Small Business Administration
Additional Steps Should Be Taken to Address Reforms to the Disaster Loan Program and Improve the Application Process for Future Disasters
Gao ID: GAO-09-755 July 29, 2009
After the Small Business Administration (SBA) was widely criticized for its performance following the 2005 Gulf Coast hurricanes, the agency took steps to reform the Disaster Loan Program and Congress enacted the Small Business Disaster Response and Loan Improvements Act of 2008 (Act). GAO was asked to determine (1) the extent to which SBA addressed the Act's requirements, and (2) how SBA's response to major disasters in 2008 aligned with key components of its June 2007 Disaster Recovery Plan (DRP). GAO reviewed the Act, as well as SBA information on requirements addressed and steps taken, including the DRP, various reports to Congress, and policy memoranda. GAO also conducted site visits to areas affected by major 2008 disasters, reviewed SBA's customer satisfaction survey, and obtained the opinions of relevant stakeholders.
As of June 2009, SBA met 13 of 26 requirements of the Act, partially addressed 8, and did not take action on 5 which are not applicable at this time. SBA officials told GAO the agency has not yet completely addressed some provisions that require new regulations because to do so, the agency must make extensive changes to current programs or implement new programs. For two requirements that will involve private lenders, SBA plans to implement pilots before finalizing regulations. SBA has not yet addressed the Act's requirements for region-specific marketing and outreach and ensured that Disaster Loan Program information is readily available to regional entities, such as Small Business Development Centers (SBDC). By doing so, SBA could leverage the efforts and capacity of local resources and emergency management groups, and ensure that it and they will be better prepared for future disasters. Also, as of June 2009, SBA had not met deadlines to issue an annual report to Congress or an updated DRP. Failure to do so can lead to a lack of transparency on the agency's progress in reforming the program and limit its ability to adequately prepare for and respond to disasters. Furthermore, SBA did not have an implementation plan for addressing the remaining requirements. SBA's initial response after the 2008 Midwest floods and Hurricane Ike aligned with certain components of its initial DRP, such as using technology and outreach efforts to ensure timely assistance. The individuals GAO interviewed and results from SBA's 2008 Disaster Loan Program Customer Satisfaction Survey provided some positive feedback about SBA's performance following recent disasters. However, interviewees and survey results indicated areas for improvement; in particular, both indicated that application paperwork was burdensome and that the application process needed improvement. SBA officials told GAO that they have been taking steps to improve the application process, but did not provide documentation of such efforts. As a result, it did not appear to have any formal process for identifying problems in the application process and making needed improvements.
Recommendations
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GAO-09-755, Small Business Administration: Additional Steps Should Be Taken to Address Reforms to the Disaster Loan Program and Improve the Application Process for Future Disasters
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entitled 'Small Business Administration: Additional Steps Should Be
Taken to Address Reforms to the Disaster Loan Program and Improve the
Application Process for Future Disasters' which was released on July
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Report to the Chairwoman, Committee on Small Business, House of
Representatives:
United States Government Accountability Office:
GAO:
July 2009:
Small Business Administration:
Additional Steps Should Be Taken to Address Reforms to the Disaster
Loan Program and Improve the Application Process for Future Disasters:
GAO-09-755:
GAO Highlights:
Highlights of GAO-09-755, a report to the Chairwoman, Committee on
Small Business, House of Representatives.
Why GAO Did This Study:
After the Small Business Administration (SBA) was widely criticized for
its performance following the 2005 Gulf Coast hurricanes, the agency
took steps to reform the Disaster Loan Program and Congress enacted the
Small Business Disaster Response and Loan Improvements Act of 2008
(Act). GAO was asked to determine (1) the extent to which SBA addressed
the Act‘s requirements, and (2) how SBA‘s response to major disasters
in 2008 aligned with key components of its June 2007 Disaster Recovery
Plan (DRP). GAO reviewed the Act, as well as SBA information on
requirements addressed and steps taken, including the DRP, various
reports to Congress, and policy memoranda. GAO also conducted site
visits to areas affected by major 2008 disasters, reviewed SBA‘s
customer satisfaction survey, and obtained the opinions of relevant
stakeholders.
What GAO Found:
As of June 2009, SBA met 13 of 26 requirements of the Act, partially
addressed 8, and did not take action on 5 which are not applicable at
this time (see table). SBA officials told GAO the agency has not yet
completely addressed some provisions that require new regulations
because to do so, the agency must make extensive changes to current
programs or implement new programs. For two requirements that will
involve private lenders, SBA plans to implement pilots before
finalizing regulations. SBA has not yet addressed the Act‘s
requirements for region-specific marketing and outreach and ensured
that Disaster Loan Program information is readily available to regional
entities, such as Small Business Development Centers (SBDC). By doing
so, SBA could leverage the efforts and capacity of local resources and
emergency management groups, and ensure that it and they will be better
prepared for future disasters. Also, as of June 2009, SBA had not met
deadlines to issue an annual report to Congress or an updated DRP.
Failure to do so can lead to a lack of transparency on the agency‘s
progress in reforming the program and limit its ability to adequately
prepare for and respond to disasters. Furthermore, SBA did not have an
implementation plan for addressing the remaining requirements.
Table: Status of SBA‘s Efforts to Address Requirements of the Act:
Section: Economic injury disaster loans to nonprofits;
Status: Addressed (initial or ongoing).
Section: Coordination with Federal Emergency Management Agency;
Status: Partially addressed.
Section: Public awareness and marketing and outreach;
Status: Partially addressed.
Section: Consistency of procedures and regulations;
Status: Addressed (initial or ongoing).
Section: Increased loan amount without collateral;
Status: Addressed (initial or ongoing).
Section: Processing disaster loans and Internal Revenue Service
coordination;
Status: Partially addressed.
Section: Information tracking and follow-up system;
Status: Addressed (initial or ongoing).
Section: Increased deferment period;
Status: N/A.
Section: Disaster processing redundancy;
Status: Addressed (initial or ongoing).
Section: Net earnings clause;
Status: Addressed (initial or ongoing).
Section: Loans after ice storms and blizzards;
Status: Addressed (initial or ongoing).
Section: Disaster response plan and simulations;
Status: Addressed (initial or ongoing).
Section: Disaster planning specialist;
Status: Addressed (initial or ongoing).
Section: Employees and disaster cadre;
Status: Addressed (initial or ongoing).
Section: Annual disaster response plan;
Status: Partially addressed.
Section: Sufficient office space;
Status: Addressed (initial or ongoing).
Section: Major source of employment change;
Status: Addressed (initial or ongoing).
Section: Increased disaster loan amount;
Status: Addressed (initial or ongoing).
Section: Small business bonding threshold;
Status: N/A.
Section: Eligibility for additional disaster assistance;
Status: N/A.
Section: Additional economic injury disaster loans;
Status: N/A.
Section: Private disaster loans;
Status: Partially addressed.
Section: Immediate disaster assistance program;
Status: Partially addressed.
Section: Expedited disaster assistance program;
Status: Partially addressed.
Section: Gulf Coast disaster loan refinancing program;
Status: N/A.
Section: Reports to Congress on disaster assistance;
Status: Partially addressed.
Source: GAO.
[End of table]
SBA‘s initial response after the 2008 Midwest floods and Hurricane Ike
aligned with certain components of its initial DRP, such as using
technology and outreach efforts to ensure timely assistance. The
individuals GAO interviewed and results from SBA‘s 2008 Disaster Loan
Program Customer Satisfaction Survey provided some positive feedback
about SBA‘s performance following recent disasters. However,
interviewees and survey results indicated areas for improvement; in
particular, both indicated that application paperwork was burdensome
and that the application process needed improvement. SBA officials told
GAO that they have been taking steps to improve the application
process, but did not provide documentation of such efforts. As a
result, it did not appear to have any formal process for identifying
problems in the application process and making needed improvements.
What GAO Recommends:
SBA should meet the Act‘s region-specific marketing and outreach
requirements; complete its annual report to Congress; issue an updated
DRP; develop an implementation plan for remaining requirements; and
develop procedures to further improve the application process. In
comments on a draft of this report, SBA generally agreed with the
recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-09-755] or key
components. For more information, contact William Shear at (202) 512-
8678 or ShearW@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
SBA Fully Addressed Half of the Act's Provisions, but Has Not Yet
Established Milestones for Implementation of Remaining Requirements:
SBA's Response Following 2008 Disasters Aligned with Certain Components
of its DRP, but SBA's Response to Disaster Victims' Feedback on the
Application Process Could be Improved:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Summary of the 2008 Small Business Disaster Response and
Loan Improvements Act Requirements:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: SBA's Disaster Loans:
Table 2: Small Business Disaster Response and Loan Improvements Act
Statutory Deadlines:
Table 3: Requirements of Act That SBA Addressed, as of June 2009:
Table 4: Requirements of Act That SBA Partially Addressed, as of June
2009:
Table 5: Status of SBA Efforts to Meet the Act's Deadlines, as of June
2009:
Figure:
Figure 1: SBA's Status in Addressing Requirements and Deadlines of the
Small Business Disaster Response and Loan Improvements Act of 2008:
Abbreviations:
ACSI: American Customer Satisfaction Index:
Act: Small Business Disaster Response and Loan Improvements Act of
2008:
ARRA: American Recovery and Reinvestment Act of 2009:
BRC: Business Recovery Center:
CFI: Claes Fornell International:
DCMS: Disaster Credit Management System:
DRP: Disaster Recovery Plan:
DRC: Disaster Recovery Center:
EODSPO: Executive Office of Disaster Strategic Planning and Operations:
FEMA: Federal Emergency Management Agency:
IRS: Internal Revenue Service:
ODA: Office of Disaster Assistance:
SBA: Small Business Administration:
SBDC: Small Business Development Center:
SOP: Standard Operating Procedures:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 29, 2009:
The Honorable Nydia M. Velazquez:
Chairwoman:
Committee on Small Business:
House of Representatives:
Dear Madam Chairwoman:
While the Small Business Administration (SBA) is known primarily for
its financial support of small businesses, the agency also plays a
critical role in assisting the victims of natural and other declared
disasters. Since the agency's inception in 1953, SBA has approved more
than $46 billion in disaster loans for homeowners, businesses, and
nonprofit organizations. SBA provides financial assistance through its
Disaster Loan Program to help homeowners, renters, businesses of all
sizes, and nonprofits recover from disasters such as earthquakes,
hurricanes, and terrorist attacks. After the 2005 Gulf Coast hurricanes
(Katrina, Rita, and Wilma), SBA faced an unprecedented demand for
disaster loans, while also being confronted with a significant backlog
of applications; therefore, hundreds of thousands of loans were not
disbursed in a timely way. Many criticized SBA for what was perceived
to be a slow and confusing response to the disasters. As a result,
Congress and SBA agreed that the program needed significant
improvements. Since then, SBA has taken several steps to reform its
Disaster Loan Program, which include developing a Disaster Recovery
Plan (DRP), creating an online loan application, and increasing the
capacity of its Disaster Credit Management System (DCMS). In June 2008,
Congress enacted the Small Business Disaster Response and Loan
Improvements Act to expand steps taken by SBA and require new measures
to ensure that SBA is prepared for future catastrophic disasters.
[Footnote 1]
In response to your request, this report examines reforms made to SBA's
Disaster Loan Program and the impact those reforms had following recent
disasters. Specifically, this report discusses (1) the extent to which
SBA addressed the requirements of the Small Business Disaster Response
and Loan Improvements Act of 2008 (Act), and (2) how SBA's response,
following the major disasters of 2008, aligned with key components of
its June 2007 DRP.
To determine the extent to which SBA addressed the requirements of the
Act, we identified and analyzed the requirements and related statutory
deadlines; obtained information about SBA's completed, current, and
planned reform efforts; reviewed documents and progress reports to
determine if requirements had been addressed and deadlines were met;
interviewed officials and obtained information on what, if any,
challenges exist that may affect SBA's ability to implement certain
requirements; and interviewed officials to obtain information about
next steps and resources that the agency identified as needed to
address any remaining requirements. To assess how SBA's response
following the major disasters of 2008 aligned with key components of
its DRP, we conducted site visits in Iowa and Texas, and obtained
information on how SBA's performance in the aftermath of the 2008
Midwest floods and Hurricane Ike was viewed. We interviewed SBA and
Small Business Development Center (SBDC) officials, state and local
officials, and representatives of local Chambers of Commerce, economic
development organizations, and affected small business owners about
what worked well and suggested improvements to SBA's disaster loan
processes. We also reviewed results from a survey of SBA loan
applicants on their satisfaction with SBA's Disaster Loan Program in
2008. Finally, we compared data for the 2008 disasters with agency
performance goals. Appendix I contains a detailed description of our
scope and methodology.
We conducted this performance audit from October 2008 through July
2009, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Results in Brief:
SBA fully addressed requirements for 13 of 26 provisions of the Act, as
well as some deadlines associated with them; partially addressed 8
provisions; and took no action on 5 that are not applicable at this
time. For the 13 provisions SBA fully addressed by June 2009, the
agency's actions included implementing requirements to make disaster
loans to nonprofit organizations, increasing loan amounts from $10,000
to $14,000 without requiring collateral, and establishing a second
facility to process disaster loans in case the primary facility is
unavailable. While SBA has taken some steps toward implementing the
Act, the agency still needs to take additional steps to completely
address 8 provisions. According to SBA officials, the agency has not
yet completely addressed some provisions that require new regulations
because to do so, the agency must make extensive changes to current
programs or implement new programs--such as the Immediate and Expedited
Disaster Assistance Programs--to satisfy requirements of the Act.
Moreover, as required by the Act, SBA has not issued an update of its
comprehensive DRP. SBA also has not fully addressed the requirement for
providing region-specific marketing and outreach and ensuring the
information is made available to SBDCs and other local resources--as
required by another provision in the Act. According to SBA and our
review, 5 provisions require no action by SBA at this time because they
are discretionary or establish the need for additional appropriations
to satisfy the Act's requirements. Finally, 9 provisions set forth in
the Act are subject to deadlines, which the agency has had limited
success in meeting. As of June 2009, SBA had met some deadlines for 4
provisions, missed one deadline by 27 days, and missed deadlines for 4
remaining provisions by many months. SBA officials offered several
reasons for missing deadlines. Specifically, the officials said they
needed time to issue new regulations and create new programs--and pilot
them--before making final decisions about implementation. For example,
the Immediate and Expedited Disaster Assistance Programs are part of a
pilot, because SBA sees a need to test how private lenders would
administer such programs if implemented. Furthermore, as of June 2009,
SBA has not issued an annual report on disaster assistance, which was
required by November 2008. Though the Act requires that SBA provide
annual updates to its comprehensive DRP, SBA has not yet updated its
June 2007 plan. The agency also has not developed a plan with expected
time frames for addressing the remaining requirements. SBA's not
providing such reports to Congress, as required, can lead to a lack of
transparency about the agency's Disaster Loan Program and its progress
and capacity to reform the program, as well as its ability to
adequately prepare for and respond to disasters.
SBA's initial response following the 2008 Midwest floods and Hurricane
Ike aligned with major components of its DRP, such as infrastructure,
human capital, information technology, and communications and outreach.
Additionally, individuals to whom we spoke affected by both disasters
considered the agency's overall performance somewhat positive, but
believed the disaster loan process could be improved. In May 2008,
floods devastated 85 counties in Iowa (one of several states affected)
and in September 2008, Hurricane Ike devastated 50 counties in Texas.
SBA and SBDC officials, state and local representatives, private-entity
officials, and business owners in Iowa and Texas told us that in the
days immediately following the disasters, SBA's Office of Disaster
Assistance staff reported to the affected areas and began providing
needed disaster assistance. These individuals also said that SBA staff
provided outreach and public information about its Disaster Loan
Program; distributed application information; assigned knowledgeable
customer service representatives to various Disaster and Business
Recovery Centers (DRC and BRC); and assisted in the initial application
process by answering questions, providing guidance, and offering one-
on-one help--as outlined in SBA's DRP. In addition, our review of SBA's
2008 Disaster Loan Program Customer Satisfaction Survey also showed
that respondents were somewhat satisfied with the assistance SBA
provided during other recent disasters. However, both the individuals
we interviewed and survey results indicated areas for improvement and
opportunities to increase satisfaction with SBA's disaster loan
process. For example, individuals we interviewed and survey responses
pointed to concerns about the amount of paperwork required to complete
SBA's disaster loan application and the timeliness of loan
disbursements. To address these concerns, the individuals we
interviewed suggested several changes to the program, such as
eliminating the requirement that applicants provide copies of Internal
Revenue Service (IRS) tax records; providing partial disbursements
earlier in the process; using bridge loans to help ensure disaster
victims receive timely assistance; and involving SBA, SBDCs, and state
and local officials in joint pre-planning and disaster preparedness
efforts. Though SBA officials told us they have been taking steps to
improve the application process, these steps and improvement efforts
were not documented. In addition, we found that while SBA conducts its
annual survey, the agency does not appear to incorporate this feedback
mechanism into its formal efforts to continually improve the
application process. Furthermore, SBA does not appear to have policies
and procedures in place for improving the application, nor does it
appear to have a formal process for identifying problems areas within
its program and using this experience to improve the application
process for future applicants.
To facilitate SBA's progress in meeting and complying with requirements
of the Act and improve the Disaster Loan Program, we are recommending
that the Administrator of SBA (1) develop procedures for regional
entities that would enable SBA to meet all region-specific requirements
of the Act and ensure regional entities, such as SBDCs, have this
information and other Disaster Loan Program information readily
available prior to the likely occurrence of a disaster; (2) complete
the first annual report to Congress on disaster assistance and adhere
to the time frame for subsequent reports; (3) expeditiously issue an
updated DRP that reflects recent changes resulting from the Act's
requirements, as well as SBA's own reform efforts; (4) develop an
implementation plan and report to Congress on the agency's progress in
addressing the requirements of the Act, including milestone dates for
completing implementation; and (5) develop and implement a process to
address identified problems in the disaster loan application process
for future applicants.
We provided SBA with a draft of this report for review and comment. In
comments provided to us in an email, SBA generally agreed with our
recommendations and stated the agency's plan to incorporate them into
its ongoing efforts to implement the Act and improve the application
process. Specifically, SBA plans to expand its outreach efforts to
ensure the public in all regions of the country are more aware of SBA
disaster assistance programs before a disaster strikes. SBA is also
planning to submit both the required annual report, and the 2009
revision to its DRP to Congress by November 15, 2009. Additionally, SBA
officials said the agency has plans to develop an implementation plan
for completion of the remaining provisions. Finally, in response to our
recommendation on the application process, SBA cited ongoing efforts
since 2005 to improve its application process, such as the electronic
loan application, and said the agency has plans to continue its
improvement efforts and make them an ongoing priority. However, SBA did
not say how it would implement a formal process to address identified
problem areas in the disaster loan application process.
Background:
SBA's Disaster Loan Program, which has been a part of the agency since
its inception in 1953, is the primary federal program for funding long-
term recovery assistance. SBA's Office of Disaster Assistance (ODA)
responds to disasters and administers the program--which provides
affordable, timely and accessible financial assistance following a
disaster to homeowners, renters, businesses of all sizes, and nonprofit
organizations. SBA does not provide disaster grants; rather, this
financial assistance generally is available in the form of direct, low-
interest loans and is the only SBA program not limited to small
businesses.
Overview of Disaster Loans and Application and Disbursement Process:
A Presidential disaster declaration puts into motion long-term federal
recovery programs, such as the Disaster Loan Program, but SBA is not a
"first responder" after a disaster. Rather, local government emergency
services assume the role of first responders, with help from state and
volunteer agencies. For catastrophic disasters, and if a governor
requests it, federal resources can be mobilized through the U.S.
Department of Homeland Security's Federal Emergency Management Agency
(FEMA) for search and rescue, electrical power, food, water, shelter,
and other basic human needs. SBA typically responds to a disaster
within 3 days by sending ODA field staff to the affected area to begin
providing public information about SBA's services.
Once a disaster is declared, SBA, by law, is authorized to make two
types of disaster loans: (1) physical disaster loans, and (2) economic
injury disaster loans. Physical disaster loans are for the permanent
rebuilding and replacement of uninsured or underinsured disaster-
damaged property.
That is, SBA provides loans to cover repair costs that FEMA or other
insurance has not already fully compensated or covered.[Footnote 2] The
loans are intended for repair or replacement of the disaster victim's
damaged property to its pre-disaster condition. Interest rates are
periodically adjusted and SBA calculates rates after each disaster. By
law, the interest rates depend on whether each applicant has credit
available elsewhere. If SBA determines the applicant is unable to
borrow from non-government sources or does not have sufficient funds,
then the applicant is considered to not have credit available
elsewhere. SBA offers two levels of interest rates, a low rate for
applicants who have no credit available elsewhere and a higher rate for
applicants with credit available elsewhere. Economic injury disaster
loans provide small businesses, including agricultural cooperatives and
private nonprofit organizations, with necessary working capital until
normal operations can resume after a disaster. Loan funds are intended
to cover operating expenses small businesses could have paid had the
disaster not occurred. The interest rates on an economic injury
disaster loan cannot exceed 4 percent (see table 1).
Table 1: SBA's Disaster Loans:
Type: Physical disaster loans;
Funds use: Repair or replace personal residences, individual personal
property or real estate to its pre-disaster condition;
Eligibility:
* Homeowners;
* Renters;
* Businesses (all sizes);
* Private, nonprofits;
Lending limit:
* $200,000 - personal residences;
* $40,000 - individual personal property;
* $2 million - aggregate for businesses' and nonprofits' real estate,
inventories, machinery, equipment;
Interest Rate[A]:
* Varies, but generally for those who cannot obtain credit elsewhere,
interest is capped at 4 percent; for those who can obtain credit
elsewhere, interest is capped at 8 percent.
Type: Economic injury disaster loans;
Funds use: Assist organization through the disaster recovery period and
cover operating expenses the business could not pay because of the
disaster;
Eligibility:
* Small businesses;
* Small agricultural cooperatives;
* Private nonprofits;
Lending limit:
* $2 million aggregate amount;
Interest Rate[A]:
* Capped at 4 percent.
Source: GAO analysis of SBA documents.
[A] Interest rates are periodically adjusted and vary for each
disaster.
[End of table]
Immediately following a disaster, SBA public information officers are
responsible for providing information and outreach to victims about
SBA's Disaster Loan Program and SBA customer service representatives
are available to help home and business owners complete loan
applications. However, certain restrictions and guidelines apply to
SBA's Disaster Loan Program. For example, individuals must first
register with FEMA and obtain a registration number before SBA can
issue an application. SBA has separate applications for home and
business loans and offers these applications in both paper and
electronic form. Furthermore, SBA only will make a disaster loan if
there is reasonable expectation that the loan can be repaid--loan
applicants must have a credit history acceptable to SBA and demonstrate
their ability to repay all outstanding loans. They must also apply
within certain time frames. Typically, loan applications for physical
disaster loans must be received by SBA within 60 days from the date of
the disaster declaration, while applications for economic injury
disaster loans must be received within 9 months.[Footnote 3] In
addition, SBA generally requires collateral for all loans greater than
$14,000, recently increased from $10,000 pursuant to section 12065 of
the Act.
Once SBA receives a completed loan application, staff in its Loan
Processing and Disbursement Center review eligibility, check credit,
and calculate repayment ability. Applicants declined at this stage
always receive notification in writing from SBA. The letter provides
reasons for the declination and advises the applicant of its
reconsideration rights. Applications that are not declined are assigned
to an SBA loss verifier, who is responsible for contacting each
applicant to make an appointment to verify the physical losses and
estimate a dollar value for damaged real estate and personal property.
Next, staff underwrite the application and review in greater depth the
applicant's credit history, repayment ability, and eligibility. Unless
the application is withdrawn, SBA processes each loan application to an
approved or declined status.
SBA notifies approved applicants and makes arrangements to execute the
loan closing. Before SBA can make any disbursements, the borrower must
execute loan closing documents and return them to SBA within 60 days.
Upon receipt of the closing documents, SBA issues the first
disbursement of the unsecured portion of the loan--up to $14,000 for
physical disaster loans. After SBA has verified that lien requirements
on collateral property have been met, it can disburse the additional
secured portion of the physical disaster loan based on need or
construction progress. Because no physical repairs are associated with
economic injury disaster loans, SBA generally makes full disbursement
for these loans once collateral and insurance requirements are met. SBA
monitors all disbursements to ensure that loan funds are used in
accordance with the loan authorization and agreement.
ODA and the newly created Executive Office of Disaster Strategic
Planning and Operations (EODSPO), both headquartered in Washington,
D.C., are responsible for responding to disasters, coordinating with
other disaster recovery entities, and administering the agency's
Disaster Loan Program. ODA has four field offices, which are the
Customer Service Center located in Buffalo, New York; two disaster
Field Operations Centers located in Atlanta, Georgia and Sacramento,
California; and a centralized Loan Processing and Disbursement Center
located in Fort Worth, Texas.[Footnote 4] ODA also has a Personnel and
Administrative Services Center and a DCMS Operations Center in Herndon,
Virginia. Organizationally the associate administrator of ODA reports
directly to the EODSPO chief; and the EODSPO chief reports to the SBA
Administrator. In addition, ODA can utilize SBA district offices,
SBDCs, and SCORE (formerly called Service Corps of Retired Executives)
for local marketing and outreach efforts.[Footnote 5]
Disaster Planning and SBA's DRP:
Among the lessons learned from the 2005 Gulf Coast hurricanes was the
need for a more organized, formal, and pre-planned approach for
providing SBA services in response to a disaster. Members of Congress
found that it was necessary for SBA to develop and implement a written,
comprehensive disaster plan.[Footnote 6] Congress acted to signify the
importance of an agency-wide plan that provided guidance and procedures
governing preparations for, and response to, declarations of disasters
of various dimensions, including catastrophic disasters, by including
several related requirements in the Act. Thus, one section of the Act
requires that SBA develop, implement, or maintain a comprehensive
written disaster response plan and update the plan annually and
following any major disaster when SBA declares eligibility for
additional disaster assistance.[Footnote 7] Our prior work also
revealed the need for SBA to conduct comprehensive disaster planning.
For example, as we stated in our February 2007 report, SBA did not
engage in or complete comprehensive disaster plans before the Gulf
Coast hurricanes, and this limited logistical disaster planning likely
contributed to the initial challenges the agency faced in responding.
[Footnote 8] We recommended that SBA develop time frames for completing
key elements of a disaster management plan and a long-term strategy for
acquiring office space, and assess whether the use of disaster
simulations or catastrophe models would enhance the disaster planning
process. In August 2008, SBA provided information to us on how the
agency had implemented our recommendation to use disaster simulations
to enhance its disaster planning. Other GAO reports, reports by other
investigative agencies, and disaster management experts long have
stated that comprehensive planning can help organizations prepare for
potential disasters and mitigate their effects.
In the wake of the Gulf Coast hurricanes, SBA officials said that they
recognized the importance of disaster planning--to improve planning,
they created the agency's first DRP and also conducted their first
simulation.[Footnote 9] In creating the DRP, SBA acknowledged the need
for a systematic approach to carry out the agency's disaster assistance
mission and ensure coordination, awareness, and support throughout the
agency. The plan, which was issued on June 1, 2007, was designed to
provide procedures to better handle future disasters of all sizes. Its
major components--infrastructure, human capital, information
technology, and communications and outreach--are designed to help
ensure that necessary resources are available, (including reserve
corps, staff trained in disaster loan processing, office space, and
information technology) and that SBA has established an enhanced
approach for communicating with the public and coordinating with other
disaster assistance groups.
Small Business Disaster Response and Loan Improvements Act of 2008:
The Act comprises 26 provisions with substantive requirements for SBA;
some with specific deadlines and some needing appropriations, and
includes requirements that SBA must meet regarding disaster planning
and response, disaster lending, and reporting.[Footnote 10] For
instance, the Act includes provisions to improve SBA's coordination
with FEMA, require that the agency conduct biennial disaster
simulations, create a comprehensive disaster response plan, and improve
communication with the public when disaster assistance is made
available. It includes requirements to improve ODA's infrastructure,
appoint an official to oversee the disaster planning and
responsibilities of the agency, and establish reporting requirements
for various reports to Congress. The Act also includes provisions to
create new SBA disaster loan programs, such as the Immediate Disaster
Assistance Program that would provide small dollar loans immediately
following a disaster and the Expedited Disaster Assistance Loan Program
that would provide expedited disaster assistance to businesses.
The Act contains 9 provisions that establish deadlines for specific SBA
actions that range from 30 days to 1 year after the Act's enactment
(see table 2). For example, the Act requires SBA to conduct a study of
whether the standard operating procedures (SOP) for loans offered are
consistent with the regulations for administering the Disaster Loan
Program and report to Congress on the study findings within 180 days
after the Act's enactment. Additionally, the Act establishes multiple
reporting requirements for SBA. One example of these reporting
requirements is that SBA must submit an annual report to Congress on
disaster assistance within 45 days after the end of each fiscal year.
This annual report must include a report on the comprehensive disaster
response plan, among other things.
Table 2: Small Business Disaster Response and Loan Improvements Act
Statutory Deadlines:
Requirement (Act section number): (1) SBA must issue regulations about
coordination with FEMA to ensure that each application for disaster
assistance is submitted as quickly as practicable (12062);
Statutory deadline[A]: 270 days.
Requirement (Act section number): (2) SBA must create a marketing and
outreach plan (12063);
Statutory deadline[A]: 90 days.
Requirement (Act section number): (3) SBA must report to Congress on
the findings and recommendations of a study looking at consistency
between regulations and SOPs (12064);
Statutory deadline[A]: 180 days.
Requirement (Act section number): (4) SBA must submit a report to
Congress detailing the amendments to the disaster response plan--
specifically the report must include updates on 12 items (12072);
Statutory deadline[A]: 3 months.
Requirement (Act section number): (5) SBA must report to Congress about
the individual assigned disaster planning responsibilities and related
information (12073);
Statutory deadline[A]: 30 days.
Requirement (Act section number): (6) SBA must develop, implement, or
maintain a comprehensive disaster response plan and update it annually
or following any major disaster in which the SBA Administrator declares
eligibility for additional disaster assistance (12075);
Statutory deadline[A]: Various[B].
Requirement (Act section number): (7) SBA must;
* issue final regulations establishing permanent criteria for qualified
private lenders to make disaster loans;
Statutory deadline[A]:
* 1 year;
* report to Congress on progress of the regulations (12083);
Statutory deadline[A]:
* 6 months.
Requirement (Act section number): (8) SBA must;
* issue final regulations establishing and implementing an Expedited
Disaster Assistance Loan Program;
Statutory deadline[A]:
* 1 year;
* report to Congress on progress of the program (12085);
Statutory deadline[A]:
* 5 months.
Requirement (Act section number): (9) SBA must submit to Congress
reports on staffing, accounting, activities; disaster assistance; and
contracting and loan approval rates (12091);
Statutory deadline[A]: Various[C].
Source: GAO.
[A] Deadlines are calculated based on number of days or months after
May 22, 2008. See footnote 10.
[B] According to the Act, a comprehensive plan is due within 180 days
of the Act's enactment and must be updated annually or following any
major disaster in which the SBA Administrator declares eligibility for
additional disaster assistance thereafter.
[C] According to the Act, the staffing, accounting, and activities
reports are due monthly. The deadline for the report on disaster
assistance is 45 days after the end of the fiscal year--which runs from
October 1 through September 30--and this report is due annually. The
deadlines for the reports on contracting and loan approval rates are 6
months after the Act's enactment date.
[End of table]
SBA Fully Addressed Half of the Act's Provisions, but Has Not Yet
Established Milestones for Implementation of Remaining Requirements:
SBA has fully addressed requirements for 13 of 26 provisions of the
Act, partially addressed 8, and took no action on 5 that are not
applicable at this time. In addition, 9 of the 26 provisions are
subject to deadlines and the agency has had limited success in meeting
them. SBA officials told us the agency did not fully address
requirements for some provisions because the agency has to make
extensive changes to current programs or create new programs in order
to comply with the Act's requirements. SBA officials also told us that
the agency needed time to pilot new programs, such as private disaster
assistance programs, before making final decisions about
implementation. Also, SBA has not issued its first annual report to
Congress on disaster assistance, due November 2008, issued an annually
updated DRP since its initial June 2007 plan, or addressed how it would
market its Disaster Loan Program in different areas of the country and
adapt likely scenarios for certain regions prone to disasters.
Furthermore, the agency did not provide milestone dates for completing
implementation of these requirements and, as a result, Congress does
not have reliable information on the extent to which SBA has addressed
the requirements and made improvements to its program.
SBA Has Addressed Half of the Act's Provisions and Five Other
Provisions Do Not Require Any Actions at This Time:
SBA has fully addressed 13 of the 26 provisions of the Act, partially
addressed 8, and took no action on 5 that are not applicable at this
time.[Footnote 11] For the 13 provisions SBA addressed, the agency's
actions included making improvements to the agency's disaster loan
planning and response; augmenting infrastructure, information
technology, and staff; and improving disaster lending by increasing
access to funds for loan applicants. For example, to improve the
agency's disaster loan planning and response, the agency conducted a
study on the consistency between the Disaster Loan Program's SOPs and
regulations and reported its findings to Congress.[Footnote 12] SBA has
also taken steps to improve its infrastructure, information technology,
and staff by putting in place a secondary facility in Sacramento,
California to process loans during times when the main facility in Fort
Worth, Texas is unavailable and by making improvements to DCMS to track
and follow up with applicants. Additionally, according to SBA
officials, the agency increased DCMS' capacity from 2,000 to more than
12,000 concurrent users and expanded their disaster reserve staff from
about 300 to more than 2,000 individuals.[Footnote 13] Furthermore, the
agency increased access to funds by making nonprofits eligible for
economic injury disaster loans, increasing loan amounts from $10,000 to
$14,000 without requiring collateral, and changing the appropriate
maximum disaster loan amount from $1.5 to $2 million. See table 3 for
other requirements of the Act that SBA has addressed.
Table 3: Requirements of Act That SBA Addressed, as of June 2009:
Subject of requirement: Disaster loan planning and response;
SBA actions taken (Act section number):
* Studied and reported to Congress (December 2008) on the consistency
between the Disaster Loan Program's SOPs and regulations (12064);
* Changed requirements (July 2008), for loans greater than $1 million,
so that the borrower does not have to pay any non-amortized amount for
the first 5 years of the repayment period (12070);
* Submitted a report to Congress (August 2008) detailing planned
updates to the DRP and conducted disaster simulation exercises (12072).
Subject of requirement: Infrastructure, information technology, and
staff;
SBA actions taken (Act section number):
* Updated and maintained SBA's centralized information system (DCMS) to
track and follow up with applicants and increased the system's capacity
from 2,000 to more than 12,000 concurrent users (12067);
* Put in place an alternative facility in Sacramento, California for
processing loans in the event the primary facility in Fort Worth, Texas
is unavailable (12069);
* Secured office space and made plans to accommodate an increased
workforce in times of disaster (12076);
* Established EODSPO and appointed a chief (June 2008) as director of
all disaster planning responsibilities (12073);
* Maintained more than 1,000 full-time ODA staff and more than 2,000
disaster reserve staff (12074).
Subject of requirement: Disaster lending;
SBA actions taken (Act section number):
* Authorized (July 2008) economic injury disaster loans for nonprofit
organizations (12061);
* Increased (July 2008) loan amounts from $10,000 to $14,000 without
requiring collateral (12065);
* Allowed applicants to apply for economic injury disaster loans in
cases of ice storms and blizzards (12071);
* Changed requirements (April 2009) so that SBA may not rely solely on
the loan applicant's status as a major source of employment prior to
the disaster to qualify for disaster loans beyond the current statutory
limit (12077);
* Increased (July 2008) maximum loan amount from $1.5 to $2 million
(12078).
Source: GAO analysis of the Act and SBA documents.
[End of table]
Based on discussions with SBA officials and our review, 4 of the 26
provisions require no action by SBA at this time due to their
discretionary nature.[Footnote 14] More specifically, 1 provision
provides SBA the discretion to offer persons receiving disaster loans
an option to defer repayment on their loans and another provision
provides SBA discretionary authority to refinance Gulf Coast disaster
loans. Two additional provisions only can be triggered if the
Administrator determines a disaster is a catastrophic event and
authorizes additional assistance. The statute states that the
determination is only to be made for the most extraordinary and
devastating events. Accordingly, SBA officials told us that the agency
needs to take no action unless a disaster is declared a catastrophic
event and the Administrator authorizes additional funding. Agency
officials told us SBA is able to carry out the requirements of these
two sections and stated that after the September 11, 2001, terrorist
attacks in New York, the agency carried out one of the requirements by
issuing regulations and permitting loans to small businesses located
outside of the disaster area.[Footnote 15]
Additionally, we found that at least 1 provision--the Small Business
Bonding Threshold--requires no action at this time because it would
require the agency to obtain additional appropriations.[Footnote 16]
For example, the provision states that the SBA Administrator may carry
out the requirements of the section only with amounts appropriated in
advance specifically to carry out the requirements. Accordingly, SBA
would need to have an appropriation for implementation of that
provision. However, the American Recovery and Reinvestment Act of 2009
(ARRA) generally increased the maximum contract amount for SBA bond
guarantee to $5 million until September 2010. [Footnote 17] According
to SBA's Office of General Counsel, under ARRA, small business
contracts up to $5 million are eligible for an SBA bond guarantee up to
September 30, 2010.
SBA Has Taken Steps to Partially Address the Remaining Requirements,
but the Agency Has Not Demonstrated How It Will Address the
Requirements for Region-Specific Marketing and Outreach:
SBA partially addressed 8 provisions of the Act by taking some actions
to implement the requirements. For example, 1 provision requires SBA to
update the comprehensive DRP annually; while the agency originally
issued a plan in June 2007 and agency officials have participated in
leadership seminars to discuss revisions to the plan, SBA has failed to
comply with the Act and issue an updated plan, as required by section
12075. Moreover, the existing plan does not include information on, nor
is there separate information addressing, as the Act requires in
section 12063, regional marketing information. Additionally, at least 4
provisions require SBA to either create new or make changes to existing
programs. Three of these 4 provisions require SBA to issue regulations
within 1 year of the Act's enactment, but the agency only has
established regulations in draft form and has not issued any final
regulations.[Footnote 18] For the 8 partially addressed provisions, our
analysis was based on actions described by SBA officials (see table 4).
Table 4: Requirements of Act That SBA Partially Addressed, as of June
2009:
Description of requirement (Act section number): (1) SBA must ensure
that their disaster assistance programs are coordinated with FEMA
programs to ensure that each application for disaster assistance is
submitted as quickly as practicable. (12062);
SBA actions taken:
* Met with FEMA officials to coordinate programs;
* Developed draft regulations[A] and sent to FEMA for inter-agency
review;
SBA planned actions:
* Publish direct final rule in Federal Register.
Description of requirement (Act section number): (2) SBA must
coordinate application periods with FEMA, increase public awareness of
disasters, and create a marketing and outreach plan, including
providing regional marketing and ensuring the information is made
available to SBDCs. (12063);
SBA actions taken:
* Coordinated application periods for disaster assistance with FEMA;
* Communicated information to disaster loan applicants through press
releases, newsletters, and fact sheets;
* Submitted notification reports to Congress;
SBA planned actions:
* SBA believes this requirement has been met[B].
Description of requirement (Act section number): (3) SBA is authorized
to enter into agreements with private contractors to process disaster
loans and SBA must coordinate efforts with IRS to ensure tax records
are shared with loan processes quickly. (12066);
SBA actions taken:
* Entered into contracts with private companies;
* Met with IRS to discuss changes to tax information sharing processes;
SBA planned actions:
* SBA and IRS plan to meet on an ongoing basis and update processes as
necessary.
Description of requirement (Act section number): (4) SBA must develop,
implement, and maintain a written comprehensive disaster response plan.
SBA must update the plan annually and following any major disaster when
SBA declares eligibility for additional disaster assistance. (12075);
SBA actions taken:
* Issued DRP in June 2007;
* Participated in leadership seminars and completed After Action
Reports to suggest draft revisions to plan;
SBA planned actions:
* SBA expects to issue an updated DRP by September 2009.
Description of requirement (Act section number): (5) Establish and
implement a Private Disaster Assistance Program. SBA may guarantee
timely payment of principal and interest on private disaster loans
issued to eligible small businesses and homeowners within an eligible
disaster area. (12083); (6) SBA must establish an Immediate Disaster
Assistance Program to provide immediate small dollar loans through
private lenders. (12084); (7) SBA must establish an Expedited Disaster
Assistance Business Loan Program. (12085);
SBA actions taken:
* Requested funding in FY 2010 President's Budget to implement pilot
programs to test private disaster loans;
* Developed draft regulations[A];
SBA planned actions:
* Develop and implement pilot programs with private lenders;
* Publish final regulations in Federal Register.
Description of requirement (Act section number): (8) SBA must submit to
Congress reports on staffing, accounting, activities each month;
disaster assistance each year; and contracting and loan approval rates.
(12091);
SBA actions taken:
* Submitted accounting, staffing, and activity reports to Congress;
SBA planned actions:
* Submit annual report on disaster assistance, contracting and loan
approval rate reports to Congress.
Sources: Act and SBA documents.
[A] Items in bold are draft versions of documents that SBA officials
discussed with us.
[B] SBA told us parts of their DRP and Leadership Guide for Managing a
Response to a Disaster already meet all of the requirements of this
section, but these documents do not address the requirement for
regional marketing information.
[End of table]
According to agency officials, SBA did not fully address requirements
for some provisions because the agency has to make extensive changes to
current programs or create new programs to comply with the Act's
requirements, and it takes time to implement these types of changes.
More specifically, according to agency officials, SBA has not
completely addressed some provisions because:
* Sections 12062, 12083, 12084, 12085: These 4 provisions require SBA
to issue regulations or make amendments to its SOPs that either
establish new disaster programs or make changes to an existing program,
but the agency said it takes time to develop and issue regulations and,
in some cases, it is developing pilot programs before making decisions
about regulations. SBA officials told us they have requested funding to
carry out requirements for two of these--the Immediate and Expedited
Disaster Assistance Programs--in the fiscal year 2010 President's
Budget.[Footnote 19] According to SBA, the funds will be used to
implement pilot programs with private commercial lenders. SBA officials
told us that such a pilot would be necessary to see how private lenders
would administer the programs.
* Section 12066: Requires coordination between SBA and IRS to ensure
tax records are shared quickly, and the two agencies intend to meet on
an ongoing basis and update processes, as necessary.
* Section 12075: Requires the agency to issue an updated comprehensive
DRP, and while the agency has drafted its updated plan, the draft may
undergo additional changes after the agency holds it next Senior
Leadership Seminar in which it will conduct disaster simulation
exercises--scheduled for June 29-30, 2009--and then agency officials
must submit the updated plan to the new Administrator for review and
approval.
* Section 12091: Establishes a new reporting requirement that SBA
submit an annual report to Congress on disaster assistance each fiscal
year, but SBA has not issued an annual report because the agency is
awaiting input from the new Administrator. Furthermore, EODSPO staff
are responsible for developing and submitting the annual report to
Congress, but SBA officials told us the office was not fully staffed in
November 2008 when the first annual report on disaster assistance was
due to Congress. Specifically, the Act requires that SBA report
annually on the total number of SBA disaster staff, major changes to
the Disaster Loan Program (such as changes to technology or staff
responsibilities), a description of the number and dollar amount of
disaster loans made during the year, and SBA's plans for preparing and
responding to possible future disasters.[Footnote 20]
Additionally, we believe that SBA has partially addressed the provision
in section 12063 mandating region-specific marketing and outreach.
However, agency officials told us that their comprehensive DRP and
Leadership Guide for Managing a Response to a Disaster include
marketing and outreach components and satisfy the Act's requirement,
and therefore, they do not believe a separate plan is necessary. While
SBA believes that this requirement has been met, the DRP and Leadership
Guide do not provide region-specific marketing information or have
steps in place to ensure that the information is available to SBDCs--as
required by the Act. Specifically, the Act states the marketing and
outreach plan must (1) encourage a proactive approach to disaster
relief efforts; (2) make clear the services provided by SBA; (3)
describe SBA's different disaster loan programs, how they are made
available, and the eligibility requirements for each; (4) provide
regional marketing information, focusing on disasters occurring in each
region, and likely scenarios for disasters occurring in each region;
and (5) ensure the marketing and outreach plan is available at SBDCs
and on SBA's Web site. For example, lessons learned from the 2005 Gulf
Coast hurricanes can provide a basis for developing marketing
information for regions that may be prone to large scale disasters
affecting large geographic areas. Based on our review, the DRP and
Leadership Guide do not include regional marketing information, such as
lessons learned from prior disasters, and it is unclear how SBA ensures
availability of the information to SBDCs and the public through the
agency's Web site. Also, as we will describe later, officials with whom
we spoke during our site visits to Iowa and Texas noted the importance
of regional marketing and outreach information and suggested this type
of information would be helpful prior to a disaster. By not developing
region-specific information in its updated plan and clear mechanisms to
share the information with SBDCs, SBA is not in compliance with
requirements of the Act, and has not fully leveraged the efforts of
regional entities, such as SBDCs and emergency management groups, to
ensure that it and they will be better prepared for future disasters.
SBA Has Had Limited Success in Meeting Deadlines of the Act, Including
Issuing An Annual Report and Updating the DRP:
SBA has had limited success in meeting the deadlines in 9 provisions of
the Act. The agency met some deadlines for 4 provisions, missed one
deadline by 27 days, and missed deadlines for the 4 remaining
provisions--in some cases, by many months. The statutory deadlines
range from 30 days to 1 year after the Act's enactment. Table 5 shows
the status of SBA's efforts to meet the deadlines, as of June 2009.
Table 5: Status of SBA Efforts to Meet the Act's Deadlines, as of June
2009:
Requirements with deadlines (Act section number): (1) SBA must issue
regulations about their coordination with FEMA to ensure that each
application for disaster assistance is submitted as quickly as
practicable (12062);
Date of statutory deadline: February 16, 2009;
Status: Deadline not met; SBA developed draft regulations, but has yet
to publish final regulations.
Requirements with deadlines (Act section number): (2) Create a
marketing and outreach plan (12063);
Date of statutory deadline: August 20, 2008;
Status: Deadline not met; SBA believes this requirement has been met,
but the agency's efforts do not include a region-specific component, as
required by the Act.
Requirements with deadlines (Act section number): (3) SBA must report
to Congress on the finding and recommendations of a study looking at
consistency between regulations and SOPs (12064);
Date of statutory deadline: November 18, 2008;
Status: Deadline not met; SBA submitted a report to Congress 27 days
after deadline, on December 15, 2008.[A]
Requirements with deadlines (Act section number): (4) SBA must submit a
report to Congress detailing amendments to the major disaster response
plan--specifically the report must include updates on 12 items (12072);
Date of statutory deadline: August 22, 2008; Status: Deadline met -;
SBA submitted a report to Congress in August 2008, but this information
has not been issued in an updated DRP.[B].
Requirements with deadlines (Act section number): (5) SBA must report
to Congress about the individual assigned disaster planning
responsibilities and related information (12073); Date of statutory
deadline: June 21, 2008; Status: Deadline met;
SBA appointed an official to head the agency's newly created EODSPO in
June 2008.[C]
Requirements with deadlines (Act section number): (6) SBA must develop,
implement, or maintain a comprehensive DRP (12075);
Date of statutory deadline: Various[D];
Status: Some deadlines met; SBA issued its DRP in June 2007 in
anticipation of the Act's requirement, but has not issued an annual
updated plan.
Requirements with deadlines (Act section number): (7) SBA must;
* issue final regulations establishing permanent criteria for qualified
private lenders and;
Date of statutory deadline:
* May 22, 2009;
* report to Congress on progress of the regulations (12083);
Date of statutory deadline:
* November 22, 2008;
Status: Deadline not met; SBA has developed draft regulations, but has
yet to publish final regulations, and has not submitted its report to
Congress on the progress of the regulations.
Requirements with deadlines (Act section number): (8) SBA must;
* issue final regulations establishing and implementing an Expedited
Disaster Assistance Loan Program and;
Date of statutory deadline:
* May 22, 2009;
* report to Congress on progress of the program (12085);
Date of statutory deadline:
* October 22, 2008;
Status: Deadline not met; SBA submitted a progress report to Congress
16 days late, on November 7, 2008[E] and has developed draft
regulations, but has yet to publish final regulations.
Requirements with deadlines (Act section number): (9) SBA must submit
to Congress reports on staffing, accounting, activities each month;
disaster assistance each year; and contracting and loan approval rates
(12091);
Date of statutory deadline: Various[F];
Status: Some deadlines met; SBA submitted monthly reports to Congress
starting in December 2008, but has not issued an annual report on
disaster assistance, nor contracting and loan approval reports.
Sources: Act and SBA documents.
[A] A report to the Senate Committee on Small Business and
Entrepreneurship and U.S. House of Representatives Committee on Small
Businesses, Study on Consistency Between U.S. Small Business
Administration Regulations and Standard Operating Procedures.
(Washington, DC: December 15, 2008).
[B] U.S. Small Business Administration, Disaster Response Plan Report
Under Section 12072 of Title XII, Subtitle B of the Food, Conservation,
and Energy Act of 2008 (Public Law 110-246). (Washington, DC: August
2008).
[C] U.S. Small Business Administration, Disaster Planning Report Under
Section 12073 of Title XII, Subtitle B of the Food, Conservation, and
Energy Act of 2008 (Public Law 110-246). (Washington, DC: November
2008).
[D] SBA must update the plan annually and following any major disaster
when SBA declares eligibility for additional disaster assistance.
[E] U.S. Small Business Administration, Report Required by Section
12085(e) of Title XII, Subtitle B of the Food, Conservation, and Energy
Act of 2008 (Public Law 110-246). (Washington, DC: November 2008).
[F] According to the Act, SBA must submit, among other reports to
Congress, monthly reports on staffing, accounting, and activities on
major disasters; an annual report; and reports on contracting and loan
approval rates 6 months after enactment. The deadline for the
contracting and loan approval reports was November 22, 2008, while the
deadline for the annual report was 45 days after the fiscal year end or
November 14, 2008.
[End of table]
As we discussed earlier, the Act requires that SBA address region-
specific marketing and outreach requirements, but we believe that its
current DRP and Leadership Guide for Managing a Response to a Disaster
do not address all the requirements in the Act and, therefore, SBA
missed this deadline. Additionally, the Act requires SBA to issue final
regulations for two new programs--the Private and Expedited Disaster
Assistance Programs--and regulations for SBA's coordination of disaster
assistance programs with FEMA. SBA officials told us the agency has
developed draft regulations for these requirements, but missed the
statutory deadlines to publish final regulations. According to SBA
officials, they missed the deadlines because they needed time to issue
new regulations, as well as create and pilot new disaster programs, and
conduct an interagency review with FEMA before making final decisions
about implementation.
The Act also establishes multiple reporting requirements, and while SBA
has met some deadlines, others were missed. For example, SBA
successfully submitted monthly accounting, staffing, and activity
reports to Congress, starting in December 2008. However, the agency
missed deadlines for submitting its first annual report on disaster
assistance, due November 2008, as noted earlier, and contracting and
loan approval rate reports. According to officials, SBA is waiting for
input from the newly confirmed Administrator--who also must review and
approve the reports prior to their issuance.
In addition, because SBA has not published an update to the DRP since
the plan's issuance in June 2007, we found that it contained obsolete
information in some areas, and did not include information on many of
the changes resulting from the Act or the agency's own disaster reform
efforts since 2007, such as the establishment of EODSPO and appointment
of a chief as director of all disaster planning responsibilities,
update to DCMS to track and follow up with applicants, the increase in
the system's capacity from 2,000 to more than 12,000 concurrent users,
and incorporation of disaster simulations to enhance its disaster
planning. As we noted earlier, agency officials may revise the plan
following its leadership seminar in June 2009. Agency officials said
the updated plan will likely be issued in August or September 2009 and
will incorporate changes to the Disaster Loan Program resulting from
the Act.
Finally, the agency did not provide milestone dates for completing
implementation of the requirements that have not been completely
addressed. Because these actions and reports have been delayed and SBA
did not have a plan detailing expected completion dates on the
requirements that still need to be addressed, Congress does not have
reliable information on the extent to which SBA is reforming its
Disaster Loan Program. Furthermore, failure to produce the annual
report can lead to a lack of transparency on the agency's progress in
reforming the program, and the delay in updates to the DRP limits SBA's
ability to adequately prepare for and respond to disasters.
SBA's Response Following 2008 Disasters Aligned with Certain Components
of its DRP, but SBA's Response to Disaster Victims' Feedback on the
Application Process Could be Improved:
SBA's initial response after the 2008 Midwest floods and Hurricane Ike
aligned with certain components of its DRP, such as infrastructure,
human capital, information technology, and communications and outreach.
For example, many of the individuals we met in Iowa and Texas said that
SBA staff provided outreach and public information about its Disaster
Loan Program, distributed application information, assigned
knowledgeable customer service representatives to various DRCs and
BRCs, and assisted in the initial application process by answering
questions, providing guidance, and offering one-on-one help.
Individuals we interviewed and results from SBA's 2008 Disaster Loan
Program Customer Satisfaction Survey provided some positive feedback
about SBA's performance following recent disasters. However,
interviewees and these same survey results indicated areas for
improvement; in particular, these sources both indicated that the
application paperwork was burdensome and that the application process
needed improvement. SBA officials told us that they intend to improve
the application process, but did not provide documentation of such
plans and did not appear to take advantage of feedback from applicants,
such as that received from the customer survey.
Major Disasters of 2008 Provided a Limited Test of SBA's Ability to
Plan for and Respond to Disasters in Accordance With Its DRP:
Three major disasters struck our nation in 2008 that provided a limited
test of SBA's ability to plan for and respond to major disasters and
tested the improvements stemming from recent disaster reform efforts--
the Midwest floods and Hurricanes Ike and Gustav.[Footnote 21] First,
beginning in late May 2008, tornadoes, severe storms, and flooding
affected six Midwestern states (Iowa, Illinois, Indiana, Missouri,
Nebraska, and Wisconsin). Notices of Presidential declarations of major
disasters were issued in each state. Flooding continued into July 2008
in some areas, with Cedar Rapids, Iowa, being hardest hit, in terms of
suffering the most physical damage and business losses. The floods left
13 dead and damage region-wide was estimated in the tens of billions of
dollars. In addition to FEMA, state and local emergency management
agencies, the American Red Cross, and the National Guard assisted the
victims of flooding with disaster relief and evacuation. Second, in
early September 2008, a major disaster struck the Gulf Coast states
when Hurricane Ike made its way through Texas and Louisiana. Hurricane
Ike made landfall as a Category 2 hurricane near Galveston, Texas, on
September 7, 2008, and was declared a major disaster by the President
on September 13, 2008.[Footnote 22] Ike was the third most destructive
hurricane to make landfall in the United States and the third major
hurricane of the 2008 Atlantic hurricane season; it caused widespread
damage to some Gulf Coast areas already trying to recover from
Hurricane Gustav, which hit Louisiana on September 1, 2008.[Footnote
23] Hurricane Ike was blamed for at least 100 deaths and damages are
estimated at approximately $24 billion.
Based on our review, SBA's response following the 2008 Midwest floods
and Hurricane Ike aligned with certain components of its DRP, and the
agency's efforts were in accordance with the plan. Though we noted
earlier that the 2007 plan has not been updated and, therefore, has
some obsolete information, for purposes of this study, we found that
the plan addresses the major components--including infrastructure,
human capital, information technology, and communications and outreach-
-and puts into writing a disaster assistance framework and related
processes for how the agency plans to prepare for and respond to
victims of potential disasters, and subsequently, offer assistance
through its Disaster Loan Program. For example, according to SBA,
following both disasters the agency used its organizational
infrastructure and key staff in each of its core functions to provide
disaster assistance. ODA also utilized available operational and
technological support, and communications and outreach, to help ensure
that the agency would be able to provide timely financial assistance to
the disaster victims. While the 2008 disasters were not as severe as
those in 2005, the agency's performance in the aftermath of the 2008
flooding dramatically improved over its performance in the aftermath of
the 2005 Gulf Coast hurricanes. Specifically, following the 2005 Gulf
Coast hurricanes, processing times for a home loan reached a maximum of
about 90 days, but in 2008 the processing time was about 5 days.
Similarly, SBA took 70 days to process a business loan in 2005, but in
2008 the average processing time was about 9 days. In addition, on June
24, 2008, SBA opened a BRC in Cedar Rapids, which was co-located with
FEMA's DRC. The BRC enabled businesses owners and homeowners to work
directly with SBA staff to learn about available recovery resources and
programs, receive counseling, and receive face-to-face answers to their
questions. At the peak of its efforts, SBA reported having 194 staff
working from about 67 centers in Iowa to provide recovery assistance to
flood victims in more than 81 counties. As of June 2009, SBA had
approved more than $411 million in disaster assistance to individuals
and business owners whose homes or property were damaged by the Midwest
floods.
In addition, in the aftermath of Hurricane Ike, SBA had about 116
disaster staff in Texas and 200 in Louisiana. In Texas, particularly,
SBA customer service representatives provided assistance to Hurricane
Ike victims through 13 DRCs, two Disaster Loan Outreach Centers, and
two BRCs. The customer service representatives were available to meet
individually with disaster victims to issue loan applications, answer
questions about SBA's disaster loan program, explain the application
process, and help individuals complete their applications.
Additionally, as of June 2009, SBA had approved approximately $677
million in SBA disaster loans to Texas and Louisiana homeowners,
renters, businesses, and nonprofits who sustained damages from
Hurricane Ike. Specifically, SBA provided about $478 million in loans
to more than 9,260 homeowners and renters, and about $199 million in
loans to nearly 1,640 businesses and nonprofit organizations.
Similar to its response following the Midwest floods, SBA took less
time to process disaster loan applications during its post-Hurricane
Ike response because of upgrades made to DCMS, an expanded disaster
response workforce, and an online electronic loan application--
eliminating the need to mail an application or visit a center. As a
result, the time needed to process a home loan following Hurricane Ike
averaged about 5 days and a business loan averaged about 12 days.
SBA's Response to Recent Major Disasters Considered Satisfactory, but
Both Our Interviewees and SBA's Survey Results Identified Areas for
Improvement:
Individuals affected by both disasters told us they considered the
agency's overall performance satisfactory in responding to the
disasters. However, the individuals believed some improvements could be
made to SBA's disaster loan application process. Similarly, our review
of SBA's 2008 Disaster Loan Program Customer Satisfaction Survey also
showed that respondents provided some positive feedback about SBA's
performance, but they too believed that improvements were needed.
During our site visits to areas in Iowa and Texas, we obtained insights
on the devastation caused by the Midwest floods and Hurricane Ike from
various state and local government officials and small business owners,
as well as their perceptions of SBA's initial efforts. SBA District
Office officials and SBDCs affected by the disasters, as well as
representatives of nongovernmental organizations also gave their views
on the disaster recovery efforts. According to SBA and SBDC officials,
state and local government officials, nongovernmental representatives,
and business owners we interviewed in Iowa and Texas, in the days
immediately following the disasters, ODA staff reported to the affected
areas, established several BRCs, assigned knowledgeable customer
service representatives, and began providing the needed disaster
assistance. The individuals said that SBA representatives distributed
loan applications and assisted in the initial application process by
answering questions, providing guidance about the Disaster Loan
Program, its eligibility rules and requirements, offering one-on-one
assistance with filling out the disaster loan application, and
accepting completed applications.
Additionally, interviewees said SBA staff provided outreach and public
information to affected individuals and businesses about the Disaster
Loan Program. For example, to ensure that individuals and businesses
knew about available assistance, SBA staff worked with the local media
in providing television, radio and newspaper interviews, communicating
information about loan availability, and disseminating information
through various community briefings and town hall meetings. The
interviewees said SBA staff also made several visits to state and local
groups, such as the Chamber of Commerce to tell them about SBA's
Disaster Loan Program. Many of the people we interviewed said that
while most applicants used the paper application, the electronic loan
application--introduced in August 2008 just prior to Hurricane Ike--
worked well and they were not aware of any DCMS problems. Furthermore,
many of them were satisfied overall with SBA's initial disaster
assistance efforts, and the feedback we received on SBA's response to
the disasters indicated to us that the agency's assistance was
consistent with the processes and procedures outlined in the DRP.
As mentioned, respondents to SBA's 2008 Disaster Assistance Program
Customer Satisfaction Survey also were somewhat satisfied with ODA's
Disaster Loan Program.[Footnote 24] Specifically, our review of the
2008 survey results showed that ODA's aggregated customer satisfaction
index score was 55 on a scale of 100. Respondents, however, had mixed
reaction to the program and the agency's performance in key areas such
as application processing, SBA's Customer Service Center and the
disaster recovery centers, inspection and decision processes, and loan
closing.[Footnote 25] Specifically, survey results showed applicants
who were declined for an SBA disaster loan had lower satisfaction
ratings compared to applicants that were approved for disaster loans.
For example, the declined applicants' overall customer satisfaction
index was 34 as compared to approved applicants' customer satisfaction
index, which ranged from 63 to 81, with homeowners and renters
generally more satisfied than business owners.[Footnote 26] The survey
results also showed that the inspection process and disaster recovery
center areas were rated positively by all respondents. The respondents
noted that the DRCs were easy to locate, had convenient hours of
operation and accessible SBA staff; and rated SBA staff as being
professional, knowledgeable and helpful. Additionally, respondents
rated the SBA inspection process as an area where SBA staff excelled.
Interviewees and Survey Results Point to the Need for Improvements in
the Application Process, but SBA Does Not Have A Clear Process with
Which to Respond to Ongoing Concerns:
While SBA's response to the disasters was considered satisfactory
overall, both the individuals we interviewed and survey results point
to areas for improvement and suggested ways to increase satisfaction
with SBA's disaster assistance process. For example, some business
owner applicants we interviewed expressed concern over collateral
requirements and interest rates. They also complained about disparity
between verbal versus final written loan terms and amounts, having
multiple loan officers or case managers, and SBA not using district and
branch office staff for follow up after centers were closed in their
areas. Additionally, some business owner applicants said that the
disaster loan application was too complex or lacked adequate
instructions--a problem which interviewees believed sometimes caused
some applicants to withdraw their application or decide not to apply
for SBA disaster loans.
Both the interviewees and the survey results indicated the amount of
paperwork required for the application process was burdensome, and
interviewees also expressed concerns about the timeliness of loan
disbursements. Specifically, some interviewees said that improvements
were necessary to speed up loan disbursements because some business
owners had to wait as long as 7 months after submitting the disaster
loan application to receive an initial loan disbursement, by which time
a small business could be so economically weakened that its future
operations would be in question. In terms of the survey, business loan
and economic injury disaster loan recipients were dissatisfied
particularly with the timeliness of fund disbursals after loan
approval, and rated the application process for business loans as among
the areas most needing improvement. In addition, the application and
decision process were consistently among the lower-rated performing
areas.
In addressing some of the areas in need of improvement, many business
owner applicants we interviewed suggested changes to SBA's disaster
loan application process, such as providing partial disbursements
earlier in the process and using bridge loans to help ensure disaster
victims receive timely assistance. We also consistently heard from
SBDCs and state and local emergency management agencies, the need for
joint pre-planning and disaster preparedness efforts with SBA, and more
up-front information about SBA's disaster response plan and their
expected roles and responsibilities as part of that response effort. In
addition, during our interviews, some business owner applicants
complained that they had to provide copies of 3 years of federal income
tax returns, although they had signed an IRS form 8821--Tax Information
Authorization--which allows SBA to get tax return information directly
from IRS.[Footnote 27] Interviewees found this process burdensome and
somewhat inefficient and, as a result, suggested that SBA change its
application requirements to remove the requirement that applicants must
provide copies of tax returns. SBA officials explained the current
process for obtaining tax information from IRS and stated that SBA does
not require copies of tax returns from all business applicants. Rather,
they said that SBA requests copies on a case-by-case basis when it is
unable to determine repayment ability based on the tax transcript
obtained by using IRS form 8821. However, our review of SBA's filing
requirements for business loans showed that SBA's written procedures
differed from those the officials explained. Specifically, SBA's
written requirements for business loans state that while SBA requires
business applicants to sign form 8821, applicants also must submit
copies of their tax returns. In addition to the potential paperwork
burden for applicants, the conflicting written procedures and SBA's
current process could cause confusion and inefficient processing during
disaster responses.
Similarly, one suggestion from the ACSI report of survey results was
that SBA improve or maintain its process in high-performing areas of
the loan application process and work to improve its performance in the
low-performing areas to demonstrate commitment to further improving the
process for future disaster loan applicants. For instance, areas with
the lowest impact on an applicant's overall satisfaction, such as the
inspection process and DRCs, were rated higher than other areas by all
respondent groups and those areas rated as having the highest impact on
satisfaction for most respondents--the application and decision areas--
scored lowest in satisfaction.
Consequently, in reporting the results and suggestions for agency
action, SBA was encouraged to: (1) maintain its efforts in areas that
were high performing and had low impact on overall customer
satisfaction, and (2) increase its efforts to improve areas that were
low performing and had a higher impact on satisfaction.
During our review and analysis of the 2008 customer satisfaction
survey, we found that the survey's results were not a formal part of
the agency's process for reforming its disaster loan program, or its
efforts to continually improve the application process. SBA officials
were unable to cite specific actions taken to incorporate the survey's
results into efforts to improve its disaster program, and it appears
that its primary use for the annual survey is linking it to the
agency's budget and performance accountability reports to provide an
outcome measure for the Disaster Loan Program. Additionally, apart from
SBA's 2008 launch of its online disaster loan application, we found
that the agency's other disaster reform efforts, to date, have not
focused on the complexity of the disaster loan application
(particularly for business applicants), the extensive amount of
paperwork and documents required, or the timeliness of disbursements.
While SBA officials said they continually look for ways to improve the
disaster loan application, the agency does not appear to have a formal
process for addressing problem areas within its program and making
needed improvements. Consequently, it may be missing opportunities to
demonstrate its commitment to further improve the application process
for future applicants.
Finally, some of the improvements suggested by the individuals we
interviewed are related to some requirements in the Act. For example,
as we noted earlier, the Act requires that SBA provide specific
regional marketing and outreach information and scenarios in its DRP,
and include SBDCs in preparing for future disasters. Additionally, the
Act requires that SBA coordinate with IRS, as necessary, in sharing tax
records of disaster loan applicants to ensure expedited processing of
all disaster loans. As mentioned earlier in this report, as of June,
SBA has yet to address these two requirements.
Conclusions:
SBA's response to the 2005 Gulf Coast hurricanes exposed many
deficiencies in the agency's Disaster Loan Program and demonstrated the
need for reform. Since then, SBA has taken steps to improve its
program. For instance, SBA issued a DRP, adopted an electronic loan
application, upgraded the system capacity of its DCMS, improved
employee training and expanded its disaster reserve staff. With passage
of the Act, Congress also acted to transform and improve SBA's Disaster
Loan Program and ensure the agency is better prepared to handle future
large-scale disasters. SBA adapted its initial DRP in June 2007, which
laid out a framework and processes the agency has in place that would
enable it to respond effectively to disasters, and the Act requires
that SBA have such a plan and regularly update it. However, SBA has not
addressed specifically how it would market its Disaster Loan Program in
different areas of the country, nor adapted likely scenarios for
certain regions prone to disasters. Although SBA believes that it has
addressed the requirement for marketing and outreach in its DRP, the
2007 plan does not provide any regional perspective, nor has the agency
updated this plan since 2007. We consistently heard from regional
entities, such as SBDCs and emergency management groups, about the need
for more upfront information on SBA's Disaster Loan Program and their
expected roles and responsibilities in disaster response efforts. By
taking such actions, SBA could leverage the efforts and capacity of
SBDCs, as well as state and local emergency management agencies, and
ensure that it and they will be better prepared for future events,
especially in disaster-prone areas.
SBA has taken a number of steps to address the many requirements of the
Act; however, some provisions have presented challenges for SBA in
implementing specific requirements and meeting some associated
deadlines. For example, SBA has not completely met certain requirements
and the agency does not have an implementation plan in place to ensure
the remaining requirements are addressed. Some of the changes required
by the Act, especially those requiring SBA to create new programs, will
take time to implement. It will be important for the agency to do so in
a comprehensive manner; but because the implementation process already
is behind schedule, it also will be important for SBA to ensure it has
a plan for implementing the remaining requirements and report on its
progress to Congress. Failure to produce annual reports on schedule can
lead to a lack of transparency on the agency's progress in reforming
the program. Delays in updates to the DRP also limit its ability to
adequately prepare for and respond to disasters. By continuing its
efforts to address and implement all requirements in the Act and
expeditiously communicate its actions, SBA could improve its operations
for the 2009 hurricane season, build on the lessons learned in the
aftermath of the 2005 Gulf Coast hurricanes, and further signal its
commitment to its mission of providing affordable and timely financial
assistance to help businesses and homeowners recover from disasters.
SBA's initial response following the 2008 Midwest floods and Hurricane
Ike aligned with certain components of its DRP, and the affected
individuals we interviewed, as well as respondents to SBA's 2008
Disaster Loan Program Customer Satisfaction Survey were somewhat
satisfied with the agency's performance after the major disasters of
2008. However, the individuals we interviewed and survey results both
indicated areas for improvement with SBA's disaster loan program. For
instance, our interviewees and the survey results indicated the amount
of paperwork in the application process was burdensome and cited the
application process, including tax information requirements, as an area
for improvement. As discussed in this report, while SBA has made
progress, the agency has missed opportunities to further improve its
Disaster Loan Program, and, in particular, improve the application
process for future applicants. For example, it was unclear to what
extent it had a formal process in place for addressing identified
problem areas and making needed improvements to its program. By
establishing such a process to address identified problem areas, SBA
could better demonstrate its commitment to improve the Disaster Loan
Program.
Recommendations for Executive Action:
To facilitate SBA's progress in meeting and complying with requirements
of the Act and improve the Disaster Loan Program, we recommend that the
Administrator of SBA take the following five actions:
* develop procedures for regional entities that would enable SBA to
meet all region-specific requirements of the Act. Specifically,
building on the lessons learned from previous disasters, SBA should
include likely scenarios for certain regions prone to disasters and
regional marketing information for SBDCs, other local resources, and
local emergency management groups. In addition, SBA should make this
information and other Disaster Loan Program information readily
available to these regional entities prior to the likely occurrence of
a disaster;
* complete the first annual report to Congress on disaster assistance,
and adhere to the required time frames for subsequent annual reports;
* expeditiously issue an updated DRP that reflects recent changes
resulting from the Act's requirements, as well as SBA's own disaster
reform efforts;
* develop an implementation plan and report to Congress on the agency's
progress in addressing all requirements within the Act--including
creating and implementing new programs, such as the Immediate and
Expedited Disaster Assistance Programs--and include milestone dates for
completing implementation and any major program, resource, or other
challenges the agency faces as its continues efforts to address
requirements and meet deadlines in the Act; and:
* develop and implement a process to address identified problems in the
disaster loan application process for future applicants.
Agency Comments and Our Evaluation:
We provided SBA a draft of this report for review and comment. In
comments provided to us in an email, SBA generally agreed with our
recommendations and stated the agency's plan to incorporate them into
its ongoing efforts to implement the Act and improve the application
process. Specifically, SBA said that the agency has plans to expand its
outreach efforts to ensure the public in all regions of the country are
more aware of SBA disaster assistance programs before a disaster
strikes. SBA is also planning to submit both the required annual
report, and the 2009 revision to its DRP to Congress by November 15,
2009. Additionally, SBA officials said the agency has plans to develop
an implementation plan for completion of the remaining provisions.
Finally, in response to our recommendation on the application process,
the officials cited the electronic loan application as an example of
its efforts to improve the application process and said the agency has
plans to continue its improvement efforts and make such improvements an
ongoing priority. The comments also referred to ongoing efforts since
2005 to improve various processes, including 79 projects to improve the
processing and disbursement process, but did not specify how these
efforts improved the application process for disaster victims. In
addition, SBA did not say how it would implement a formal process to
address identified problem areas in the disaster loan application
process.
We are sending copies of this report to interested Members of Congress
and the Administrator of the Small Business Administration. In
addition, this report will be available at no charge on the GAO Web
site at [hyperlink, http://www.gao.gov].
Please contact me at (202) 512-8678 or shearw@gao.gov if you or your
staff have any questions about this report. Contact points for our
Office of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix III.
Sincerely yours,
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives were to review (1) the extent to which the Small
Business Administration (SBA) addressed the requirements of the Small
Business Disaster Response and Loan Improvements Act of 2008 (Act), and
(2) how SBA's response, following the major disasters of 2008, aligned
with key components of its June 2007 Disaster Recovery Plan (DRP).
To respond to these objectives overall, we reviewed agency documents
related to SBA's implementation of the Act's requirements, identified
key components of the DRP, interviewed key officials at SBA
headquarters about their roles and responsibilities in implementing the
Act and SBA's response to major disasters in 2008, and identified the
requirements specified in the Act--including any statutory deadlines
for implementing specific provisions of the Act. SBA officials we met
with included senior officials representing the Executive Office of
Disaster Strategic Planning and Operations (EODSPO) and the Office of
Disaster Assistance (ODA). We also met with officials from SBA's Office
of the Inspector General to discuss planned audits and oversight
activities related to SBA's Disaster Loan Program and the agency's
implementation of the Act.
To determine the extent to which SBA addressed the requirements and
deadlines of the Act, we:
* reviewed the Act and identified 26 provisions with substantive
statutory requirements and 9 provisions with related deadlines;
* reviewed the Act to determine which provisions require general or
explicit appropriations;
* obtained, reviewed and analyzed documentation, such as policy
memorandums, reports issued to Congress, or progress reports to
determine if requirements had been addressed and deadlines had been
met;
* interviewed agency officials to obtain information on what, if any,
challenges exist that may affect SBA's ability to address certain
requirements--including identifying reasons for any delays in meeting
the statutory deadlines; and:
* met with SBA to obtain information about the agency's next steps and
resources the agency identified it needs to completely address the
remaining provisions. During these meetings, we requested expected time
frames for completion, milestone dates, resources needed, and reasons
for delay, if applicable, for the partially addressed provisions.
To assess whether SBA's initial response following the 2008 disasters
aligned with key components of its 2007 DRP, we conducted site visits
to areas impacted by the 2008 Midwest floods (Iowa) and Hurricane Ike
(Texas). We reviewed SBA's DRP and other plans issued by the agency
(i.e., SBA's ODA Field Operations, Processing and Disbursement Center,
and Customer Service Center Disaster Response Plans) to identify some
of the key components of the plans such as determining the agency's
strategy for establishing field operations, disseminating information,
coordinating with Small Business Development Centers (SBDC) and other
regional entities, and effectively processing applications, as well as
the agency's DRP that discusses its approach for being prepared for and
responding to a disaster declaration, strategy for internal and
external communication, and a description of ODA's responsibilities. In
both Iowa and Texas, we interviewed various stakeholders including SBA
and SBDC officials, state and local government officials,
representatives of local Chambers of Commerce and economic development
organizations, and small business owners to discuss what worked well,
in terms of SBA carrying out key components of their DRP, and what, if
any, improvements were suggested for SBA's Disaster Loan Program and
processes. While our limited number of site visits was too small for
generalizing the information obtained to assess ODA's overall ability
to respond to any disaster, the observations and perspectives expressed
by the various stakeholders was sufficient to suggest that SBA has
begun institutionalizing key reforms in its disaster program's policy
and practices. Furthermore, we obtained information about loan
applicants' and recipients' satisfaction with the agency's Disaster
Loan Program and related services immediately following the Midwest
floods and Hurricane Ike.
We also reviewed the 2008 Disaster Assistance Program Customer
Satisfaction Survey that addressed five customer segments which measure
customer satisfaction with SBA's Disaster Loan Program.[Footnote 28] It
included four types of loan recipients--homeowners, renters, and
business owners who received physical damage and economic injury
disaster loans, as well as declined applicants. The survey
questionnaire, which was developed through a collaborative effort
between the Claes Fornell International (CFI) Group and SBA, measured
overall satisfaction with SBA's program in areas such as application
processes, customer service center, recovery center, and inspection
processes. About 4,800 loan recipients and declined applicants were
included in the survey population resulting in about 570 completed
responses used for analysis--a response rate of about 20 percent.
Further, the number of completed interviews was based on a quota for
calling among the five customer segments, with weights applied to
responses for the number of completed surveys and the number of loan
recipients and declined applicants studied. Our overall data
reliability assessment of the Customer Satisfaction survey was
generally based on discussions with SBA officials and our knowledge of
the Disaster Loan Program, publicly available information on ACSI, and
our prior reports which included analyses of past years' survey
results. As a result, we determined that survey data were sufficiently
reliable for purposes of this report.
We conducted this performance audit from October 2008 through July
2009, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Summary of the 2008 Small Business Disaster Response and
Loan Improvements Act Requirements:
Figure 1: SBA's Status in Addressing Requirements and Deadlines of the
Small Business Disaster Response and Loan Improvements Act of 2008:
Section: 12061;
Description of requirement: SBA permitted to make economic injury
disaster loans to nonprofits.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12062[A];
Description of requirement: SBA must ensure its disaster assistance
programs are coordinated to the maximum extent practicable with FEMA
programs.
Status: Partially addressed or some deadlines met;
Deadline: Not addressed or missed deadline.
Section: 12063;
Description of requirement: Better public awareness of disaster
declaration, application periods, and creation of a marketing and
outreach plan.
Status: Partially addressed or some deadlines met;
Deadline: Not addressed or missed deadline.
Section: 12064;
Description of requirement: SBA must conduct a study looking at the
consistency between standard operating procedures and regulations of
the Disaster Loan Program.
Status: Addressed (initial or ongoing) or deadline met.
Deadline:Not addressed or missed deadline.
Section: 12065;
Description of requirement: SBA increased loan amounts from $10,000 to
$14,000 without requiring collateral.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12066;
Description of requirement: SBA authorizes private contractors to
process disaster loans and coordinate efforts with IRS to expedite loan
processing.
Status: Partially addressed or some deadlines met;
Deadline: [Empty].
Section: 12067;
Description of requirement: SBA must develop, implement, or maintain a
centralized information system to track and follow up with disaster
loan applicants.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12068;
Description of requirement: SBA is authorized to increase the deferment
period of loans, but the deferment may not exceed 4 years.
Status: N/A;
Deadline: [Empty].
Section: 12069;
Description of requirement: SBA must put in a place a secondary
facility for processing disaster loans in case the primary facility is
unavailable.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12070;
Description of requirement: SBA can not require the borrower to pay any
non-amortized amount for the first 5 years after repayment begins.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12071;
Description of requirement: SBA is authorized to make economic injury
disaster loans in cases of ice storms and blizzards.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12072;
Description of requirement: SBA must develop and implement a major
disaster response plan and conduct a disaster simulation exercise at
least once every 2 years.
Status: Addressed (initial or ongoing) or deadline met;
Deadline: Addressed (initial or ongoing) or deadline met.
Section: 12073;
Description of requirement: SBA must assign an individual the disaster
planning responsibilities and report to Congress.
Status: Addressed (initial or ongoing) or deadline met;
Deadline: Addressed (initial or ongoing) or deadline met.
Section: 12074;
Description of requirement: SBA should ensure that the number of full-
time equivalent ODA employees is not fewer than 800 and in the disaster
cadre not fewer than 1,000.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12075;
Description of requirement: SBA must develop, implement, or maintain a
comprehensive written disaster response plan and update the plan
annually.
Status: Partially addressed or some deadlines met;
Deadline: Partially addressed or some deadlines met[B].
Section: 12076;
Description of requirement: SBA must develop long-term plans to secure
sufficient office space to accommodate an increased workforce in times
of disaster.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12077;
Description of requirement: SBA may not rely solely on the loan
applicant‘s status as a major source of employment prior to the
disaster to qualify for disaster loans beyond the current statutory
limit.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12078;
Description of requirement: Maximum disaster loan amount increased from
$1.5 to $2 million.
Status: Addressed (initial or ongoing) or deadline met.
Deadline: [Empty].
Section: 12079;
Description of requirement: SBA may guarantee any surety against loss
on a bid, payment, performance, or ancillary bond on any work order or
contract that at the time of the bond execution does not exceed $5
million.
Status: N/A;
Deadline: [Empty].
Section: 12081;
Description of requirement: If the President declares a major disaster,
SBA may declare eligibility for additional disaster assistance.
Status: N/A;
Deadline: [Empty].
Section: 12082;
Description of requirement: SBA permitted to make economic injury
disaster loans to eligible small business concerns located anywhere in
the US (including outside the disaster area) when the SBA declares
eligibility for additional disaster assistance.
Status: N/A;
Deadline: [Empty].
Section: 12083[A];
Description of requirement: SBA must establish and implement a Private
Disaster Assistance Program. SBA may guarantee timely payment of
principal and interest on private disaster loans issued to eligible
small businesses and homeowners within an eligible disaster area.
Status: Partially addressed or some deadlines met;
Deadline: Not addressed or missed deadline.
Section: 12084;
Description of requirement: SBA must establish an Immediate Disaster
Assistance Program to provide immediate small dollar loans through
private lenders.
Status: Partially addressed or some deadlines met;
Deadline: [Empty].
Section: 12085[A];
Description of requirement: SBA must establish an Expedited Disaster
Assistance Business Loan Program.
Status: Partially addressed or some deadlines met;
Deadline: Not addressed or missed deadline.
Section: 12086;
Description of requirement: SBA is allowed to institute a program to
refinance Gulf Coast disaster loans resulting form Hurricanes Katrina,
Rita, or Wilma up to an amount no greater than the original loan.
Status: N/A;
Deadline: [Empty].
Section: 12091;
Description of requirement: SBA must submit reports to Congress on
disaster assistance.
Status: Partially addressed or some deadlines met;
Deadline: Partially addressed or some deadlines met.
Source: GAO analysis of the Act and SBA documents.
Note: The Act explicitly establishes appropriation requirements for
procurements related to a major disaster for the provision in bold.
N/A: Not applicable because no action is needed to be taken by SBA at
this time, due to provisions‘ discretionary nature.
[A] The Act requires SBA to issue regulations for these provisions.
[B] SBA has not yet issued an updated DRP.
[End of table]
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
William B. Shear, Director, (202) 512-8678, or shearw@gao.gov.
Staff Acknowledgments:
In addition to the individual named above, Kay Kuhlman, Assistant
Director; Michelle Bowsky; William Chatlos; Beth Ann Faraguna;
Alexandra Martin-Arseneau; Marc Molino; Linda Rego; and Barbara
Roesmann made significant contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 110-246, subtitle B, 122 Stat. 2168 (2008).
[2] SBA can lend individuals amounts up to $200,000 for their primary
residence and $40,000 for household goods and personal effects and can
lend businesses up to an aggregated $2 million for physical and
economic injury disaster loans, before the individuals or business
owners receive their insurance recovery. In these cases, the loan
recipient must use the insurance recovery funds to reduce the balance
of the SBA disaster loan. Even individuals or business owners who
believe they have full insurance coverage are encouraged to apply for
an SBA loan because their insurance recovery may turn out to be only
partial, or their damage may exceed insurance policy limits.
[3] For a catastrophic disaster, application periods can be extended at
the state governor's request.
[4] The Disaster Field Operations Center-East, in Atlanta, handles
field operations and public information activity for disaster
declarations in the states east of the Mississippi River, plus
Washington, D.C., Minnesota, the U.S. Virgin Islands and Puerto Rico.
The Disaster Field Operations Center-West, in Sacramento, handles field
operations and public information activity for disaster declarations in
all states west of the Mississippi River, Alaska, Hawaii, and the U.S.
Pacific Islands (Guam, American Samoa, Marshall Islands, Northern
Mariana Islands, and Micronesia).
[5] SCORE is a nonprofit government-chartered corporation and SBA
resource partner that focuses on entrepreneur education and training,
and the creation, growth, and success of small businesses nationwide.
[6] See S. Rep. No. 110-64, at 5 (2007) (expressing concern over the
SBA not having a "proactive, comprehensive disaster response plan in
place in August 2005").
[7] According to section 12075, Comprehensive Disaster Recovery Plan,
the plan must include a description of the disasters most likely to
occur regionally, including (1) an assessment of the disaster; (2) an
assessment of the likely demand for SBA assistance; (3) an assessment
of SBA's resource needs related to information technology,
telecommunications, human resources, and office space; and (4)
guidelines on SBA's use of resources and how it intends to coordinate
with other agencies.
[8] GAO, Small Business Administration: Additional Steps Needed to
Enhance Agency Preparedness for Future Disasters, [hyperlink,
http://www.gao.gov/products/GAO-07-114] (Washington, D.C.: Feb. 14,
2007).
[9] SBA refers to its comprehensive disaster response plan (as required
by section 12075) as its DRP. SBA's use of the term "disaster recovery
plan" differs from how it is generally used in referring to an
information technology-focused plan designed to restore operability of
a system, application, or computer facility following an emergency.
[10] In June 2008, as part of the Food, Conservation, and Energy Act
(also commonly known as the Farm Bill), Pub. L. No. 110-246, 122 Stat.
1651, Congress enacted the Small Business Disaster Response and Loan
Improvements Act of 2008. This law repealed and replaced a duplicative
enactment, which had been enacted on May 22, 2008. However, the Farm
Bill contains a provision that generally preserved the prior act's date
of enactment if it would provide an earlier effective date than the
date of enactment of the Farm Bill. Although the Act was enacted on
June 18, 2008, the enactment date for purposes of determining the
effective date is May 22, 2008. Therefore, all statutory deadlines
presented in this report are calculated from May 22, 2008.
[11] Appendix II provides details on the 26 provisions of the Act and
SBA's status in addressing the requirements.
[12] A report to the Senate Committee on Small Business and
Entrepreneurship and U.S. House of Representatives Committee on Small
Businesses, Study on Consistency Between U.S. Small Business
Administration Regulations and Standard Operating Procedures.
(Washington, D.C.: December 15, 2008).
[13] SBA's disaster reserve consists of both active and ready reserve
staff. SBA estimates 75 percent of their active reserve staff and 50
percent of their ready reserve staff will be available when called upon
to quickly staff disaster field offices in the event of a major
disaster.
[14] Sections 12068, 12081, 12082, and 12086.
[15] 13 C.F.R. pt. 123, subpt. G (2009). The travel restrictions placed
around the disaster area adversely affected small businesses located
throughout the United States because distributors that served New York
businesses were located throughout the country. Accordingly, SBA
expanded the eligibility for economic injury disaster loans to include
businesses located outside of the disaster area.
[16] Under Section 12079, Small Business Bonding Threshold, SBA may for
any procurement related to a major disaster, guarantee any surety
against loss on a bid, payment, performance, or ancillary bond on any
work order or contract that at the time of the bond execution does not
exceed $5 million.
[17] Pub. L. No.111-5, title V, 123 Stat. 115, 151, 158-161 (2009).
[18] On May 11, 2009, SBA, as part of its unified agenda for
regulations at the proposed rule stage, indicated that in implementing
the Act it will issue regulations to make conforming changes to
existing regulations and establish three new programs: The Private
Disaster Loan program, the Immediate Disaster Assistance program, and
the Expedited Disaster Assistance program for businesses. SBA also
indicated that it would issue new regulations to provide guidance on
expanded assistance during catastrophic disasters and address
coordination with FEMA. 74 Fed. Reg. 22009, 22010 (May 11, 2009).
[19] According to agency officials, the pilot program will be designed
to test requirements applicable to sections 12084 and 12085.
[20] The Act also states the annual report must include information on
some requirements under certain provisions, such as (a) the regulations
on coordination with FEMA to assure that applications for disaster
assistance are submitted as quickly as practicable, as required under
section 12062; (b) disaster simulation exercises conducted by the
agency under section 12072; (c) updates to the comprehensive DRP,
required under section 12075; and (d) updates to SBA's plans for
securing office space to accommodate an expanded workforce, required
under section 12076.
[21] While SBA received a large number of applications as a result of
Hurricane Gustav, the agency's total loan amount approved for the
Midwest floods and Hurricane Ike were far greater than for Hurricane
Gustav. Because of the greater dollar amounts approved as a result of
the Midwest floods and Hurricane Ike, we decided to conduct site visits
to areas affected by these two disasters.
[22] Hurricane Ike was a Category 2 hurricane, according to the Saffir-
Simpson Hurricane Wind Scale--which is a 1 to 5 categorization, based
on the hurricane's intensity with 5 indicating the most severe winds.
[23] According to FEMA, Hurricane Gustav affected areas of Florida,
Alabama, Mississippi, Louisiana, and Texas. Affected counties and
parishes are eligible for different types of federal assistance, but
SBA approved disaster loans due to damage caused by Hurricane Gustav in
Mississippi and Louisiana. For example, 52 Louisiana parishes were
declared eligible for individual assistance and all 64 parishes were
declared for some form of public assistance. As of June 2009, SBA
approved more than 4,100 applications, totaling more than $123 million
in disaster loans to home and business owners affected by Hurricane
Gustav.
[24] The response rate for the survey was about 20 percent. About 4,800
loan recipients and declined applicants were included in the survey
population, which resulted in approximately 570 completed responses
used for survey analysis. The survey results should be viewed with
caution because of the low response rate.
[25] The American Customer Satisfaction Index (ACSI) is the national
indicator of customer evaluations of the quality of goods and services
available to U.S. residents. ACSI is a uniform cross-industry/
government measure of customer satisfaction, including its causes and
its effect. ACSI is provided through a partnership of the University of
Michigan Business School, Claes Fornell International (CFI) Group, and
the American Society for Quality.
[26] There is a range of scores because the survey includes four
categories of approved applicants: homeowners (81), renters (80),
business owners (63), and recipients of economic injury disaster loans
(66). The scores address the respondents' overall satisfaction,
satisfaction compared to expectations, and satisfaction compared to an
"ideal" organization, based on averages with 0 meaning "poor" and 100
meaning "excellent".
[27] SBA officials told us the agency requests copies of tax records to
help loan officers prepare cash flow analyses and to calculate
repayment ability.
[28] The survey used the American Customer Satisfaction Index (ACSI)
which is the indicator of customer evaluations of the quality of goods
and services available to U.S. residents. Since 1999, the ACSI has
measured satisfaction, its causes, and its effects for more than 100
programs of federal government agencies. The ACSI is produced by the
University of Michigan Business School, CFI Group, and the American
Society for Quality.
[End of section]
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