Small Business Administration
Continued Attention Needed to Address Reforms to the Disaster Loan Program Gao ID: GAO-10-735T May 19, 2010After the Small Business Administration (SBA) was widely criticized for its performance following the 2005 Gulf Coast hurricanes, the agency took steps to reform its Disaster Loan Program. Congress also enacted the Small Business Disaster Response and Loan Improvements Act of 2008 (Act), which places new requirements on SBA to ensure it is prepared for catastrophic disasters. This testimony discusses (1) the extent to which SBA has 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). In completing this statement, GAO reviewed and updated, as appropriate, the July 2009 report, 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). In that report, GAO recommended that SBA should fulfill 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 for the Disaster Loan Program.
SBA has made some progress since GAO's July 2009 report in addressing provisions of the Act and continued attention to certain provisions will be important for sustained progress. As of May 2010, SBA met requirements for 15 of 26 provisions of the Act and partially addressed 6. Five provisions do not require any action at this time. Since July 2009 SBA has taken a number of actions. For example, SBA issued an updated DRP in November 2009. In addition, SBA issued regulations on coordinating with the Federal Emergency Management Agency on timely submission of disaster assistance applications. SBA also has taken steps to address the Act's requirements for region-specific marketing and outreach. For example, SBA has begun a dialogue with the Small Business Development Center state directors in the Gulf Coast about disseminating disaster planning information in the five most hurricane-prone states before the hurricane season. However, these steps have not been discussed in public documents or venues, such as in the DRP or on the SBA Web site, which would make the information more transparent and easily accessible to the public and Congress. SBA officials told GAO the agency has not yet completely addressed some provisions because the agency must make extensive changes to current programs or implement new programs. In particular, for two requirements that will involve private lenders, SBA plans to implement pilots before finalizing regulations. SBA officials recently said that they had formed a cross-functional work group and began reaching out to lenders about the planned pilots. SBA has not yet developed an implementation plan with milestone dates for addressing the remaining requirements, but recently said it would provide a plan or report that included milestone dates for addressing the Act's 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 better ensure timely assistance. The individuals GAO interviewed and results from SBA's 2008 Disaster Loan Program Customer Satisfaction Survey provided somewhat positive feedback about SBA's performance following the 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. The agency did not appear to have a formal process for identifying problems in the application process and making needed improvements. SBA officials told GAO that they have been taking steps to improve the application process. However, SBA has not provided information to GAO on how it would implement a formal process to address identified problem areas in the disaster loan application process.
GAO-10-735T, Small Business Administration: Continued Attention Needed to Address Reforms to the Disaster Loan Program
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Testimony:
Before the Committee on Small Business and Entrepreneurship, U.S.
Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 11:00 a.m. EDT:
Wednesday, May 19, 2010:
Small Business Administration:
Continued Attention Needed to Address Reforms to the Disaster Loan
Program:
Statement of William B. Shear, Director:
Financial Markets and Community Investment:
GAO-10-735T:
GAO Highlights:
Highlights of GAO-10-735T, a testimony before the Committee on Small
Business and Entrepreneurship, U.S. Senate.
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 its Disaster Loan Program. Congress also
enacted the Small Business Disaster Response and Loan Improvements Act
of 2008 (Act), which places new requirements on SBA to ensure it is
prepared for catastrophic disasters.
This testimony discusses (1) the extent to which SBA has 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).
In completing this statement, GAO reviewed and updated, as
appropriate, the July 2009 report, 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). In that report, GAO recommended that SBA should fulfill
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 for the Disaster
Loan Program.
What GAO Found:
SBA has made some progress since GAO‘s July 2009 report in addressing
provisions of the Act and continued attention to certain provisions
will be important for sustained progress. As of May 2010, SBA met
requirements for 15 of 26 provisions of the Act and partially
addressed 6. Five provisions do not require any action at this time.
Since July 2009 SBA has taken a number of actions. For example, SBA
issued an updated DRP in November 2009. In addition, SBA issued
regulations on coordinating with the Federal Emergency Management
Agency on timely submission of disaster assistance applications. SBA
also has taken steps to address the Act‘s requirements for region-
specific marketing and outreach. For example, SBA has begun a dialogue
with the Small Business Development Center state directors in the Gulf
Coast about disseminating disaster planning information in the five
most hurricane-prone states before the hurricane season. However,
these steps have not been discussed in public documents or venues,
such as in the DRP or on the SBA Web site, which would make the
information more transparent and easily accessible to the public and
Congress. SBA officials told GAO the agency has not yet completely
addressed some provisions because the agency must make extensive
changes to current programs or implement new programs. In particular,
for two requirements that will involve private lenders, SBA plans to
implement pilots before finalizing regulations. SBA officials recently
said that they had formed a cross-functional work group and began
reaching out to lenders about the planned pilots. SBA has not yet
developed an implementation plan with milestone dates for addressing
the remaining requirements, but recently said it would provide a plan
or report that included milestone dates for addressing the Act‘s
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 better ensure timely assistance.
The individuals GAO interviewed and results from SBA‘s 2008 Disaster
Loan Program Customer Satisfaction Survey provided somewhat positive
feedback about SBA‘s performance following the 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. The agency did
not appear to have a formal process for identifying problems in the
application process and making needed improvements. SBA officials told
GAO that they have been taking steps to improve the application
process. However, SBA has not provided information to GAO on how it
would implement a formal process to address identified problem areas
in the disaster loan application process.
View [hyperlink, http://www.gao.gov/products/GAO-10-735T] or key
components. For more information, contact William Shear at (202) 512-
8678 or shearw@gao.gov.
[End of section]
Madam Chair and Members of the Committee:
I am pleased to be here today to discuss our work on reforms made to
the Small Business Administration's (SBA) Disaster Loan Program. As
you know, SBA plays a critical role in assisting the victims of
natural and other declared disasters. 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.
Since the agency's inception in 1953, SBA has approved more than $47
billion in disaster loans for homeowners, businesses, and nonprofits.
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 and one that exposed many deficiencies in
the agency's Disaster Loan Program and demonstrated the need for
reform. 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 including creating an online loan
application, increasing the capacity of its Disaster Credit Management
System (DCMS), and developing a Disaster Recovery Plan (DRP).[Footnote
1] In June 2008, Congress enacted the Small Business Disaster Response
and Loan Improvements Act (Act) which places new requirements on SBA
to ensure that it is prepared for future catastrophic disasters.
[Footnote 2]
My statement today is based on our 2009 report and updated information
on SBA's progress in addressing the Act's requirements and our
report's recommendations.[Footnote 3] Specifically, this statement
focuses on (1) SBA's progress in addressing certain requirements of
the Act, and (2) how SBA's response, following the major disasters of
2008, aligned with key components of its June 2007 DRP.
For our 2009 report, we identified and analyzed the requirements of
the Act 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 meet certain requirements; and interviewed officials to
obtain information about next steps and resources that the agency
identified as needed to address any remaining requirements. We visited
Iowa and Texas, and obtained information on SBA's performance in the
aftermath of the 2008 Midwest floods and Hurricane Ike. 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 what improvements to SBA's disaster loan
processes they would suggest. Finally, we reviewed results from a
survey of SBA loan applicants on their satisfaction with SBA's
Disaster Loan Program in 2008. To update this information, we
interviewed SBA officials and reviewed documents related to the
disaster reform provisions and actions taken to implement our
recommendations.
We conducted our work for the July 2009 report between October 2008
and July 2009 and updated information between March 2010 and May 2010
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.
Background:
SBA's Office of Disaster Assistance (ODA) responds to disasters and
administers the Disaster Loan Program. 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 that
role 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). 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, including personal residences and businesses of any
size. That is, SBA provides loans to cover repair costs that FEMA or
other insurance has not already fully compensated or covered.[Footnote
4] Economic injury disaster loans provide small businesses, including
agricultural cooperatives and private nonprofit organizations, with
necessary working capital until normal operations can resume.
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 for disaster planning and
response, disaster lending, and reporting.[Footnote 5] 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 creates new 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.
SBA Continues to Make Progress in Addressing the Act's Provisions, but
Has Not Yet Established Milestones for Implementing Remaining
Requirements:
As of May 2010, SBA fully addressed requirements for 15 of 26
provisions of the Act; partially addressed 6; and took no action on 5
that are not applicable at this time (see fig. 1). For the 15
provisions SBA fully addressed, the agency's actions included putting
in place a secondary facility in Sacramento, California to process
loans when the main facility in Fort Worth, Texas is unavailable,
making improvements to DCMS to track and follow up with applicants,
and expanding its disaster reserve staff from about 300 to more than
2,000 individuals. According to SBA and our review, 5 provisions
require no action at this time because they are discretionary or
additional appropriations are needed before SBA can satisfy the Act's
requirements.
Figure 1: SBA's Status in Addressing Requirements of the 2008 Small
Business Disaster Response and Loan Improvements Act, as of May 2010:
[Refer to PDF for image: illustrated table]
Section: 12061;
Description of requirement: SBA permitted to make economic injury
disaster loans to nonprofits;
Status (May 2010): Addressed (initial or ongoing);
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 (May 2010): Addressed (initial or ongoing);
Deadline: Missed deadline.
Section: 12063;
Description of requirement: Better public awareness of disaster
declaration, application periods, and creation of a marketing and
outreach plan;
Status (May 2010): Partially addressed;
Deadline: 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 (May 2010): Addressed (initial or ongoing);
Deadline: Missed deadline.
Section: 12065;
Description of requirement: SBA increased loan amounts from $10,000 to
$14,000 without requiring collateral;
Status (May 2010): Addressed (initial or ongoing);
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 (May 2010): Partially addressed;
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 (May 2010): Addressed (initial or ongoing);
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 (May 2010): 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 (May 2010): Addressed (initial or ongoing);
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 (May 2010): Addressed (initial or ongoing);
Deadline: [Empty].
Section: 12071;
Description of requirement: SBA is authorized to make economic injury
disaster loans in cases of ice storms and blizzards;
Status (May 2010): Addressed (initial or ongoing);
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 (May 2010): Addressed (initial or ongoing);
Deadline: Addressed (initial or ongoing).
Section: 12073;
Description of requirement: SBA must assign an individual the disaster
planning responsibilities and report to Congress;
Status (May 2010): Addressed (initial or ongoing);
Deadline: Addressed (initial or ongoing).
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 (May 2010): Addressed (initial or ongoing);
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 (May 2010): Addressed (initial or ongoing);
Deadline: Partially addressed[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 (May 2010): Addressed (initial or ongoing);
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 (May 2010): Addressed (initial or ongoing);
Deadline: [Empty].
Section: 12078;
Description of requirement: Maximum disaster loan amount increased
from $1.5 to $2 million;
Status (May 2010): Addressed (initial or ongoing);
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 (May 2010): 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 (May 2010): 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 (May 2010): 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 (May 2010): Partially addressed;
Deadline: [Empty].
Section: 12084;
Description of requirement: SBA must establish an Immediate Disaster
Assistance Program to provide immediate small dollar loans through
private lenders;
Status (May 2010): Partially addressed;
Deadline: Missed deadline.
Section: 1285[A];
Description of requirement: SBA must establish an Expedited Disaster
Assistance Business Loan Program;
Status (May 2010): Partially addressed;
Deadline: [Empty].
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 (May 2010): N/A;
Deadline: Missed deadline.
Section: 12091[C];
Description of requirement: SBA must submit reports to Congress on
disaster assistance;
Status (May 2010): Partially addressed;
Deadline: Partially addressed.
Source: GAO analysis of the Act and SBA documents.
[A] The Act requires SBA to issue regulations for these provisions.
[B] SBA provided the first updated DRP on November 15, 2009, several
months past the expected update in June 2009.
[C] 12091(f) includes requirements for a loan approval rate report,
which is to provide a "detailing of how [SBA] can improve the
processing of applications under the disaster loan program." SBA
officials told us that they had covered the requirement in the 2007
DRP. However, it is not clear to us whether information in the 2007
DRP meets the congressional intent of the requirement.
[End of figure]
When we issued our report in July 2009, SBA had fully addressed 13 of
the 26 provisions. Since then, SBA has fully addressed two additional
provisions. As we recommended and the Act requires, SBA issued an
updated DRP. SBA also issued regulations on coordinating with FEMA to
ensure that disaster assistance applications are submitted in a timely
manner. In addition, SBA must revise the regulations annually and
report on the revisions when submitting its annual report to Congress.
The annual requirements associated with the provision on FEMA
coordination will help SBA, FEMA, and Congress to determine whether
the regulations are effective.
SBA still has to take additional steps to completely address 6
provisions. For example, SBA officials told us that the agency has
taken additional steps to address the marketing and outreach
provision, including that they (1) began an ongoing dialogue with the
SBDC state directors in the Gulf Coast about disseminating disaster
planning and preparation information in the five most hurricane-prone
states before the hurricane season, (2) detailed an SBA employee who
works with the SBDCs to the Office of Entrepreneurial Development to
help the agency develop a strategic approach for its disaster role,
and (3) issued some public service announcements tailored to specific
regions. In our 2009 report, we recommended that SBA should fulfill
the region-specific marketing and outreach requirement, including
making this information readily available to regional entities prior
to the likely occurrence of a disaster. However, the steps recently
taken by SBA have not been discussed in public documents or venues,
such as in the DRP or on the SBA Web site, which would make the
information more transparent and easily accessible to the public and
Congress. As we reported in 2009, we consistently heard from regional
entities, such as SBDCs and emergency management groups, about the
need for more up-front information on SBA's Disaster Loan Program and
their expected roles and responsibilities in disaster response efforts.
According to SBA officials, the agency has not yet completely
addressed some provisions because to do so, the agency would have to
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. These programs, which require
participation of private lenders, would be designed to provide
businesses with access to short-term loans while they are waiting for
long-term assistance. As we reported in 2009, SBA plans to conduct
pilots of these programs before fully implementing them. SBA officials
recently told us they have established a cross-functional work group
jointly chaired by officials from ODA and the Office of Capital Access
to address these requirements and develop the pilots. ODA officials
said they drafted regulations and received subsidy and administrative
cost funding in the 2010 budget to allow them to pilot test about 600
loans under the Immediate Disaster Assistance Program (section 12084).
Additionally, SBA officials told us that they performed initial
outreach to lenders--such as those who have participated in their Gulf
Opportunity Pilot Loan Program--to obtain their reaction to and
interest in the programs. They believe such outreach will help SBA
identify and address any issues that may arise and determine the
viability of the loan programs. SBA officials told us that their goal
is to have the pilot for the Immediate Disaster Assistance Program in
place by September 2010.
The Act establishes multiple new reporting requirements and while SBA
has addressed most of these, the agency has not met some statutory
deadlines. For example, as required by the Act and as we recommended,
the agency issued its first annual report on disaster assistance in
November 2009 but the report was due in November 2008. 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 6] In 2009, we reported that failure to produce annual
reports on schedule can lead to a lack of transparency about the
agency's progress in reforming the program. The agency has had limited
success in meeting nine additional provisions in the Act that have
deadlines associated with them.[Footnote 7] The agency also has not
developed a plan with expected time frames for addressing the
remaining requirements. Not having an implementation plan in place for
addressing the remaining requirements can lead to a lack of
transparency about the agency's Disaster Loan Program, capacity to
reform the program and program improvements, as well as its ability to
adequately prepare for and respond to disasters. In our 2009 report,
we recommended that SBA develop an implementation plan and include
milestone dates for completing implementation and any major program,
resource, or other challenges the agency faces as it continues efforts
to address requirements of the Act. Recently, SBA officials told us
that they would provide a plan or report that included milestone dates
for addressing the Act's requirements.
SBA's Response Following 2008 Disasters Aligned with Some DRP
Components, but Its Responses to Disaster Victims' Feedback on the
Application Process Could Be Improved:
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. 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. Additionally,
individuals affected by both disasters with whom we spoke 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, ODA 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 the Disaster
Loan Program; distributed application information; assigned
knowledgeable customer service representatives to various Disaster and
Business Recovery Centers; and helped applicants 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. 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. Also, some business owners said they had to provide
copies of 3 years of federal income tax returns, although they had
signed an Internal Revenue Service (IRS) form 8821--Tax Information
Authorization--which allows SBA to get tax return information directly
from IRS. To address these concerns, the individuals we interviewed
suggested several changes to the program, such as eliminating the
requirement that business loan applicants provide copies of 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.
Although SBA officials told us they have been improving the
application process, they had not documented the improvement efforts.
In addition, we found that while SBA conducts an annual customer
satisfaction 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 a formal
process for addressing identified problem areas and using the
information gained to improve the experience of future applicants. By
establishing such a process to address identified problem areas, SBA
could better demonstrate its commitment to improving the Disaster Loan
Program. Because the agency has missed opportunities to further
improve its Disaster Loan Program, and in particular improve the
application process for future applicants, we recommended in our July
2009 report that SBA develop and implement a process to address
identified problems in the disaster loan application process. In
response to our recommendation, SBA cited ongoing efforts since 2005,
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 has not provided information to us on how it would
implement a formal process to address identified problem areas in the
disaster loan application process.
As you know, we have reported on a variety of issues related to the
federal government's response to the 2005 Gulf Coast hurricanes.
[Footnote 8] As part of this committee's efforts to assess the level
and success of federal efforts to help Gulf Coast small businesses
recover from the 2005 hurricanes, we are conducting work at your
request that focuses on small business recovery efforts in four states
impacted by Hurricanes Katrina and Rita: Alabama, Louisiana,
Mississippi, and Texas. This summer, we will report to this committee
on: (1) assistance small businesses in the Gulf Coast received from
the SBA, the Department of Housing and Urban Development, and the
Economic Development Administration; (2) federal contract funds
received by small businesses; and (3) the small business economy in
the Gulf Coast region.
Madam Chair, this concludes my prepared statement. I would be pleased
to respond to any questions you or other Members of the Committee may
have.
GAO Contacts and Acknowledgments:
For further information on this testimony, please contact William B.
Shear at (202) 512-8678 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this statement. Individuals making key contributions
to this testimony include Kay Kuhlman, Assistant Director; Beth
Faraguna, Alexandra Martin-Arseneau, Marc Molino, Linda Rego and
Barbara Roesmann.
[End of section]
Footnotes:
[1] 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.
[2] Pub. L. No. 110-246, subtitle B, 122 Stat. 2168 (2008).
[3] GAO, Small Business Administration: Additional Steps Should Be
Taken to Address Reforms to the Disaster Loan Program and Improve the
Application Process for Future Disasters, [hyperlink,
http://www.gao.gov/products/GAO-09-755] (Washington, D.C.: Jul 29,
2009).
[4] 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 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.
[5] 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 became law on
June 18, 2008, the enactment date for purposes of determining the
effective date is May 22, 2008. Therefore, all statutory deadlines
presented in our July 2009 report were calculated from May 22, 2008.
[6] 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.
[7] In July 2009 we reported that SBA had met some deadlines for four
provisions, missed one deadline by 27 days, and missed deadlines for
four remaining provisions by many months.
[8] For example, GAO, Small Business Administration: Actions Needed to
Provide More Timely Disaster Assistance, [hyperlink,
http://www.gao.gov/products/GAO-06-860] (Washington, D.C.: Jul 28,
2006); Catastrophic Disasters: Enhanced Leadership, Capabilities, and
Accountability Controls Will Improve the Effectiveness of the Nation's
Preparedness, Response, and Recovery System, [hyperlink,
http://www.gao.gov/products/GAO-06-618] (Washington, D.C.: Sept. 6,
2006); and 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).
[End of section]
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