* Further, SBA faced challenges due to limited support for the
telecommunications system at its disaster loan customer service call
center in Buffalo. According to SBA field managers, while the customer
service call center's telephone system processed calls as required,
vendor service and support for the system were inadequate. An SBA
official said that there was only one vendor in the Buffalo region that
services the type of phone system that the agency uses. The SBA
official said that limited support and maintenance for the agency's
phone system impacted the agency's ability to be able to efficiently
respond to inquiries from disaster loan applicants. Further, an SBA
official said that the phone system was not designed to interface with
other key agency systems, which also affected the center's operations.
For example, due to limitations in the phone system's design, SBA
customer service managers were forced to manually track and tally
critical information necessary to effectively manage the center, such
as the number of inbound/outbound calls received in a given time
period. According to an SBA field official, this information is
necessary in order for the office's workforce manager to accurately
forecast staffing needs, but tracking this data manually is time
consuming and inefficient. SBA officials said that they have initiated
a review of the Buffalo phone system and are considering options to
upgrade it.
SBA Has Initiated Measures to Better Prepare for Potential Disasters
but Has Not Established Time Frames for Plan Completion or Leveraged
Available Disaster Planning Resources:
In the wake of the Gulf Coast hurricanes, SBA officials said that they
recognized the importance of further enhancing their disaster planning
and have developed a master plan and initiated measures based on
"lessons learned" from the experience. In particular, SBA convened a
Disaster Oversight Council composed of senior agency leadership, to
better leverage the resources of the agency as a whole, and incorporate
new ideas and best practices into the agency's preparedness capability.
In September 2006, SBA also appointed a single individual to coordinate
the agency's disaster preparedness planning and coordination efforts.
Further, SBA officials said that the agency is taking steps to address
limitations that existed in its disaster planning prior to the Gulf
Coast hurricanes and weaknesses in disbursing approved disaster loan
applications as follows:
* Developing enhanced disaster forecasting and response capabilities.
SBA officials said that the agency is developing automated models to
better estimate loan application volumes when disasters strike. The
officials said that these models are based on data from the agency's
experiences in responding to previous disasters, including the Gulf
Coast hurricanes. The officials said that the models allow the agency,
for example, to estimate the number of loan applications that can be
expected under varying disaster scenarios. Officials said that the
models' estimates can be refined, after disasters occur, based on
information provided by FEMA and SBA loss verification teams. SBA
officials also said that they are developing the capacity to better
estimate resource requirements---such as staffing requirements---to
better respond to potential disaster scenarios. Additionally, SBA
stated that DMCS has been tested and verified to support a minimum of
8,000 concurrent users (the agency maintained a workforce of about
4,300 at its peak in January 2006 to respond to the Gulf Coast
hurricanes). SBA stated that it continues to explore the best means of
upgrading DCMS' capacity.
* Ensuring additional trained and experienced staff in the event of a
disaster. SBA officials said that the agency is developing a plan to
cross-train staff agencywide to provide disaster loan assistance. They
also said SBA is planning to develop partnerships with private sector
lenders who could assist SBA with loan processing and loan closing
activities in the event of a major disaster. Additionally, SBA
officials said that the agency has reestablished a disaster reserve
corps of about 750 individuals, the majority of whom have been trained
in the agency's policies and systems. An SBA official added that the
agency plans to ensure that corps members will be able to quickly
obtain government identification and credit cards to help ensure their
immediate availability in the event of a disaster. However, SBA
officials said that maintaining the status of the corps may prove
challenging over the longer term if their services are not required for
long periods. The officials said it can be difficult to ensure the
training of potential volunteers or their continued availability.
* Acquiring office space to provide additional capacity. SBA officials
said that the agency has acquired additional facilities to house its
disaster assistance staff. As described previously, for example, SBA
officials said that, in June 2006, they leased a third facility in Ft.
Worth with 60,000 square feet of space that has been configured to
serve as a disaster loan processing center (this facility has a 2-year
lease). However, SBA officials said that there are trade-offs
associated with maintaining such space over the longer term. A senior
SBA official also said that, if the space is ultimately no longer
required to process Gulf Coast hurricane-related loan applications, SBA
would be required to incur lease costs at a time when funding for
federal agency operations is limited.
* Revising the existing approach to processing disaster loan
applications to help ensure expedited fund disbursements. According to
senior SBA officials, in July 2006, they reviewed the agency's approach
to disbursing approved Gulf Coast hurricane disaster loan applications
and found that inefficiencies in the process were contributing to
substantial disbursement delays.[Footnote 31] Senior SBA officials said
that the previous loan disbursement approach was an "assembly-line"
type process wherein loan applications moved from one stage to another
(e.g., from loss verification to the legal department) and that
mistakes or delays in any one stage could result in significant
disbursement backlogs. Further, SBA officials said that the previous
approach lacked accountability and made it difficult for applicants to
find the status of their application or to obtain consistent
information from the agency. Subsequently, SBA officials said that they
have instituted a "case-manager" model in which each loan application
is assigned to a case manager to ensure accountability, and the loan
review units use in a team-oriented approach. According to SBA
officials, the revised approach reduced the backlog of disbursed loans
associated with the Gulf Coast hurricanes from about 93,000 in August
2006 to approximately 35,000 in November 2006.[Footnote 32] SBA
officials also said that the revised approach should allow the agency
to more efficiently disburse approved disaster loans in a future
catastrophe.
While SBA's announced changes address key limitations in its disaster
planning process and preparedness efforts prior to the Gulf Coast
hurricanes, agency officials have not established a time line for
completing key elements of the disaster management plan. SBA officials
explained that the planning process is ongoing and that they intend to
review and implement a variety of changes in the agency's Office of
Disaster Assistance in coming years. However, we note that several
elements of SBA's planning and preparedness process are discrete tasks
that lend themselves to the establishment of a time line for
completion. These elements include cross-training agency staff to
provide backup support for disaster assistance services and reaching
agreements with private sector lenders to process a surge in loan
applications associated with disasters. Without the establishment of
reasonable time frames for completing such planning and preparedness
elements, it is difficult for SBA management, Congress, the public, and
others to assess the progress of the agency's efforts to better prepare
for future disasters.
Moreover, until recently, SBA had not taken steps to assess whether it
could leverage outside resources to enhance its disaster planning and
preparation efforts. SBA officials said that they had contacted other
organizations, including FEMA, the National Weather Service, and the
U.S. Geological Survey, in developing the agency's enhanced model for
forecasting loan application volumes when disasters strike. However, as
discussed previously, SBA officials said that they were largely relying
on the agency's previous disaster experiences in enhancing their
forecasting capacity, which is similar to the agency's disaster
planning approach prior to the Gulf Coast hurricanes. SBA officials
said that they had not used other outside resources, such as the
results of disaster simulations or catastrophe models, in the disaster
planning process. A senior SBA official said that the agency has not
determined how catastrophe models could be incorporated into its
planning process, given the differences that exist between the
insurance sector and SBA's Disaster Loan Program. For example, the
official noted that insurers use the models to limit their financial
losses, due to hurricanes or earthquakes of varying severity, in
specific areas where they insure properties, whereas SBA covers
uninsured homes and businesses on a nationwide basis. While we
recognize these differences, as discussed in our report on SBA's
implementation of DCMS, the results of disaster simulations or
catastrophe models could provide SBA with additional insight into
potential disaster loan application volumes, and related agency
logistical resource requirements, for particularly severe events that
potentially rival or surpass the scope of disasters that the agency has
previously encountered, including the Gulf Coast hurricanes.[Footnote
33]
In December 2006, SBA took initial steps to assess whether an available
catastrophe model could help enhance its disaster planning efforts. SBA
contacted FEMA regarding a catastrophe model that the agency has
developed, referred to as HAZUS, that is designed to help estimate the
damages associated with potential hurricanes, earthquakes, and floods,
as well as the potential financial losses associated with varying
disaster scenarios.[Footnote 34] SBA informed FEMA that the agency was
interested in exploring the use of HAZUS as part of its disaster
planning program. SBA requested that FEMA brief the agency's senior
managers on HAZUS, as well as the types of training on the system that
is available. It remains to be seen the extent to which SBA will decide
to incorporate the HAZUS system into its disaster planning efforts.
Finally, while we acknowledge that SBA would incur lease and other
costs associated with maintaining facilities in anticipation of
disasters, developing pragmatic strategies to help ensure the timely
acquisition of suitable space over the long-term should be a key
component of the agency's disaster contingency planning. Currently, SBA
has a substantial amount of office space leased in Ft. Worth, for
example, to complete the processing of Gulf Coast hurricane-related
disaster applications, and which agency officials said could be used if
another disaster occurs in the near term. However, if no such disaster
occurs, and SBA reduces its office space inventory in Ft. Worth over
the next several years to save costs, and the agency closes its
Sacramento satellite loan processing facility in fiscal year 2007 as
planned, the agency would lack adequate loan processing space to
respond to a future disaster the size of the Gulf Coast hurricanes or
larger. Under such a scenario, a repeat of the steps SBA took during
the Gulf Coast hurricanes (i.e., contacting GSA after Hurricane Katrina
made landfall) could similarly compromise the agency's capacity to
provide efficient and timely disaster services. Analyzing the cost-
effectiveness of obtaining and retaining certain office facilities over
the long-term could improve SBA's preparedness for future disasters.
SBA Utilized a Variety of Outreach Approaches during the Gulf Coast
Hurricanes, but Several Factors May Have Limited Their Effectiveness:
SBA took a number of steps, under trying conditions, to reach out to
Gulf Coast hurricane victims to provide information and assistance
regarding disaster recovery loan assistance services. For example, the
agency mobilized its staff members to reach out to victims by speaking
at organized events and by advertising in a variety of media including
the Internet. However, various factors (including the fact that many
people do not equate SBA with disaster assistance) may have limited the
effectiveness of the agency's efforts. For example, due to the number
and dislocation of the hurricane victims, the catastrophic damage
caused by the storms, and limited agency resources, SBA was not able to
comply with an informal policy of conducting follow-up calls with all
individuals who were mailed disaster assistance loan applications.
According to SBA officials, the agency has initiated a review of its
outreach to Gulf Coast hurricane victims and is developing a plan to
better provide such outreach in future disasters.
SBA's Outreach to Gulf Coast Hurricane Victims May Have Been Reduced by
the Complexity of Federal Disaster Assistance Programs and the Damage
Associated with the Hurricanes:
SBA officials told us that they took a variety of steps to explain the
agency's disaster assistance programs to the victims of the Gulf Coast
hurricanes. After Hurricane Katrina made landfall, officials from SBA's
field operations centers said they acted quickly to mobilize their
staff and sent them to the Gulf Coast region to begin assisting the
victims by providing information about their Disaster Loan Program.
These officials told us that staff members shared information about
SBA's Disaster Loan Program at meetings with various groups including
congressional offices, chambers of commerce, community-based
organizations, and local businesses. According to an SBA official,
staff members from one field operations center attended more than 600
of these meetings between October 1, 2005, and May 15, 2006. This
official said that the number of meetings they participated in was more
than were typically held, due to the increased needs of the hurricane
victims. SBA also provided information about its Disaster Loan Program
to Small Business Development Centers, as well as state and local
disaster management agencies.[Footnote 35] Further, SBA staff members
provided outreach at FEMA-established Disaster Recovery Centers where
they conducted initial interviews with disaster victims to determine
whether the victim and the damaged property were generally eligible for
the loan program and to explain the application forms and process. SBA
also established Business Recovery Centers to provide business owners
with information on how disaster loans could help them in financing
recovery from the hurricanes.
In addition, SBA advertised through various forms of media such as the
SBA Internet site, radio, television, and newspapers. Figure 3 shows an
example of a newspaper advertisement SBA placed following Hurricane
Katrina. SBA advertisements about its Disaster Loan Program are
intended to inform potential loan applicants where to obtain loan
applications and otherwise to assist victims in applying for disaster
loans. Following the Gulf Coast hurricanes, field operations center
staff members also posted informational flyers throughout the declared
disaster areas, according to SBA officials. An SBA official also told
us that many of these outreach activities were not just localized to
the declared disaster areas, but staff members also conducted these
activities in the cities where victims had relocated.
Figure 3: Example of an SBA Print Ad for Hurricane Katrina Victims:
[See PDF for image]
Source: SBA.
[End of figure]
However, SBA officials said that the agency's outreach efforts face
challenges even under normal (nondisaster) circumstances, which can
limit their effectiveness. For example, agency officials said that most
people tend to equate SBA with small business lending activities rather
than its disaster assistance programs. In a limited survey of 62 Gulf
Coast hurricane victims who filed SBA disaster loan applications, we
found that more than half reported not being aware of the agency's
disaster assistance program prior to August 2005.[Footnote 36]
Additionally, an SBA official said that the public tends to confuse
SBA's disaster assistance programs with those of FEMA. As noted
previously, this potential for confusion was heightened when, in the
wake of the Gulf Coast hurricanes, FEMA referred many disaster loan
applications to SBA even though such applications did not meet SBA's
creditworthiness standards. Furthermore, SBA's outreach efforts may
face substantial challenges when disasters of the magnitude of the Gulf
Coast hurricanes or greater strike. In such cases, millions of people
may be relocated throughout the United States, and widespread telephone
and electrical service disruptions may take place.
To illustrate the potential impact that a large-scale disaster can have
on SBA's outreach efforts, we note that the agency was not able to
comply with an informal policy requiring follow-up phone calls to all
individuals who did return disaster assistance loan applications after
the Gulf Coast hurricanes. While such phone calls are not mandatory,
SBA officials said that in previous disasters they had attempted to
contact 100 percent of all individuals who did not return applications
that had been mailed to them. The officials said that such follow-up
phone calls provided the agency with another opportunity to explain the
Disaster Assistance Loan Program and potentially assist victims. While
SBA mailed about 2 million disaster loan applications to victims of the
Gulf Coast hurricanes, it only received about 400,000 completed
applications in return.[Footnote 37] SBA officials said that the agency
made follow up phone calls to 800,000 individuals who did not return
the applications but was unable to contact the remaining
800,000.[Footnote 38] Although SBA officials said the agency makes it a
practice to make such follow up phone calls, it lacked the necessary
staff resources to do so and that contacting people who may be
relocated in such circumstances is highly challenging.
SBA Has Initiated an Internal Review of Outreach Provided to Victims of
the Gulf Coast Hurricanes:
According to SBA officials, the agency has initiated a follow-up
internal review of its outreach to victims of the Gulf Coast
hurricanes. An SBA official said that the agency is developing a plan
to strengthen its outreach communication and coordination and that this
plan will be submitted to the SBA Administrator in early 2007.
According to this official, SBA has consulted internal outreach staff
as well as federal disaster relief agencies, including FEMA, and local
agencies to conduct the evaluation of its outreach efforts.
Additionally, the SBA official said that the agency has created a
revised brochure to explain its disaster outreach services to the
public and that the SBA Administrator has held forums with the public
in the Gulf Coast region to explain the agency's assistance services.
Conclusions:
While the unprecedented volume of disaster loan applications clearly
affected SBA's capability to provide timely assistance to Gulf Coast
hurricane victims, the absence of a comprehensive and sophisticated
planning process beforehand also likely limited the efficiency of the
agency's initial response. SBA officials said that they recognize the
importance of better disaster planning and are in the process of
developing a disaster plan that is designed to addresses key
limitations in the agency's previous planning approach (e.g,
strengthening loan surge capacity through potential agreements with
private sector lenders and reestablishing the disaster reserve corps).
Additionally, according to SBA officials, the agency has significantly
revised its loan processing approach to reduce the backlog of approved,
but not disbursed, disaster loan applications associated with the Gulf
Coast hurricanes. SBA officials said that the revised approach should
allow the agency to more efficiently disburse approved disaster loans
in a future catastrophe. However, SBA has not established a time frame
for competing key elements of the disaster management plan such as
cross-training other agency staff to provide backup support, and has
not assessed whether the plan would benefit from the supplemental use
of available resources, such as the results of disaster simulations or
catastrophe models (although SBA did recently contact FEMA about using
its catastrophe model). Further, while we recognize that maintaining
unused office space would not be cost-effective, SBA has not developed
a long-term strategy to help ensure that it could acquire necessary and
suitable office space in an emergency. Consequently, SBA should take
additional steps to help ensure that it would be better prepared to
provide timely and effective assistance to the victims of a future
disaster.
Recommendations for Executive Action:
To better position SBA to prepare for and respond to potential
disasters, we recommend that the Administrator of SBA direct the Office
of Disaster Assistance to take the following two actions:
* develop time frames for completing key elements of the disaster
management plan and a long-term strategy for acquiring adequate office
space; and:
* direct staff involved in developing the disaster management plan to
further assess whether the use of disaster simulations or catastrophe
models would enhance the agency's disaster planning process.
Agency Comments and Our Evaluation:
We provided SBA with a draft of this report for review and comment. The
Associate Administrator for Disaster Assistance provided written
comments that are presented in appendix II. The agency also provided
technical comments, which we have incorporated as appropriate. In its
comments, SBA stated that the agency is better prepared to respond to
potential disasters as a result of the measures that have been
initiated since the Gulf Coast hurricanes. Additionally, SBA stated
that it agreed with the report's recommendations. Specifically, SBA
stated that the agency will (1) establish clear time-lines for
completing key disaster planning initiatives discussed in the report
and (2) assess the more extensive use of disaster simulations and
external catastrophe models to enhance its disaster planning process.
SBA also said that it had taken steps to help strengthen its capacity
to ensure the availability of adequate office space in the event of a
future disaster. In particular, SBA stated that it will retain 100,000
square feet of additional office space that it obtained in Ft. Worth
after Hurricane Katrina to process disaster loans. SBA said that the
additional space should allow the agency to respond to the initial
surge in loan applications of a future disaster while allowing time for
it to work with GSA to obtain additional space as needed. We contacted
SBA to obtain additional information about its space acquisition plans.
SBA officials said that the agency will retain a 60,000 square foot
facility in Ft. Worth that has been specifically configured to process
disaster loans and plan to expand it by another 40,000 square feet.
Further, the officials said that SBA will retain the facility for at
least 5 years (the facility originally had a 2-year lease) and may
retain it longer. We acknowledge that such an approach, if implemented,
is a step that is consistent with the development of a comprehensive
disaster management plan.
We are sending copies of this report to appropriate congressional
committees, the Administrator of the SBA, and other interested parties,
and we will also make copies available to others upon request. In
addition, the report will be available at no charge on the GAO Web site
at [Hyperlink, http://www.gao.gov].
If you are your staff have questions regarding this report, please
contact me at (202)512-8678 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix III.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
List of Congressional Addressees:
The Honorable Joseph I. Lieberman:
Chair:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable John F. Kerry:
Chair:
The Honorable Olympia J. Snowe:
Ranking Member:
Committee on Small Business and Entrepreneurship:
United States Senate:
The Honorable Richard J. Durbin:
Chair:
The Honorable Sam Brownback:
Ranking Minority Member:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
United States Senate:
The Honorable Barbara A. Mikulski:
Chair:
The Honorable Richard C. Shelby:
Ranking Member:
Subcommittee on Commerce, Justice and Science:
Committee on Appropriations:
United States Senate:
The Honorable Henry A. Waxman:
Chair:
The Honorable Tom Davis:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable Nydia M. Velazquez:
Chair:
The Honorable Steven J. Chabot:
Ranking Member:
Committee on Small Business:
House of Representatives:
The Honorable Jose E. Serrano:
Chair:
The Honorable Ralph Regula:
Ranking Minority Member:
Subcommittee on Financial Services:
Committee on Appropriations:
House of Representatives:
The Honorable Donald Manzullo:
House of Representatives:
The Honorable Dianne Feinstein:
United States Senate:
The Honorable Mary L. Landrieu:
United States Senate:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of this report were to (1) assess the Small Business
Administration's (SBA) logistical planning efforts prior to the Gulf
Coast hurricanes and current disaster planning efforts and (2) discuss
SBA's outreach efforts to Gulf Coast hurricane victims.
To address the first objective, we reviewed our previous studies
related to disaster planning as well as similar studies by other
organizations and available disaster simulation reports.[Footnote 39]
We also interviewed disaster experts to obtain their insight and views
on appropriate planning efforts and the aspects that a comprehensive
disaster plan should entail.[Footnote 40] Further, we reviewed relevant
SBA planning and other documentation including the agency's standard
operating procedures, internal policy memos, and the Office of Disaster
Assistance's 2003-2008 strategic plan. Moreover, we reviewed SBA
documentation regarding the agency's workforce transformation
initiative, which aided our assessment of the logistical challenges
that SBA encountered in its response to the Gulf Coast hurricanes.
These documents included an organizational impact study and a cost-
benefit analysis. We also interviewed officials from SBA's Office of
Disaster Assistance (ODA) in headquarters regarding the agency's
disaster planning initiatives both before and after the Gulf Coast
hurricanes. Additionally, we conducted site visits to each of SBA's
four disaster loan field offices to discuss the agency's disaster
planning initiatives.[Footnote 41] Finally, we visited the Gulf Coast
region and met with federal, state and local officials, as well as
disaster victims.
To address the second objective, we reviewed SBA's various methods and
techniques for informing and educating disaster victims about the
disaster loan program. Further, we reviewed the section of SBA's 2003-
2008 strategic plan that described the agency's goals and objectives
for promoting public awareness, which includes outreach. We also
interviewed officials in SBA's headquarters and the public information
officers in the Atlanta and Sacramento field offices to discuss the
agency's outreach efforts during the Gulf Coast hurricanes, as well as
current plans to evaluate such outreach efforts.
To obtain further insight into SBA's outreach efforts, we conducted a
limited structured telephone survey of 62 Gulf Coast hurricane victims
who had applied for an SBA disaster assistance loan. Using data from
its Disaster Credit Management System (DCMS), SBA provided us with a
list of the 414,289 loan applications, for either a home or business
physical disaster loan, or an economic injury disaster loan in response
to losses due to the Gulf Coast hurricanes. We selected a stratified
random sample of 400 loan applications based on the type of loan--
business and economic injury, home, and economic injury only--and loan
decision--approved, withdrawn, declined, or pending--in order to get
coverage across loan type and decision outcomes. We attempted to reach
168 loan applicants by phone and were able to contact and complete
telephone interviews with a total of 62 applicants. Of the 62
respondents to our survey, 46 were affected by Hurricane Katrina, 9 by
Hurricane Wilma, and 7 by Hurricane Rita. Of those, 28 had applied for
home loans, 22 had applied for economic injury and business loans, and
12 had applied for economic injury loans. At the time we surveyed the
applicants, SBA had approved loans for 24 of the applicants, declined
loans for 26 of the applicants, and had decisions pending for 6 of the
applicants. The other 6 applicants had either withdrawn their
applications or had their applications withdrawn by SBA.
From the survey, among other things, we obtained the loan applicants'
views on how and when they learned of the disaster loan program. In
developing the survey questions, we relied on SBA's 2003-2008 strategic
plan, strategic operation plans, SBA 2003-2005 customer satisfaction
surveys, and other information that SBA officials provided to us
through interviews as it related to our request. We pretested our
survey with five loan applicants who represented a mix of home,
business, and economic injury loans, as well as decisions that were
approved and withdrawn. We conducted analysis using the Statistical
Analysis System (SAS) version 9 with appropriate checks for missing
data and incorrect responses and deemed it to be sufficiently reliable
for the purpose of this report. Because of the small sample size, the
survey results are limited to those we spoke with but may also be
considered as indicative of how Gulf Coast victims might have
responded; however, results could not be projected to the entire
population.
We conducted our work in Washington, D.C; Sacramento, Calif; Atlanta,
Ga; Ft. Worth, Texas; Buffalo, N.Y; and in state and local offices in
Louisiana and Mississippi from November 2005 to January 2007, and in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Small Business Administration:
U.S. Small Business Administration:
Washington, D.C. 20416:
January 18, 2007:
William B. Shear:
Director:
Financial Markets and Community Investment:
United States Government Accountability Office:
441 G Street, N. W.
Washington, DC 20548:
Dear Mr. Shear:
We appreciate the opportunity to provide comments on the U.S. Small
Business Administration's (SBA) response to the catastrophic Hurricanes
Katrina, Rita, and Wilma in 2005 as articulated in the Government
Accountability Office's (GAO) draft report entitled Small Business
Administration, Agency's Response to Gulf Coast Hurricanes Highlights
Need to Enhance Preparedness for Future Disasters.
SBA agrees with the recommendations of the report and continues to make
important progress in addressing them, i.e. establishing clearer
timeframes and assessing the more extensive use of simulations. We
would like to emphasize the Agency's increased preparedness to provide
timely and effective assistance as a result of measures the Agency has
taken. This increased preparedness is enabled by improvements made to
our systems and processes, many of which were in direct response to
challenges in the Katrina, Rita, and Wilma Hurricanes. These measures
have already been tested through the SBA's accelerated processing of
outstanding loans as well as through its response to more recent
disasters.
SBA has completed a series of process improvements through
reengineering and technology initiatives that have improved service
delivery. Based on an aggressive use of management techniques in
executing the following improvements and-initiatives, we believe the
Agency is poised at a high level of preparedness:
* Upgraded System Capacity. To accommodate a larger workforce to
process loans, SBA has expanded the capacity of the Disaster Credit
Management System (DCMS) to support a minimum of 8,000 concurrent
users. This expansion represents a four-fold increase in capacity over
peak usage during the 2005 Gulf Coast Hurricanes. The system also
enables users to work remotely, thus expanding the geographic
alternatives for recruiting the workforce.
* Expedited Referrals to Grant Providers. Focusing on the need to
render more decisions in a timely and efficient manner, SBA is using
tools to enable it to refer applicants to grant providers much more
quickly, with less work for the applicant and a significantly reduced
processing burden for SBA. As a result, SBA not only processed a larger
amount of loans in a shorter period of time, but referred those
applicants determined ineligible for SBA disaster loans for possible
grant assistance much sooner. This improvement reduced the volume of
files pending a decision, minimized the aging of such files, and eased
the processing burden on DCMS.
* Operational Reengineering and Oversight. Based on a review of
customer feedback and internal performance indicators, SBA identified
multiple inefficiencies and quality issues in its processes. This
review led to a full redesign of its internal production and support
services operations by establishing integrated teams with case
managers, attorneys, loan experts, and other support staff working
together in a collaborative unit on cases assigned to each team. This
new process has yielded improved coordination and communication not
only with the disaster victims but also between employees. Integrated
teams accounted for faster response times, decreased error rates, and
improved customer service and support. Each applicant is assigned a
case manager who provides a personal one-on-one approach, assisting the
disaster victim in explaining the process, answering questions, and
clarifying outstanding issues which has resulted in less confusion, a
reduction in errors, and a minimization of duplicative or additional
work.
* Business Intelligence Tools. The expanded use of performance metrics
and reengineering tools significantly improves the ability of
management to establish clear timelines for initiatives, clarify
performance goals, recognize individual accountability, and provide
greater insight into the issues that we must address as they arise.
* Enhanced Disaster Workforce. SBA's Disaster Assistance capability
expands and contracts in size based on the level of disaster activity.
Prior to the Gulf Coast Hurricanes making landfall, SBA had about 800
employees on the payroll but quickly surged to over 4,300 employees in
response to these unprecedented storms. Today, SBA's Disaster Loan
Program has roughly 2,700 employees across all key functions.
Recognizing the benefits and effectiveness of the ability to
immediately supplement its workforce, the Agency expanded its Disaster
Reserve Corps. Currently, SBA has selected approximately 750 employees
in this expansion and continues to add personnel to the Reserve Corps.
This capability allows the Agency to activate this specialized group of
trained personnel to report for duty within 48 hours. The number of
trained employees on board and in the Reserve Corps increases the
Agency's capacity to quickly respond to disasters, including
catastrophic events in 2007 and beyond.
* Partnered with Private Sector. As a result of the unprecedented
application volume received, SBA created the Disaster Loan Partners
Initiative and awarded three private sector contracts to assist with
SBA's loan processing and loan closing activities. This unique
partnership with the private sector provides the Agency with additional
experienced personnel to enhance program delivery to disaster victims.
This model can be expanded to include additional service providers
which can support various aspects of the lending operations. SBA is
actively evaluating the alternatives for expanding private sector
support in serving the needs of disaster victims.
* Leveraged SBA's Nationwide Infrastructure. During the Gulf Coast
Hurricanes response, the Agency utilized SBA's nationwide District
Office infrastructure to handle increased disaster activity.
Additionally, the Agency has implemented an initiative to utilize
District employees in future disasters in such activities as processing
support and coordinating local resources through SBDCs, Chambers of
Commerce, and other local professional and charitable organizations to
improve outreach and accelerate response in the field.
* Expanded Agency Footprint. The Agency has secured over 400,000 sq.
ft. of space in multiple locations across the country with 285,000 sq.
ft. specifically allocated for the Processing and Disbursement Center
in Fort Worth, TX. Of that amount, the Agency will retain 100,000 sq.
ft. as permanent space. This will provide space to handle any initial
surge requirements while allowing time for the Agency to work with GSA
in obtaining any necessary additional space.
* Bolstered Forecasting Ability and Risk Monitoring Procedures. The
Agency has enhanced its capability to immediately forecast application
volumes when disasters strike. This new model - which includes a
flexible tool for forecasting purposes - provides a more robust
methodology for predicting application volume based on assets at risk
and disaster characteristics thus allowing SBA to gauge its response to
a catastrophe. Based on the current capacity status of systems,
facilities, and trained personnel at the time of the disaster, the
models permit SBA to determine the level and method of escalation
necessary to respond in a timely and effective manner. Recognizing the
benefits of forecasting, SBA is reviewing external disaster models to
determine the value of linking the expected scope of potential
disasters with our preparedness estimates.
* Developed Disaster Scalability Preparedness Tool. The Agency now
possesses the capability to determine resource needs - financial, human
capital (by function), and logistics - required to maximize SBA's
response against a number of different application volume scenarios.
The Agency is refining detailed action plans to determine the
appropriate resource needs outlined in each scenario and to establish
protocols for action to respond accordingly.
We note that the comments in the recommendations section in the draft
report suggest several. ways to better improve our program performance.
We generally agree with the recommendations and intend to improve the
delivery of our program for disaster events of all sizes. Our response
to the recommendations is as follows:
Recommendation 1-Develop timeframes for completing key elements of the
disaster management plan and long-term strategy for acquiring adequate
office space. SBA has incorporated the aggressive use of program
management techniques in the management of all of our initiatives to
improve the Agency's disaster preparedness. The value of these tools
has been clear in the Accelerated Disaster Response Initiative, which
dramatically reduced borrower backlogs in a short period of time. These
tools have put in place clear timelines for initiatives, clarified
performance goals, established clear accountabilities for individuals,
and provided greater insight into the issues that we must address.
While other initiatives that address issues in the report are ongoing
and are being actively managed, the Agency is putting in place clear
timelines with accountabilities to support all of them, which will
allow SBA to communicate them more effectively externally.
Recommendation 2 - Direct staff involved in developing the disaster
plan to further assess whether the use of disaster simulations or
catastrophic models would enhance the agency's disaster planning
process.
Modeling is a critical management tool that can drive the Agency to
escalate its disaster response in a catastrophe in terms of capacity.
As previously mentioned, the Agency is currently at a capacity with
respect to systems, facilities, and trained personnel which will allow
SBA to respond to a very large disaster in the short term. As such, our
models will support the need to escalate at a time when our staffing is
reduced to a more normalized level. SBA currently uses two models for
forecasting ability and risk monitoring that provide an understanding
of agency requirements at various levels of volume, and is putting in
place a clear playbook to document the response process. Additionally,
the Agency is reviewing external disaster models to determine the value
of linking the expected scope of potential disasters with our
preparedness estimates. The most critical element in preparedness will
be the Agency's ability to increase its capacity, supported by the
Agency's improved processes, to meet the projected need. The models are
a tool that helps manage that expansion.
We appreciate the opportunity to provide clarifying comments and have
included our specific requests for clarifications and/or changes within
the attachment to this letter.
Sincerely,
Signed by:
Herbert L. Mitchell:
Associate Administrator for Disaster Assistance:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
William B. Shear, (202) 512-8678, shearw@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Wesley Phillips, Assistant
Director; Daniel Blair; Tania Calhoun; William Chatlos; Landis Lindsey;
Marc Molino; David Pittman; Cheri Truett; and Michelle Zapata made key
contributions to this report.
FOOTNOTES
[1] In this report, we refer to Katrina, Rita, and Wilma collectively
as the Gulf Coast hurricanes.
[2] See GAO, Small Business Administration: Actions Needed to Provide
More Timely Disaster Assistance, GAO-06-860 (Washington, D.C.: July 28,
2006).
[3] GAO-06-860.
[4] Federal agencies and other organizations have developed assessments
of the potential destructive consequences of varying disaster
scenarios, which are intended to help federal, state, and local
agencies enhance their disaster planning. Moreover, many insurance
companies and state entities that provide catastrophe insurance
coverage currently use computer programs offered by several modeling
firms to estimate the financial consequences of various natural
catastrophe scenarios. As described in this report, estimates from
disaster simulations and catastrophe models completed prior to August
2005, when Hurricane Katrina made landfall, indicated that there were
potentially more destructive disaster scenarios than SBA had
contemplated through its disaster planning process.
[5] The Association of Contingency Planners is a nonprofit trade
organization that is dedicated to fostering continued professional
growth and development in effective business continuity and continuity
of operations planning.
[6] SBA's disaster reserve corps consists of volunteers, including
retirees and students, who have backgrounds in the agency's disaster
programs (e.g., loan officers and customer support) and who are willing
to work on a temporary basis for the agency in an emergency situation.
Such individuals must agree to relocate within 48 hours of notification
of a disaster situation where their services are required by SBA.
[7] GSA, among other responsibilities, provides office space and other
logistical support services to federal agencies.
[8] As described in this report, SBA's Office of Disaster Assistance
initiated a consolidation initiative (referred to as "workforce
transformation") in 2004 to better structure its operations. SBA's
Sacramento field office disaster loan processing center had been slated
for closure in October 2005, but the facility was still available at
the time Hurricane Katrina made landfall because its lease had not yet
expired.
[9] According to SBA, as of August 2006, the agency had approved
approximately 93,000 loans in which funds had not been disbursed to
loan applicants. SBA officials said that figure had been reduced to
about 35,000 as of November 2006 as a result of changes made to the
loan review process.
[10] As described in this report, in December 2006, SBA contacted FEMA
regarding a model that agency has developed to estimate the financial
and other consequences of earthquakes, floods, and hurricanes. SBA
officials contacted FEMA to help determine whether the model would
enhance SBA's disaster planning process.
[11] SBA's field management officials told us they had established an
informal policy of contacting disaster victims to whom the agency had
sent loan applications, but had not returned completed applications
within a specified time frame. This practice was established and
implemented before the occurrence of the Gulf Coast hurricanes.
[12] FEMA also refers to the IHP program as Individual Assistance.
[13] SBA provides the income thresholds to FEMA, which vary based on
the applicant's household size and are adjusted annually for inflation.
For example, SBA's minimum income threshold for fiscal year 2005 was
$13,965 for a household size of one; the threshold increased to $14,355
for fiscal year 2006. If the applicant's household income falls below
the income thresholds, FEMA will automatically refer them to its Other
Needs Assistance Program. This program provides financial assistance to
individuals and households who have other disaster-related necessary
expenses or serious needs, such as medical expenses.
[14] Funds are available for necessary expenses and serious needs
caused by the disaster. This includes medical, dental, funeral,
personal property, transportation, moving and storage, and other
expenses that are authorized by law.
[15] GAO, Catastrophic Disasters: Enhanced Leadership, Capabilities,
and Accountability Controls Will Improve the Effectiveness of Nation's
Preparedness, Response, and Recovery System, GAO-06-618 (Washington,
D.C.: Sept. 6, 2006); GAO, Hurricane Katrina: GAO's Preliminary
Observations Regarding Preparedness, Response and Recovery, GAO-06-442T
(Washington, D.C.: Mar. 8, 2006).
[16] GAO-06-618.
[17] The National Finance Center, based in New Orleans, designs,
develops and operates financial, administrative and management
information systems and services, which includes integrated payroll/
personnel systems for the Department of Agriculture, and other
government customers.
[18] GAO, Hurricane Katrina: Better Plans and Exercises Needed to Guide
the Military's Response to Catastrophic Natural Disasters, GAO-06-643
(Washington, D.C.: May 15, 2006); GAO, Hurricanes Katrina and Rita:
Unprecedented Challenges Exposed the Individuals and Households
Programs to Fraud and Abuse; Actions Needed to Reduce Such Problems in
Future, GAO-06-1013 (Washington, D.C: Sept. 27, 2006); GAO, Disaster
Management: Improving the Nation's Response to Catastrophic Disasters,
GAO/RCED-93-186 (Washington, D.C.: July 1993).
[19] GAO-06-860.
[20] Hurricane Pam was a simulated exercise that FEMA conducted in
conjunction with the National Weather Service and various federal,
state, and local organizations in June 2004. The simulation
demonstrated the impact of a hurricane that would force the evacuation
of more than 1 million residents in the New Orleans area, and the
destruction of 500,000-600,000 buildings. See [Hyperlink,
http://www.globalsecurity.org/security/ops/hurricane-pam.htm] for
additional details. In contrast, the Northridge earthquake damaged or
destroyed about 60,000 buildings, according to a study by a structural
engineering firm. In 2004, a risk modeling firm--Equecat--publicly
estimated that a recurrence of the 1935 Labor Day hurricane that struck
the New York region would result in insured losses alone of $60 billion
or more. In 2002, we estimated that the insured losses associated with
the Northridge earthquake would be about $12.5 billion with total
estimated losses of $30 billion. See GAO, Catastrophe Insurance Risks:
The Role of Risk-Linked Securities and Factors Affecting Their Use, GAO-
02-941 (Washington, D.C.: Sept. 24, 2002).
[21] However, previous studies indicate that FEMA did not adequately
leverage the Hurricane Pam simulation. For example, according to a 2006
report by the Department of Homeland Security's Office of Inspector
General, FEMA did not execute catastrophic planning based on the
Hurricane Pam simulation results. In the report, FEMA officials cited
the lack of funding as the reason for not following through on the
lessons from the exercise. (A Performance Review of FEMA's Disaster
Management Activities in Response to Hurricane Katrina, OIG-06-32,
March 2006.) Also, a 2006 Senate report concluded that many of the
lessons from Hurricane Pam were either ignored or inadequately applied.
(Hurricane Katrina: A Nation Still Unprepared, Report of the Committee
on Homeland Security and Governmental Affairs, U.S. Senate (Washington,
D.C.: May 2006).
[22] GAO/RCED-93-186.
[23] The White House: The Federal Response to Hurricane Katrina--
Lessons Learned (February 2006); Department of Homeland Security: The
National Response Plan (December 2004 and updated May 2006); Department
of Homeland Security: Office of Inspector General, A Performance Review
of FEMA's Disaster Management Activities in Response to Hurricane
Katrina, OIG-06-32, March 2006; Association of Contingency Planners
(ACP)-Hurricane Katrina Observations-Lessons Learned (Jan. 31, 2006);
Hurricane Katrina-A Nation Still Unprepared-United States Senate:
Washington, D.C. (May 2006).
[24] According to SBA officials, the large volume of applications that
SBA distributed and received resulted in part from a large number of
referrals FEMA made to SBA's Disaster Loan Program without first
applying SBA's income thresholds. This was done for disaster victims
who registered for disaster assistance via FEMA's Internet site and did
not report any income. SBA's Inspector General indicated that this
resulted in the following: (1) increased costs incurred by SBA in
mailing loan applications to disaster victims that normally would not
be referred to SBA's Disaster Loan Program; (2) delayed response times
for those applicants who did qualify for SBA's Disaster Loan Program;
(3) lower SBA disaster loan approval rates; and (4) increased
transaction flow through DCMS, which was near maximum capacity. For
more information, see GAO-06-860 and SBA Office of Inspector General,
"Disaster Application Referrals with $0 Income from FEMA Online
Registration Have Increased Cost and the Demand for SBA Resources,"
Advisory Memorandum 06-12 (Feb. 17, 2006).
[25] SBA staff responsible for loss verification conduct on-site damage
inspections for physical disaster loan applications to estimate the
cost of restoring damaged property to predisaster condition.
[26] Many of the temporary staff at the Ft. Worth center prior to
Hurricane Katrina had been hired to process disaster loan applications
associated with four hurricanes that made landfall in Florida in 2004.
[27] SBA also transferred several staff members who work in other
Office of Disaster Assistance locations to Ft. Worth, and the agency
recalled some staff that had been laid off under the workforce
transformation initiative.
[28] GAO, Small Business Administration: Response to September 11
Victims and Performance Measures for Disaster Lending, GAO-03-385
(Washington, D.C.: Jan. 29, 2003).
[29] In our July 2006 report (GAO-06-860), we reported that, according
to SBA, 8 months after Hurricane Katrina, the Sacramento satellite
office had processed about 95,500 home and 4,800 business applications
through DCMS for the Gulf Coast hurricane victims. SBA also used the
Sacramento satellite office to process about 10,700 home loan
applications for smaller disaster declarations.
[30] According to an SBA official, the agency had to seek space outside
of the existing call center building because leasing additional space
within the facility was considered cost prohibitive.
[31] The officials said that as of July 2006, approximately 93,000
loans had only been partially disbursed. The officials also said that
many of the loans had not been totally disbursed due to loan
modifications (e.g., borrowers sought changes in the loans' terms and
conditions).
[32] In August 2006, SBA initiated the "90/45" initiative to reduce the
backlog of loan disbursements associated with the Gulf Coast
hurricanes. That is, SBA planned to finalize about 93,000 loan files,
which were partially disbursed or pending modification, over a 45-day
period.
[33] In April 2006, USGS, Stanford University, Lawrence Livermore
National Laboratory, URS Corp., and the University of California,
Berkeley, released the results of a disaster simulation involving a
repeat of the 1906 San Francisco earthquake in the San Francisco Bay
Area. The simulation involved the use of computer models developed by
USGS to predict the consequences of an earthquake striking the Bay Area
with a magnitude of 7.9 on the Richter scale. This simulated exercise
estimated that the consequences of such an earthquake on the Bay Area
today would damage or destroy 90,000 buildings with an estimated repair
and replacement cost of $90 billion. Additionally, the simulation
estimated that up to 250,000 households would be displaced from damaged
residences. See [Hyperlink, http://quake.usgs.gov] for additional
details. Moreover, in 2006, a risk modeling firm, Applied Insurance
Research (AIR), estimated the insured losses that would occur if past
disasters were to recur today. For example, AIR estimated that a repeat
of the 1906 earthquake would result in insured losses of about $108
billion, whereas a repeat of Hurricane Katrina would result in insured
losses of about $41 billion. See [Hyperlink, http://www.air-
worldwide.com/_public/html/air_currentsitem.asp?ID=1031].
[34] We have not reviewed HAZUS or its use in previous disasters.
[35] The SBA administers the Small Business Development Center Program
to provide management assistance to current and prospective small
business owners. The centers offer one-stop assistance to small
businesses by providing a wide variety of information and guidance in
branch locations. The program is a cooperative effort of the private
sector, the educational community, and federal, state, and local
governments.
[36] We provide more details on our survey in appendix I.
[37] Statistics are compiled for the Gulf Coast hurricanes and are as
of May 1, 2006.
[38] SBA provided the data regarding these figures, based on their
estimates. However, the agency does not have a formal procedure for
verifying the number of follow-up calls the staff made.
[39] GAO/RCED-93-186; The National Response Plan, December 2004 and
updated May 2006; Department of Homeland Security; The Robert T.
Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§
5121-5206. Department of Homeland Security: Office of Inspector
General, A Performance Review of FEMA's Disaster Management Activities
in Response to Hurricane Katrina, OIG-06-32, March 2006; The White
House: The Federal Response to Hurricane Katrina - Lessons Learned,
February 2006; A Failure of Initiative: Final Report of the Select
Bipartisan Committee to Investigate the Preparation for and Response to
Hurricane Katrina, U.S. House of Representatives, February 16, 2006;
Hurricane Katrina: A Nation Still Unprepared, Report of the Committee
on Homeland Security and Governmental Affairs, U.S. Senate, May 2006;
Hurricane Pam Exercise [Hyperlink,
(http://www.ohsep.lousiana.gov/newsrelated/hurripamends.htm)],
Louisiana Homeland Security & Emergency Preparedness, July 26, 2004;
Managing Risk in Earthquake County: Estimated Losses for a Repeat of
the 1906 San Francisco Earthquake and Earthquake Professional's Action
Agenda for Northern California, April 17, 2006.
[40] We defined "expert" as someone having extensive knowledge in
disaster planning and management. The expert's knowledge was derived
from his or her formal education and experience. For example, some of
the experts we contacted have served in consulting roles for state and
local agencies with disaster planning responsibilities.
[41] The field offices are the field operations centers East and West
in Atlanta, Ga., and Sacramento, Calif., respectively, the disaster
loan processing center in Ft. Worth Texas, and the disaster loan
customer service call center in Buffalo, N.Y. We also visited the
Disaster Credit Management System Operations Center in Virginia and
SBA's Georgia district office.
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