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25–203 2017

STORM WATCH: MAKING SURE SBA’S DISASTER 

LOAN PROGRAM IS PREPARED 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

APRIL 26, 2017 

Small Business Committee Document Number 115–016 

Available via the GPO Website: www.fdsys.gov 

SBREP-219A with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

DON BACON, Nebraska 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

VACANT 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Staff Director 

JAN OLIVER, Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Chabot ................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Mr. James Rivera, Associate Administrator, Office of Disaster Assistance, 

United States Small Business Administration .................................................. 4 

Mr. Hannibal ‘‘Mike’’ Ware, Acting Inspector General, United States Small 

Business Administration ..................................................................................... 6 

Mr. William Shear, Director, Financial Markets and Community Investment, 

United States Government Accountability Office .............................................. 7 

APPENDIX 

Prepared Statements: 

Mr. James Rivera, Associate Administrator, Office of Disaster Assistance, 

United States Small Business Administration ........................................... 24 

Mr. Hannibal ‘‘Mike’’ Ware, Acting Inspector General, United States 

Small Business Administration ................................................................... 28 

Mr. William Shear, Director, Financial Markets and Community Investment, United States Government Accountability Office ............................ 36 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

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SBREP-219A with DISTILLER

(1) 

STORM WATCH: MAKING SURE SBA’S 

DISASTER LOAN PROGRAM IS PREPARED 

WEDNESDAY, APRIL 26, 2017 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 11:05 a.m., in Room 

2360, Rayburn House Office Building, Hon. Steve Chabot [chairman of the Committee] presiding. 

Present: Representatives Chabot, Luetkemeyer, Radewagen, 

Knight, Kelly, Fitzpatrick, Vela ́zquez, Evans, Brat, Lawson, 

Clarke, Adams, Blum, Espaillat, Comer Schneider, Bacon, and 

Marshall. 

Chairman CHABOT. Good morning. The Committee will come to 

order. I want to welcome everybody here today. 

The Committee is here today to take another hard look at the 

SBA’s Disaster Loan Program, a program that has struggled in the 

past responding to major disasters. The Disaster Loan Program 

provides direct loans to help businesses of all size, homeowners, 

and renters build following a federally declared or certified disaster. 

But in the wake of past major disasters, such as Hurricane 

Katrina and Hurricane Sandy, the SBA has fallen short. Disaster 

victims have had to wait weeks, and sometimes months, for their 

loans to be processed, and in already desperate and confusing 

times, they have been left confused by the SBA’s role within the 

Federal Government’s complex and duplicative disaster response. 

Congress and government watchdogs have tried to help the SBA 

improve its Disaster Loan Program through legislation and hearings and recommendations. Following Hurricane Katrina, Congress 

passed the Small Business Disaster Response and Loan Improvements Act. At our July 2015 hearing on the Disaster Loan Program, however, the SBA had yet to implement all the statutory 

provisions and mandates. We will find out today where the SBA 

currently stands on these efforts. 

Then, following Hurricane Sandy, Congress passed the RISE 

After Recovery Act. Our ranking member, Ms. Vela ́zquez, led that 

effort. She played a very important role, and obviously, her constituents had been affected and she fought for this for quite some 

time and ultimately was successful in getting her legislation approved into law. So we commend her for that. This legislation provided the SBA with better tools to more efficiently and effectively 

respond to the needs of disaster victims. 

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2 

The Government Accountability Office, the GAO, and the SBA’s 

Office of Inspector General both represented here on the panel 

today, have issued several recommendations over the years advising the SBA on ways to improve loan processing times, guard 

against waste and fraud, and clarify communication between the 

agency and disaster victims. 

Again, the SBA has implemented many of these recommendations, but not all. We will have the opportunity to check today 

where the SBA stands on implementing these important recommendations. The SBA has made strides since the days following 

Hurricane Katrina. The agency has simplified the loan application 

process while reducing processing and closing timeframes, but it is 

yet to be seen if the SBA is better prepared for the next big disaster, and we know one thing, that there will be one at some point. 

How is it trying to reduce loan process times? How is it ensuring 

that loan officers still check applicants’ eligibility and creditworthiness in a timely manner? Is the SBA conducting simulations? What 

kinds of simulations? How is it improving post-disaster communications? These are just some of the questions before our panel today. 

Unlike past hearings, we are not in the wake of a major catastrophe. That provides us a unique opportunity to examine the steps 

the SBA is currently taking to prepare for the next one, whenever 

and wherever it may strike. 

As Administrator McMahon stated in her confirmation hearing, 

‘‘Disasters do not pick a time, they happen, and we need to be prepared for those disasters.’’ This Committee wants to help the SBA 

and Administrator McMahon make sure it is prepared. 

I want to thank all the witnesses for being here today. We look 

forward to hearing your testimony and I would now yield to the 

Ranking Member, Ms. Vela ́zquez, for her opening statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Natural disasters profoundly disrupt our lives and affect tens of 

thousands of households every year. These unanticipated events 

leave families and small businesses facing significant rebuilding 

costs. Typically, insurance covers monetary losses, but that is not 

always the case. Recognizing the gap in the market, Congress created SBA’s low interest rate Disaster Loan program in 1953. This 

program serves as a critical lifeline for disaster victims by providing a system to both businesses and homeowners. 

Over the past 64 years, SBA has responded to thousands of natural disasters, including two of the worst, Hurricane Katrina in 

2005 and Hurricane Sandy in 2012. When Sandy made landfall, 

the impact was particularly severe in New York City. The storm 

destroyed infrastructure, inundated thousands of homes with floodwater, and disrupted our vibrant small business community. 

As I saw firsthand, the first few weeks following a natural disaster is a critical period for small businesses. It is estimated that 

40 percent of impacted businesses failed to fully recovery. One 

major reason is the lack of capital to rebuild. As such, it is critical 

that SBA process and disburse the disaster loans quickly to maximize the likelihood small businesses will survive. 

Unfortunately, soon after Sandy struck, it became clear that 

SBA’s response was lacking. GAO identified a number of reasons 

for the problems at the SBA, including failing to quickly staff up, 

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3 

underestimating the number of electronic submissions, and failing 

to implement private disaster loan programs signed into law 4 

years prior. 

These programs aimed at expediting disaster assistance by bringing in the private sector to meet low demand have yet to be implemented. It was the agency’s response to Sandy that prompted me 

to offer the RISE Act. Legislation that reopened the disaster-loan 

filing window for victims of Sandy. 

Thanks to the bipartisan law, more than 1,000 homeowners and businesses were able to secure an additional $50 million in emergency assistance. The RISE Act also made a number of changes to 

the collateral requirements in the program and helped reduce 

delays in loan processing. 

Since Hurricane Sandy, SBA has made a number of other improvements. It has enhanced its planning for disaster response, including processing of loan applications and taking some action to 

improve available resources for business loan applicants. However, 

challenges persist. The SBA IG has reported that the nature of disaster loans make them vulnerable to fraud and GAO has identified 

the need for better integration of disaster loan related resources for 

users. 

Given that SBA has not had to respond to a large-scale disaster 

in recent years, it is imperative that the agency have planning efforts in place to be mobilized for such an occurrence. Should this 

require further legislative action by the Committee, I am confident 

that this is an area where the chairman and I can work together 

again. All members of the committee want to ensure these programs operate efficiently and effectively and that entrepreneurs 

harmed by disaster receive the assistance they need. 

This hearing will give members the opportunity to examine the 

Disaster Loan program to ensure SBA is prepared for the next 

major disaster. 

I thank the witnesses for their participation and I yield back. 

Thank you, Mr. Chairman. 

Chairman CHABOT. Thank you very much. The gentlelady 

yields back. 

And now I will take just a moment to explain our timing rules 

which a number of you have testified before so you are very familiar with. We operate by the 5-minute rule. Each of the witnesses 

gets 5 minutes and then we get 5 minutes. We go back and forth 

on that. 

There is a lighting system to assist you. The green light will be 

on for 4 minutes. The yellow light will come on to let you know 

that you have got a minute to wrap up, and then the red light will 

come on to let you know, hey, I better wrap up. So, and we would 

ask you to stay within that if at all possible. We will give you a 

little flexibility. 

And I would now like to introduce our very distinguished panel. 

Our first witness will be James Rivera, Associate Administrator for 

the Office of Disaster Assistance at the SBA, the Small Business 

Administration. Mr. Rivera has been leading this office since November 2009. He began his SBA career in 1989 as a disaster loan 

specialist, so he has seen this program evolve across several decades. And we appreciate your testimony today. 

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4 

Our second witness today is Mr. Hannibal Mike Ware. I have to 

say you have one of the coolest names that we have had testify before us, and I do not mean the Mike part. Hannibal is a cool name. 

Mr. Ware serves as the Acting Inspector General for the Small 

Business Administration Office of Inspector General. The OIG is 

responsible for the independent oversight of the SBA’s programs 

and operations. We look forward to hearing from you, Mr. Ware. 

Thank you very much. 

And our last witness is no stranger to this Committee. He has 

testified many times before us. That is Mr. William Shear, who 

also has a cool first name. He is the Director of the Financial Markets and Community Investment team at the Government Accountability Office for GAO. We welcome Mr. Shear today to discuss 

GAO’s body of work over SBA’s Disaster Loan Program. 

We want to thank again our very distinguished panel, and Mr. 

Rivera, you are recognized for 5 minutes. 

STATEMENTS OF JAMES RIVERA, ASSOCIATE ADMINISTRATOR, OFFICE OF DISASTER ASSISTANCE, UNITED 

STATES SMALL BUSINESS ADMINISTRATION; HANNIBAL 

‘‘MIKE’’ WARE, ACTING INSPECTOR GENERAL, UNITED 

STATES SMALL BUSINESS ADMINISTRATION; WILLIAM 

SHEAR, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY 

INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE 

STATEMENT OF JAMES RIVERA 

Mr. RIVERA. Good morning, Chairman Chabot, Ranking Member Vela ́zquez, and distinguished members of the Committee. 

Thank you for inviting me here today to discuss SBA’s Disaster 

Loan Program. SBA appreciates your strong support of the agency’s 

disaster assistance mission and your continued leadership to ensure as a country that we are prepared to meet the challenges of 

future natural disasters. 

I am James Rivera, the associate administrator in SBA’s Office 

of Disaster Assistance. SBA provides affordable, timely, and accessible financial assistance following a declared disaster to businesses of all sizes, private nonprofit organizations, as well as homeowners and renters. This financial assistance is available in the 

form of low-interest, long-term loans. Since the agency’s inception 

in 1953, we have provided over 2 million loans for more than $56 

billion. 

Even though SBA is on the ground immediately following a disaster, we are not a first-responder agency. Our primary focus again 

is to provide low-interest, long-term loans. As part of the overall effort to assist disaster survivors to get back on their feet, SBA provides loan assistance of up to $200,000 for homeowners to repair 

their home, up to $40,000 to homeowners and renters to repair 

their personal property. For businesses of all sizes and private nonprofit organizations, SBA provides up to $2 million to repair/replace damaged real estate, leasehold improvements, furniture and 

fixtures, inventory, and machinery equipment. Additionally, SBA 

offers economic injury disaster loans to small businesses, small agricultural cooperatives, and most private nonprofit organizations 

SBREP-219A with DISTILLER

5 

that have suffered economic injury caused by disaster. These loans 

provide working capital funds until normal operations can resume 

following a disaster, and SBA also provides additional funding for 

mitigating measures of up to 20 percent of the total physical loss 

to help prevent damages from similar disaster events from occurring in the future. SBA disaster loan funds can only be used for 

uninsured, underinsured, or uncompensated losses. 

Over the past several years, we have made a number of key improvements to help us better respond to disaster survivors. We 

have the Committee to thank for some of the most meaningful improvements which are a result of legislation this Committee has 

passed. Most recently, the Recovery Improvement for Small Entities After Disaster or RISE Act of 2015 included several measures 

that SBA was quick to implement, such as reopening the application period for Hurricane Sandy; increasing the unsecured loan 

limit from $14,000 to $25,000; expending mitigation assistance to 

include safe rooms and storm shelters that will save lives; and the 

creation of a disaster loan assistance portal that provides disaster 

survivors with quick and easy access to their loan application status, filing requirements, document upload, including some electronic signature capability. 

The reopening of the application period for Hurricane Sandy re- sulted in over 1,100 approved disaster loans totaling over $58.5 

million, which is in addition to the original 37,000 approved disaster loans for a total of $2.5 billion that was approved in response 

to Hurricane Sandy. 

The creation of the Disaster Assistance Loan assistance portal 

changed the way SBA interacts with disaster survivors. Prior to 

the launch of the portal, the primary way for disaster survivors 

was to check the status of their loan application by calling the customer service center or going into a disaster recovery center. The 

portal now provides disaster survivors with online communication 

regarding the status of their application, access to filing requirements and SBA forms, even the ability to electronically sign the 

IRS Form 4506-T, which is needed to verify income for repayment 

ability purposes. 

To maintain pace with the lending industry online advancements, SBA plans to continue enhancing the portal so the disaster 

survivors receive the best-in-class service experience possible when 

applying for a SBA disaster loan. 

The August 2016 Louisiana floods is the largest disaster event 

that SBA has responded to since Hurricane Sandy of 2012. As of 

this month, SBA approved over 17,000 disaster loans for a total of 

$1.2 billion. Following this disaster, SBA responded to Hurricane 

Matthew, which resulted in disaster declarations for Florida, Georgia, North Carolina, South Carolina, and Virginia. As of this 

month, the SBA has approved over 7,500 disaster loans totaling 

more than $262 million. 

In fiscal year 2016 and fiscal year 2017, we have maintained low 

processing times of 7 days for home and 12 days for businesses 

while responding to periods of increased activity for the Louisiana 

floods and Hurricane Matthew. Our goal was 21 days. 

In closing, I appreciate the opportunity to update this Committee 

on SBA’s disaster recovery efforts. We firmly believe that the reSBREP-219A with DISTILLER

6 

forms we have instituted and continue to institute enable us to better prepare to efficiently and effectively respond to the needs of our 

disaster survivors. 

I look forward to answering any questions. Thank you. 

Chairman CHABOT. Thank you very much. 

Mr. Ware, you are recognized for 5 minutes. 

STATEMENT OF HANNIBAL ‘‘MIKE’’ WARE 

Mr. WARE. Thank you, Chairman Chabot, Ranking Member 

Vela ́zquez, and distinguished members of the Committee. Thank 

you for the opportunity to be here today and for your continued 

support of the Office of Inspector General. 

As Acting Inspector General, I am proud to represent the dedicated men and women of the OIG and to be with you here today 

to discuss our oversight of the Disaster Assistance Program. 

OIG conducts and supervises independent reviews and investigations relating to SBA programs and supporting operations which, 

as you know, encompasses SBA’s Disaster Assistance Program. We 

are keenly aware of congressional interest in ensuring this program 

is designed and managed effectively, and we share this concern. We 

have a dedicated audit team based in Fort Worth, Texas, which 

also is the location of SBA’s disaster Processing and Disbursement 

Center, PDC. This audit team is aligned internally within the 

OIG’s Credit Program’s group. Unlike SBA’s guaranteed loan programs, SBA wholly owns the risk for these direct loans. As I am 

sure we will discuss this morning, this is just one aspect of this 

program that amplifies risk to taxpayers. 

Hurricane Sandy is just one example of the devastation that disasters can cause to our citizens and to the economy, though every 

disaster presents its own challenges for victims. As SBA responded 

to Hurricane Sandy, our oversight plans took place and our work 

began to root out fraud, waste, and abuse. Aided by vital supplemental funding, our audit division initially focused its reviews on 

timeliness, eligibility, technical assistance grants, and early defaults. 

To date, we have issued nine reports pertaining to our oversight 

efforts of SBA’s Hurricane Sandy disaster assistance and have an 

additional ongoing review pertaining to loans made pursuant to the 

RISE After Disaster Act of 2015. 

Our criminal investigators also are highly skilled and possess an 

expertise of SBA’s programs that adds a critical dimension to the 

government’s law enforcement posture against fraud. Following 

major disasters and SBA’s initial response, our experience has been 

that fraud, which was perpetuated in application or following disbursement, surfaces in earnest 2 to 3 years after the response. Our 

perspective is that fraudulent loans begin to default or manifest in 

other schemes that may be realized in other responding Federal 

programs, such as HUD or FEMA. 

From fiscal year 2006 through fiscal year 2016, OIG, in conjunction with other law enforcement agencies, produced 86 arrests, 97 

indictments, and 96 convictions related to wrongdoing in SBA’s 

Disaster Loan Program. To date, these investigations have resulted 

in nearly $8 million in court-ordered restitution and related recovSBREP-219A with DISTILLER

7 

eries, as well as the denial of nearly $4.5 million in loans to potentially fraudulent borrowers. 

Systemic improvements are key to reducing fraud and delivering 

efficient services. In recent years, OIG audits and investigations 

have identified specific instances of fraud, as well as necessary systemic improvements to reduce fraud and provide effective and efficient loan delivery and protect taxpayer dollars. The reduction of 

duplicate benefits is a noteworthy example of our work and SBA’s 

corrective action to implement systemic improvements. In 2010, our office reported over $925 million in community development block grants, or CDBG funding, being used before SBA 

loan funds, contrary to the delivery sequence. Specifically, about 

$644 million of CDBG funds was sent to SBA to pay down fully disbursed SBA loans, and SBA canceled $282 million of undisbursed 

SBA disaster loans. We made five recommendations that were primarily geared toward having SBA in coordination with HUD and 

FEMA develop agreements and roles consistent with sequence of 

delivery. In 2014, our Hurricane Sandy oversight found SBA’s internal controls to prevent duplication of benefits were adequately 

designed and generally working as intended, a major improvement 

from the 2010 findings. It is clear having effective internal controls 

is a key component to mitigating risks to the taxpayer. 

In closing, our work in the disaster program area will continue 

to focus on ensuring eligible personnel receive timely disaster assistance from SBA. The victims of these unfortunate and often 

tragic events deserve nothing less. Similarly, our taxpayers must 

be assured that SBA is being a good steward of these funds. 

Thank you for the opportunity to speak to you today. I look forward to your questions. 

Chairman CHABOT. Thank you very much. 

Mr. Shear, you are recognized for 5 minutes. 

STATEMENT OF WILLIAM SHEAR 

Mr. SHEAR. Chairman Chabot, Ranking Member Vela ́zquez, and 

members of the Committee, thank you for inviting me to discuss 

SBA’s Disaster Loan Program and actions the agency has taken to 

help ensure timely disaster assistance in response to major disasters. 

My statement discusses, first, SBA implementation of provisions 

from the Small Business Disaster Response and Loan Improvement 

Act of 2008; second, the additional improvements the agency was 

planning following Hurricane Sandy; and third, SBA’s recent and 

planned actions to improve information resources for business loan 

applications. 

With respect to the 2008 Act, SBA implemented most requirements. For example, SBA annually updates its disaster response 

plan. However, SBA has not yet implemented provisions to establish three guaranteed loan programs. In 2010, SBA took actions to 

establish a pilot program for one of the programs. However, in 

2014, we found that SBA had not implemented the programs or 

conducted a pilot because of concerns from lenders about loan features. 

After Hurricane Sandy, SBA further enhanced its planning for 

disaster response, including processing of loan applications. In our 

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8 

2014 report, we found that while SBA encouraged electronic submission of loan applications, SBA did not expect early receipt of a 

high volume of applications after Sandy and delayed increasing 

staffing. SBA also did not update key disaster planning documents 

to adjust for the effects of such a surge in future disasters. We recommended that SBA revise its disaster planning documents to anticipate the potential impact of early application submissions on 

staffing and resources. In response, SBA updated its planning documents to account for such impacts. 

SBA has taken some actions to enhance information resources for 

business loan applicants, but could do more to improve its presentation of online disaster loan-related information. In 2016, we reported that SBA took or planned to take various actions to improve 

the Disaster Loan Program and focused on promoting disaster preparedness, streamlining the loan process and enhancing online application capabilities. However, we found that SBA had not effectively presented information on disaster loans in a way that would 

help users efficiently find it and not consistently describe key features and requirements of the loan process in print and online resources or clearly define financial terminology used in loan applications. Absent better integration of and streamline access to disaster 

loan-related information, loan applicants may not be aware of key 

information and requirements for completing the applications. 

We made three recommendations based on our findings. In January 2017, SBA indicated it was working on a glossary for the application, which is a glossary of financial terms. We plan to follow up 

with SBA about the other two open recommendations which have 

to do with providing accurate, clear information in an easy-to-access way. 

As always, it is a great pleasure and privilege to discuss our 

work with the Committee. I would be happy to answer any questions. 

Chairman CHABOT. Thank you very much. I will recognize myself for 5 minutes to begin the questioning and, Mr. Shear, I will 

start with you if I can. 

What would you say is the Disaster Loan Program’s biggest or 

most significant weakness? 

Mr. SHEAR. I will give two answers for that, which is one where 

I have incomplete information and one where I have more complete 

information. 

Chairman CHABOT. Okay. 

Mr. SHEAR. SBA has gotten better and I will refer to one part 

in the 2008 Act, which was to provide regional marketing and outreach, to have that capacity. SBA has gotten better at providing information to disaster victims and to tailor it to certain situations. 

So that was one part of the improvement. It took SBA some time 

to do that. 

And as we saw in our most recent report, there has been some 

improvement in conveying information. But what we find is that 

SBA, especially its online resources—the business loan applicant is 

in a very challenged position—and the online information just is 

not provided in a clear, concise manner that the business applicants can really use and use effectively. And to some degree it even 

affects the types of assistance the Small Business Development 

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9 

Centers can provide. So that is the one that stands out from our 

open recommendations. 

I will turn to—— 

Chairman CHABOT. Can you make the other one quick? Because 

I have a couple questions. 

Mr. SHEAR. Yes. Thank you. Thank you. Okay. 

The other one that I will mention is that the planning has improved and the ability to forecast, such as how much surge capacity, things of that nature, have improved and have improved since 

Sandy. But I say the thing that could keep me up at night, especially when you go through long periods without major disasters, 

is that, well, the reserve corps is such. Will they be up and ready 

and ready to assume things? I know that in Sandy there was a 

training that was going on after the disaster struck of the cadre, 

and that affected the efficiency of providing assistance to those. 

And so that stands out for me as well. 

Chairman CHABOT. Thank you very much. I appreciate it. 

Mr. SHEAR. Thank you. 

Chairman CHABOT. Mr. Ware, let me move to you next, if I can. 

What would you say is the top priority, the most important thing 

that the SBA should do to ensure that they are prepared for the 

next big disaster? And your mic, if you could. Thank you. 

Mr. WARE. Mr. Chairman, I believe at this point the body of 

work that our office has done has shown that the biggest thing that 

they could do right now is to have properly tested processes and 

properly trained personnel or loan officers. And while they have 

made great strides in this area, we still feel that they need to do 

a lot more to be sure that they are more ready. So they do their 

simulations and they, of course, in those simulations they determine how many people they will need in terms of the surge. But 

our work has found that the volunteer corps that they would be 

bringing in would not necessarily be trained sufficiently enough to 

just hit the ground running to be able to effectively process the 

loan applications in a way to make sure that we cut down on errors 

and also to make the process a lot faster. 

Chairman CHABOT. Okay. Thank you very much. 

Mr. Rivera, let me go to you next, if I can. The SBA, of course, 

relies upon Small Business Development Centers, the SBDCs. 

Could you discuss the role that they play in the wake of a disaster? 

You know, how important are they? Are there any things that we 

need to improve on there? 

Mr. RIVERA. So thank you, Mr. Chairman. 

The SBDCs play a pivotal role as all resource partners do, 

whether it is the women business centers, SCORE, or SBDC. From 

our perspective, where they are able to help us is whether we approve or whether we decline a disaster survivor, an applicant, we 

refer those to the local district office that enables a SBDC partner 

because we are a snapshot lender. So we are looking at one point 

in time when they apply and even if somebody is declined and we 

refer them back to an SBDC, that SBDC can work the credit side 

where they can help them maybe have more repayment ability and 

fix their debt. They may have been a little bit on the tipping point 

when the disaster struck that resulted in a decline. So we often 

find when they go to the resource partners that they are able to 

SBREP-219A with DISTILLER

10 

get another—the propensity to approve a loan is much higher from 

that perspective. 

Chairman CHABOT. Thank you very much. My time is expired. 

The Ranking Member is recognized for 5 minutes. 

Ms. VELA ́ ZQUEZ. Thank you. 

My first question is addressed to both Mr. Ware and Mr. Shear. 

You know, 2005 was Katrina, and then we saw 2012, Sandy. Yet, 

here we are today discussing preparedness, protocol, simulation, 

training of its reserve staff. I just want to hear from the assessment, the evaluation that you have made, that if we were faced or 

confronted with a large-scale disaster today, like Sandy, that you 

feel you have done everything within the law, that you have everything in place to immediately respond. This is about the viability 

of small businesses. Do not tell me—and we know because the 

numbers tell the story—that if we do not provide assistance within 

the first 4 weeks, for the most part a lot of those businesses will 

have to shut their doors. So when disaster strikes, the federal government has a responsibility. 

As the chairman mentioned, what is the biggest challenge that 

we are confronting today? And based on Katrina, we provided tools 

for SBA to be able to immediately respond. I just want to hear, Mr. 

Rivera, again, why is it that SBA has not implemented the three 

guaranteed disaster loan programs? What type of outreach, Mr. 

Shear, have you seen? I know that you made reference that they 

have made some outreach to the financial institutions. I just want 

to know what isn’t working? What is impeding you from getting 

those programs up and running? And if we need to do any fixes, 

we need to hear from you. So, please. 

Mr. SHEAR. Let me start with the private loan programs. Early 

in 2010, we met with SBA to talk about its action with respect to 

those loan programs and what is called IDAP, in particular. And 

we met with James; we met with Steve Smith, the head at the time 

of the Planning Office; and with Grady Hedgespeth, leader from Financial Assistance in the Office of Capital Access. What was clear 

to us is that something was initiated to try to stand up a pilot and 

the anticipation was the Gulf Coast was an area where they had 

gone through the experience and you had lenders that also had experience with the GO loan program. You had lenders that had experience with a State-run program. 

That was a good place to start to try to find lenders that might 

be interested in participating in such a program, and it was in an 

area that is prone for major disasters. So there might actually be 

an opportunity to exercise that pilot. And there was some interest 

that was expressed in taking that to the ideas that once something 

was stood up, that is, in the Gulf Coast, could be stood up someplace else; it was clear that shortly after that, the process ended. 

I hate to say it because it was an effort, and, as you say, I alluded 

to an effort with the advanced Notice of Proposed Rulemaking. But 

rather than taking what had been initiated in 2010, let us reach 

out to lenders who might be most prone to be willing and able to 

stand up such programs. 

Ms. VELA ́ ZQUEZ. Okay. 

Mr. SHEAR. They abandoned that effort. 

SBREP-219A with DISTILLER

11 

Ms. VELA ́ ZQUEZ. So Mr. Rivera, would you please react or respond to Mr. Shear’s assessment? 

Mr. RIVERA. So thank you for that question. That is something 

that we have been working on, as you know, for years. We simply 

just have not been able to get any lenders to participate in the program. It is just not a good fit for the private sector. I mean, the 

last time when I was here a couple of years ago, we had a very 

similar discussion, the same discussion, and we provided letters to 

both the chairman and the ranking member here. 

To cut to the chase, we can develop the program. We can establish a program. But if the lenders just are not genuinely interested—and that was the case during Superstorm Sandy. We tried 

to pilot some lenders to participate and they were just genuinely 

not interested in providing because of the risk associated with 

making a disaster loan, you know, in reference to their portfolio. 

Ms. VELA ́ ZQUEZ. So maybe we might move to direct lending 

from SBA. 

Mr. RIVERA. To do what? I am sorry. 

Ms. VELA ́ ZQUEZ. Direct lending. 

Mr. Ware? 

Chairman CHABOT. The gentlelady’s time is expired, but you 

can answer the question. 

Ms. VELA ́ ZQUEZ. Thank you. 

Mr. WARE. Yeah, the work that we have done in that area, and 

I would like to say that we still have open recommendation relative 

to implementing those private loan programs, but we are aware 

that SBA has provided in writing reasons to this Congress as to 

why they have been unable to do that. 

But I will say this, because there were several parts of your 

question and what we were talking about is everything in place to 

adequately respond. And I would say in fairness that our reviews 

have found, the more current ones, that SBA is in a better position 

now than they have been with the other storms in terms of steps 

that they have taken. We cannot say for sure whether they would 

be ready because of the uniqueness of every single disaster that 

comes along. I am a disaster survivor myself being from the Virgin 

Islands. I have lived through a few of them, every one of them different. And in that regard, it is tough for us to say that. 

And plus, as an audit organization, we are very leery to make 

that type of statement. But they are more prepared than they have 

been, but like I said before, still with the training of that staff that 

needs to come in and be able to hit the ground running. Absent 

that, I believe that we are going to find some of the same problems 

in terms of timely delivery of services. 

Ms. VELA ́ ZQUEZ. Are you telling me that the reserve staff are 

better prepared without being trained on updated procedures? 

Mr. WARE. No. I am telling you that absent the training to the 

reserve staff that they will have some of the same issues that we 

have seen in the past. 

Chairman CHABOT. Okay. The gentlelady’s time is expired. 

The gentleman from Pennsylvania, Mr. Fitzpatrick, is recognized 

for 5 minutes. 

Mr. FITZPATRICK. Thank you, Mr. Chairman. 

SBREP-219A with DISTILLER

12 

First, Mr. Ware, regarding fraud schemes, you started to address 

this in your opening statement, as we know in law enforcement, 

technology can tend to change criminal schemes, fraud schemes. Is 

there anything you are seeing as far as emerging schemes that 

agents have not previously encountered? 

And Mr. Rivera, one of the big issues for disaster loan recipients 

is the timeliness as far as processing of loan applications. What is 

the current processing time? And what, if anything, is being done 

to improve that? 

So if Mr. Ware could answer first. Thank you. 

Mr. WARE. Thank you for your question. So in response to are 

there any newer fraud schemes that our agents have been encountering, I would have to say not at this time. Not in what I have 

seen or what they have prepared me for. We are seeing the same 

old in terms of unauthorized use of loan proceeds, overstatement 

of financial losses, and especially claiming that your secondary residence was indeed your primary residence. So that type of thing. 

Mr. FITZPATRICK. Is the number of pending investigations law 

enforcement sensitive or is that something you can—— 

Mr. WARE. I could tell you what the number of pending ones 

are. We currently have 32 pending investigations. 

Mr. FITZPATRICK. Thirty-two? 

Mr. WARE. Yes. 

Mr. RIVERA. So if I could just real quickly take you from 

Katrina, we processed 385,000 applications. It was not our best 

day. From a home perspective, it took us an average of 74 days for 

homeowners and 65 days for businesses. In Sandy, we did 123,000 

applications. For homeowners, it took us 24 days; for businesses, it 

took us 40 days. The most recent disaster we had in Louisiana, we 

did 66,000 applications last fiscal year; 8 days for homes, 12 days 

for businesses. So the trend is in the right direction but what—you 

know, I hate to say this, but until we are able to process a like type 

of disaster for Sandy or Katrina, we are going to continue to have 

these same discussions over and over again. We have a lot of very 

positive improvements that have been done. We just need to stress 

test it, as much as I do not want there to be a big disaster. We 

are as prepared as we have ever been before. We learn from every 

disaster. Our technology, you know, and I can provide you a onepager or an individual briefing from the perspective of how we continue to improve. 

For example, in Louisiana, because the water was up, we would 

generally wait 5 to 6 to 10 days to go on the ground. We did desktop verification, so we changed a 5-day process to 2 days. We do 

a lot of these kinds of improvements from that perspective and 

know that the internal controls that we are keeping in place are 

good and secure from that perspective. 

So I sit here a little bit frustrated because we are talking about 

Katrina from 2005 and Sandy from 2012. We are in 2017. And not 

to get cute here, but can you imagine an iPhone from 2005 or 2007 

to 2017, now? I mean, we really improved a lot of our process. But 

you know the proof is in the pudding. It is the ability to have a 

like-kind disaster from that perspective. 

Mr. FITZPATRICK. The agency overlap during a natural disaster situation, how does SBA handle that situation? 

SBREP-219A with DISTILLER

13 

Mr. RIVERA. I am sorry, the agency overlap? 

Mr. FITZPATRICK. So there are multiple agencies that will be 

responding in the event of a natural disaster. 

Mr. RIVERA. So we have coordinated very well. Katrina, the big issue we had was HUD, CBDG came in. We did about $11 billion 

in loans. They paid down about $6 billion. That is what the acting 

inspector general was referencing. We now have a MOU with HUD. 

So from a sequence of delivery, whoever is in front of you, you have 

to address that benefit so there is no duplication behind it. So we 

addressed that back in 2005. 

Most recently, in Superstorm Sandy, we did not have any duplication of benefit issues from our perspective. We have a very strong 

communication with FEMA. We have a computer matching agreement where our systems talk back and forth between themselves, 

you know, all the time. And from HUD’s perspective, we give them 

a complete download of all the information that they request of 

who has gone through the SBA queue. 

Mr. FITZPATRICK. I yield back. 

Chairman CHABOT. The gentleman yields back. 

The gentleman from Pennsylvania, Mr. Evans, who is ranking 

member of the Subcommittee on Economic Growth, Tax, and Capital Access is recognized for 5 minutes. 

Mr. EVANS. Thank you, Mr. Chairman. 

Mr. Ware, what recommendations do you have to increase cooperation between the SBA, HUD, and FEMA in order to reduce 

the potential for duplicity while ensuring that the potential borrowers are not thwarted in their quest to secure disaster loans? 

Mr. WARE. Thank you for your question. We made several recommendations in that regard. 

As Mr. Rivera was just saying, they were very serious about 

those recommendations and they improved their systems so much 

that when we went in in 2014, we found that that type of overlap 

was not happening and that the proper controls were in place to 

mitigate that type of risk. I am not sure if you are talking about 

in terms of the timing of delivery meaning if somebody gets this 

loan maybe they cannot get that grant. 

Mr. EVANS. Right. 

Mr. WARE. But that is outside of those systems and how they 

are set up and the internal controls. 

Mr. EVANS. Could you expand upon the point you mentioned in 

your testimony about the SBA does not limit the proportion of a 

borrower’s gross income on the service debt? 

Mr. WARE. Right. So on SBA’s normal loan programs the maximum debt would be at 40 percent. That ratio would be at 40 percent. Of course, disasters are something a little bit different, so 

they move to 60 percent for businesses. But on the home side, they 

are able to override regardless of what that ceiling is. So there is 

none. So our reviews have found some cases where there is 100 

percent and the loans have still been granted. From our perspective, what happens with that is you are creating loans that more 

than likely cannot be repaid because the people could not afford to 

have those loans when they are at 100 percent or at these high 

things. And those are the type of loans that we saw that defaulted 

more often than some of the others. So from that perspective, to us 

SBREP-219A with DISTILLER

14 

we would prefer if they had some type of ceiling that would serve 

to prevent that. 

Mr. EVANS. Mr. Shear, in your report you noted that some applicants and even SBDCs were confused by financial technology. 

How can the SBA best adjust this, especially when, generally 

speaking, they never know when the next disaster will hit? 

Mr. SHEAR. One of the recommendations that we made, which 

is quite, I think, simple and straightforward, is to create a glossary 

of financial terms. So especially for the smallest business owners 

that might not be familiar with financial terms used by SBA, it 

gives a guide that they can use to help them navigate the application process. So SBA has taken some action to move forward on 

that. We look forward to seeing it. 

The other recommendations we made really speak to the issue as 

far as, especially the online resources, how difficult it is to figure 

out the process and what the business applicants should expect as 

part of that process. 

Mr. EVANS. I yield back the balance of my time. Thank you, Mr. 

Chairman. 

Chairman CHABOT. Thank you very much. The gentleman 

yields back. 

The gentleman from Kansas, Dr. Marshall, is recognized for 5 

minutes, and he may want to introduce someone we have in our 

audience today. His son is here with us, so. 

Mr. MARSHALL. Yeah, thanks, Mr. Chairman. My oldest son, 

Victor, is here today visiting. Thanks for joining us. 

Chairman CHABOT. We welcome you. 

Mr. MARSHALL. So thank you, Mr. Chairman. 

I briefly got to share that before the meeting started that in Kansas recently a catastrophic event in my district, 600,000 acres of 

excellent grassland was burned, torched; maybe 10,000 head of cattle lost; thousands of miles of fence were lost. Evidently, it is not 

going to qualify as a Federal disaster, and my question is from the 

SBA standpoint, and I am sure it is obvious to everybody in the 

room that farming is a business, raising cattle is a business, and 

basically, a lot of small businesses. What does it take for you all 

to be able to step into a situation like this? 

Mr. RIVERA. Congressman, thank you for your question. In this 

case, SBA does not have authority for farmers and ranchers and 

ag-businesses. We can help a farmer for their primary residence or 

we can help a farmer in a situation where it is non-ag type of 

items. So we would have to work with the USDA and with Farm 

Services. 

Mr. MARSHALL. Well, thanks for that. 

A question I often ask my employees is, what can we do for you 

to help you do your job better? What do you need from us? 

Mr. RIVERA. So Congress, you guys have been phenomenal from 

my perspective. I mean, the RISE Act, there are a lot of really good 

provisions. 

Chairman CHABOT. Would you like to say that again? 

Mr. RIVERA. Sorry, I do not think that is one of my talking 

points. 

So the RISE Act a couple of years ago, we have always had a 

challenge, especially in your part of the country where you have 

SBREP-219A with DISTILLER

15 

tornadoes, right? This year we are on track to have twice the 

amount of tornadoes than we have ever had historically. The 

weather patterns are just bizarre as always. We were never able 

to fund a storm shelter for somebody, so if a tornado came through 

and wiped out a home, we could not repair/replace, we could not 

provide funding, disaster funding, for that storm shelter. Now we 

can as a mitigating measure as a result of that. Unless you have 

lived through these kinds of situations, you really do not understand the meaning of saving lives, and so this bill, I mean, the 

RISE Act was part of that type of meaningful assistance that we 

can provide from that perspective. And there are several other tools 

that we have used historically. Increasing the unsecured limit from 

$14,000 to $25,000; we can now disperse funds much faster. That 

has an expiration date on it. It is a 3-year limit. So there are some 

of those types of items that we continue to look at from that perspective. 

Mr. MARSHALL. Mr. Ware, the same. What can we do to help 

you do a better job? 

Mr. WARE. The same type of things right now that this Committee does in terms of allowing us to come up and talk about our 

issues and to talk about the type of work that we are doing, having 

that open dialogue keeps the body informed and keeps us also 

knowing what your expectations are and the type of work that we 

should be doing. And we appreciate that. That is happening right 

now. 

Mr. MARSHALL. Okay. Mr. Shear, anything to add? 

Mr. SHEAR. I always have to commend this Committee. We always know there is a political divide in any Committee, but the 

idea that both sides of the aisle on this Committee work so constructively with us and just recognize what role we play as a nonpartisan fact-based agency and having hearings like this, which the 

idea is that we cannot force any agency to do anything, but by having the oversight that this Committee performs I think is just a 

tremendous service and really helps us better serve the American 

people. 

Mr. MARSHALL. Well, Mr. Chairman, I will yield back the rest 

of my time. And congratulations, it sounds like you guys have done 

some great work before we got here. 

Chairman CHABOT. Well, we are trying. Thank you. Thank you 

very much. 

The gentleman from Florida, Mr. Lawson, who is the ranking 

member of the Subcommittee on Health and Technology, is recognized for 5 minutes. 

Mr. LAWSON. Thank you very much, Mr. Chairman. I know 

some of this might have been addressed while I was coming. But 

in 2016, Hurricane Hermine and Hurricane Matthew hit my district in Florida pretty hard for a span from Jacksonville to Tallahassee. Tallahassee, as a district, was left with data outage for 

over a week for some homes and businesses. Mr. Rivera, how 

quickly is SBA—and I heard you speak up a little bit earlier—was 

able to provide support for small businesses with what you are saying happened in Louisiana after a natural disaster, particularly 

micro businesses that operate with five or less employees? 

SBREP-219A with DISTILLER

16 

Mr. RIVERA. So our process right now is once the disaster is declared we are on the ground immediately. The big achievement 

that we had post-Sandy, and this is something that Bill Shear referenced to, we used to have an electronic loan application that had 

80 screenshots. We reduced it to 20 screenshots. We did some research and we found out that most people dropped off at screenshot 

22 or 23. There are two questions per screenshot. Since we have 

had that retooled, the electronic loan applications, we actually have 

a 90 percent response rate. So once we receive that application online, what that enables us to do is credit score and then we are able 

to get that response out pretty quickly. The footprint of a disaster 

is always unique. In situations where we cannot get on the ground, 

for example, with homeowners, we now do a desktop verification instead of going on the ground. So we continue to try to make these 

types of enhancements to expedite the process from that perspective. And then we do the same on the disbursement side. Once we 

get the loan closing documents, we will disburse the unsecured 

limit up to $25,000 within 5 days. 

Mr. LAWSON. Okay. And my question also centered around, 

again, in 2010, you know, I served on a task force for the BP oil 

spill which had spilled directly south of Tallahassee and my district. Although it is not a natural disaster, it certainly impacted 

businesses along the coastline in the district. What resources does 

the SBA have available for small business and disaster other than 

natural disasters? Obviously, having insurance helps the business, 

but I am wondering what tools, if any, does SBA have to help these 

businesses, many of which are still in recovery? 

Mr. RIVERA. So post-BP oil spill, we were able to declare the 

disaster from the middle of Louisiana, the parish, all the way over 

to pretty much the middle of the western part of Florida. We provide an economic injury disaster loan. So what this does is this 

pays the fixed operating expenses for the business during that period of time when they are recovering from that disaster period, to 

try to help them return to normal. 

Mr. LAWSON. Okay. And Mr. Shear, I have one question for 

you. Based on your knowledge, if another major disaster occurred, 

which could happen at any time, has SBA done enough to adequately serve the needs of those affected? 

Mr. SHEAR. It is a relative question. How well is SBA compared 

with some other standard? The program has improved over the 

years. I remember being in New Orleans right after Katrina. It was 

a terrible response by this program, and so I have seen the progression over time. I have seen the improvements that have occurred in response to the 2008 act. I have seen certain improvements from what we identified with planning in response to Sandy. 

So the program has improved. 

But I will come back to a couple of things I mentioned to the 

chairman. There still is the question, if we do not have these private loan programs, what are we going to do to try to assess certain needs that occur in very major disasters? You know, there can 

be lessons learned from the GO loan program which was introduced in the Gulf Coast after Katrina and the actions that the 

State of Louisiana took to establish grant and loan programs, as 

SBREP-219A with DISTILLER

17 

well as some of the support at the local level in New York. So there 

are certain lessons to be learned from that. 

And then the other part that I mentioned to the chairman is the 

idea that the planning is very good, but there really has to be a 

commitment that when the planning models say it is time to ramp 

up, the agency ramps up and it has the cadre of the Reserve Corps 

up and ready to really respond. So there are some improvements 

that can occur, but, generally, SBA is better equipped to deal with 

major disasters. 

Mr. LAWSON. I yield back, Mr. Chairman. 

Chairman CHABOT. Thank you very much. The gentleman’s 

time is expired. 

The gentleman from Kentucky, Mr. Comer, is recognized for 5 

minutes. 

Mr. COMER. Thank you, Mr. Chair. 

My questions are for Mr. Ware. What did OIG recommend to 

SBA to make sure it verifies borrowers are eligible and creditworthy? 

Mr. WARE. Thank you for the question by the way. We have 

made several recommendations in that regard, and again, in many 

ways, Mr. Rivera and his staff have been very attentive to these 

recommendations and they have resolved the great majority of 

them. But they had to do with, in a critical environment like a disaster, being quick with their response in terms of making sure that 

people are trained, like I spoke about before, to be able to make 

these decisions. What happens is that they have a system that can 

either approve or disapprove at the beginning. After that the loan 

officer or supervisor can make a change to that in terms of their 

determination. We have made recommendations to the fact that the 

loan officers need clearer rules to be able to know that, hey, if this 

happens then I do this, that, or the other. And while SBA has 

strengthened their SOPs, we still believe that there is room for improvement in that regard because even some of the loan officers 

that we have interviewed have said that there is not enough in 

there. It is not clear enough. It is not specific enough. 

Mr. COMER. Okay. Does the OIG currently have ongoing fraud 

investigations relating to the SBA’s Disaster Loan Program? 

Mr. WARE. We do have ongoing work in that area. 

Mr. COMER. What are the typical fraud schemes that the OIG 

encounters in the SBA Disaster Loan Program? 

Mr. WARE. The typical ones are the unauthorized use of the proceeds, folks taking the money and using it for whatever they feel 

like, overstatement of financial losses. And one of the main ones 

that we see is where they make a false assertion about their primary residence. So instead of it being their primary residence it 

would be a vacation home that they are trying to—— 

Mr. COMER. What is the typical loan loss or—I do not want to 

say delinquency, but what percentage of the disaster loans get 

written off because of nonpayment, roughly? 

Mr. WARE. The work that we have done so far does not inform 

that in terms of—— 

Mr. COMER. Can anyone answer that? Just out of curiosity. 

Mr. RIVERA. I would love to answer that question. We are currently at less than 2 percent default rate. 

SBREP-219A with DISTILLER

18 

Mr. COMER. Really? 

Mr. RIVERA. Default rate. Yes. So we probably need to expand 

that credit box. 

If I can for a minute, I would like to talk about the philosophical 

difference. I started as a loan officer in 1989, right? We are following the exact same process today. Shame on me for allowing 

that. 

Over the last several years we started credit scoring. So if you 

have a FICO score pretty low, 30 percent of those applicants get 

declined immediately. Why put you through the whole process if we 

know that your credit is so low? 

What we are trying to do is we are trying to get away from doing 

this fixed-debt method calculation. We want to go with the score 

band. So if you have income of this and you have credit of that, 

let us just go with it and let us stop overanalyzing these situations. 

But we put our loan officers in these tough positions where they 

are analyzing something and we know a credit score is a propensity 

to repay. We should use that as a factor. 

So we are going to continue to work with the IG, and maybe we 

will never convince him, but we are going to nudge him towards 

that way that we need to rely on scoring. That is what the private 

sector does. Our loss rate is really low right now and we need to 

take advantage and maybe get more aggressive to make more of 

these disaster loans for these disaster survivors. 

Mr. COMER. Thank you, Mr. Chairman. I yield back. 

Chairman CHABOT. The gentleman yields back. 

The gentleman from New York, Mr. Espaillat, is recognized for 

5 minutes. 

Mr. ESPAILLAT. Thank you, Mr. Chairman and Ranking Member Vela ́zquez, for holding this hearing. 

It is good to see all of you again. Today represents a proactive 

effort by our Committee to review the Small Business Administration Disaster Loan Program before the next major storm may hit. 

This will ensure that small businesses throughout the country are 

protected. As you know, and as we all know, the first few months 

after a natural disaster are the most critical period in determining 

how fully affected communities will recover, and it is our responsibility to ensure that those communities have the necessary resources to respond and react quickly and effectively. 

As my fellow New Yorkers are keenly aware, we cannot afford 

to repeat what occurred when Superstorm Sandy hit back in 2012. 

Sandy directly and severely impacted New York City and surrounding communities. As a direct consequence of this impact, the 

small business community faced immediate and significant disruption. And while the SBA processed numerous disaster loan applications in response, insufficient efforts were implemented to ensure 

that victims’ loans were processed within the agency’s targeted 21- 

day timeframe. The Disaster Loan Program is a critical lifeline for 

disaster victims, and it is the Committee’s responsibility to provide 

the necessary oversight and ensured accountability. We must be 

adequately prepared for the next major disaster to protect the 

wellness of the backbone of the U.S. economy, our small businesses. 

Mr. Chairman, I have a question for the panel. My first question 

is considering that time is a critical factor for small businesses to 

SBREP-219A with DISTILLER

19 

recover from a natural disaster, what would be the most effective 

way to combat fraud, yet also reduce the number of days that it 

takes for these lifeline loans to be processed? As we know, in New 

York City, due to Superstorm Sandy, it was far too long. Is there 

any mechanism that you will bring to the table to ensure that 

these loans are quickly processed as quickly as possible? 

Mr. SHEAR. Limiting it to our work in the affected region, and 

we certainly were on the ground. We spent a week in New York 

and New Jersey, interacting with the small business communities 

and the SBDCs and other parties. And what I go back to is even 

though it is a more recent report where we brought up concerns 

with clearly communicating to people what is expected of them and 

how the process works, and how the interaction between SBA and 

FEMA works and things like that, is those types of considerations—I am going to say that we observed it in our most recent 

report in dealing with disasters that are not as catastrophic, and 

then we also, it is consistent with what we observed in New York, 

the ideas that the SBDCs lack certain information. 

The ideas that the businesses that are affected, they are coming 

to the SBA and they say we are bounced around from person to 

person and it is not clear what we have to do, then we sign forms 

for things like submission, approval to get information from IRS, 

and then later on we get surprised by being asked for tax records. 

There is a rationale for this whole thing, but I think part of it is 

just the idea that making sure everybody is up and ready and that 

the information sources are up and ready in that the reserve cadre 

is really, as Mike Ware mentioned, are really up and ready to be 

able to help all the victims of major disasters like Sandy. 

Mr. ESPAILLAT. My last question is many small businesses are 

not English-speaking business owners. Do you have services, outreach services, to make sure that these businesses are aware of the 

Disaster Loan Program? Do you have information in different languages? Do you have a website that will communicate to Chinesespeaking, Korean-speaking, Spanish-speaking business owners that 

this is available for them? 

Mr. RIVERA. Congressman, thank you for the question. All our 

forms are in Spanish. In situations where the disaster footprint 

shows a Korean community or a Chinese community, we work with 

the local community to get our information translated into whatever language it is. And we also have a language service line if we 

have a dialect or a language that we do not have a skillset in that 

we can actually use to communicate from that perspective. 

Mr. ESPAILLAT. Is the agency’s website in different languages 

as well? 

Chairman CHABOT. The gentleman’s time is expired, but you 

can answer the question. 

Mr. RIVERA. Thank you, Chairman. 

We have English and Spanish. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. 

Chairman CHABOT. Thank you very much. 

The gentleman from Iowa, Mr. Blum, who is the chairman of 

Subcommittee on Agriculture, Energy, and Trade, is recognized for 

5 minutes. 

SBREP-219A with DISTILLER

20 

Mr. BLUM. Thank you, Chairman Chabot. Do I have the name 

correct? Thank you to our panelists today for being here. Thank 

you also for the hard work you do on behalf of our Nation’s small 

businesses, the backbone of our economy. 

My questions are probably for you, Mr. Rivera, as they are kind 

of follow-up questions to Representative Comer’s. 

What size is the direct loan portfolio, disaster loan portfolio? How 

large? 

Mr. RIVERA. The current portfolio, we have 157,000 loans for 

$6.2 billion. A lion’s share of that, about 135,000 are home loans 

for about $4 billion. 

Mr. BLUM. And I think you had said, I think you had told Representative Comer that the default rate was less than 2 percent? 

Mr. RIVERA. Less than 2 percent. 

Mr. BLUM. Is that 1.9 percent or is that .1 percent? 

Mr. RIVERA. I can tell you here exactly. 

Mr. BLUM. If you are talking numbers that big. 

Mr. RIVERA. It is less than 2 percent, and it is running at—I 

am sorry, in the last 12 months, charge-offs for businesses have 

been at 2 percent and homes have been at 1.59. So overall it is at 

1.64 percent. 

Mr. BLUM. Okay, thank you. 

What are the costs of those write-offs every year totally in dollars? 

Mr. RIVERA. So we have, as you know, we have a subsidy 

model. It is a cash flow in and cash flow out. And based on that 

the current subsidy rate is at 14.42 percent. So what that means 

is for every dollar we loan out it costs the taxpayer, we need 14 

cents in subsidy from that perspective. So from a loss perspective, 

so the 14 percent, what we do is we leverage that. So we currently 

have $480 million in loan authority, and if you invert that, 14 percent, we have $3.3 billion in loan authority that we can loan out. 

But the actual subsidy that we receive from Congress, the appropriations we receive from Congress, I am sorry, is know your funds 

and it is currently at $480 million, which allows us to loan out $3.3 

billion with the 14.4 subsidy rate. 

Mr. BLUM. So in terms of dollars, for example, last fiscal year, 

how much did you have to write off in terms of dollars? 

Mr. RIVERA. I need to get back with you for the record, Congressman. I am sorry, I do not have that information here in front 

of me. 

Mr. BLUM. And is it a net cost to taxpayers? 

Mr. RIVERA. Yes, sir. 

Mr. BLUM. Because, you know, we had administrator McMahon 

in here last month, and the SBA administration makes money on 

the loan guarantees that are made by the banks. I was wondering 

if this program, the Direct Loan Program, makes money or loses 

money. 

Mr. RIVERA. No, sir. For the disaster servicing account on a salary and administrative side, we run about $200 million a year. It 

is a very expensive program from that perspective because we are 

a direct lender and as a result of what we loan out. So we spend 

$200 million a year in salary and expenses, and then the loan 

SBREP-219A with DISTILLER

21 

amount, the fund for lending out disaster funds is based on how 

much loans we make in that specific year. 

Mr. BLUM. How is that portfolio reviewed? Is it done by independent bank auditors or examiners that are accustomed to looking 

at loans? 

Mr. RIVERA. So we have several reviews. We have an internal 

group. We have a contractor that independently gives us review. 

Our KPMG auditor at the liberty of the inspector general, they also 

take a review of the portfolio from that perspective. 

Mr. BLUM. So it is reviewed annually, a portion of it is? 

Mr. RIVERA. Well, we review our portfolio monthly. And then 

we have a quarterly review with the contractor on what losses we 

are having, where the losses are at, what type of loan it is, so forth 

and so on. But the annual review with the financial statements occurs annually, correct? 

Mr. BLUM. Do you have targets set for loan loss out of the portfolio? Are you less than 2 percent? Do you have a target set? If you 

do, who sets the target? 

Mr. RIVERA. No, sir, we really do not. I was a commercial lender in the private sector and we had a profitability analysis we were 

supposed to hit. We really do not use that formula and that approach. We just try to make the best loans. And I guess the way 

to explain it is our credit box is based on that credit score portfolio 

that we are trying to go and move more in that direction. So we 

do an annual assessment of what our credit box is and what loans 

we approve from that perspective. 

Mr. BLUM. My time is about up, so could you send either the 

chairman or myself, maybe both of us, I would like to know the 

maybe last 5 years, the dollar amount of the defaults. 

Mr. RIVERA. Okay. 

Mr. BLUM. Or what it costs us by maybe the last 5 years. That 

would be wonderful. 

Mr. RIVERA. Okay. Yes, sir. 

Mr. BLUM. Thank you very much. I yield back my time. 

Chairman CHABOT. Thank you very much. The gentleman 

yields back. 

And I think our final questioner this morning will be the gentleman from Nebraska, Mr. Bacon. 

Mr. BACON. Thanks to all three of you here. You know, disaster 

response is an important part of having a healthy society, so I 

thank you for what you are doing and appreciate your inputs 

today. 

I just want to follow up on the previous question. So the cost to 

the taxpayer or the budget, is it about $480 million? Is that what 

we are looking at or did I misunderstand? 

Mr. RIVERA. So if we were to loan out $3.3 billion, that subsidized cost translates to $480 million. So we average a billion dollars a year. So it would be a third of that. It would be $125 million. 

But it depends on what our disaster response is and the number 

of loans we approve. 

Mr. BACON. So $125 million is the cost to the taxpayer for this 

program? 

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Mr. RIVERA. To make the loans, and then there is another $200 

million associated with the salary and expenses and the operation 

of the program. 

Mr. BACON. Okay, thank you. That helps clarify for me. I appreciate it. 

This may have been mentioned earlier, but I had to step out for 

a briefing on North Korea, so I just want to make sure we have 

it for the record. I understand that in some of the previous disasters there were some duplications of payments. How do we catch 

that, from various agencies, and how do we retrieve that money? 

Mr. RIVERA. So the duplication of benefits, it is interesting. 

When you go back to 2005, the inspector general was actually sitting at the table when we established that, and then here they 

come 2 years after the fact and they criticize us for what we agreed 

to. Neither here nor there. What we have done is we have a computer matching agreement with FEMA. And then so when FEMA 

makes a grant, a small grant to repair the home, they provide no 

assistance to businesses. What we will do is we will make a loan 

and we have to check for duplication of benefits based with FEMA. 

And then behind us, if HUD comes in or if there is anybody else 

that comes in behind us, they have to look at the total project costs 

and see if there are any unmet needs. If there are any unmet 

needs, they can go ahead and provide that specific funding. 

Mr. BACON. That overlap does cause a potential issue, so I appreciate you all working it. 

And when you find that there has been a duplication, what is the 

process for getting that money back? 

Mr. RIVERA. It depends where you are at in the sequence. If 

there is a situation where we have over disbursed, we have to go 

and talk to the disaster borrower and have them repay whatever 

the over disbursement was. The same thing with HUD behind us, 

and they may need to claw back from that perspective. 

Mr. BACON. But there is not a legal penalty perhaps or a criminal element to that if it is knowingly being done? 

Mr. RIVERA. So, yes, sir. I have to go back. I think it is like 150 

percent penalty or something that we have in our regulations. I can 

get you the exact amount for the record. 

Mr. BACON. It is hard to say it would be accidental. All of a sudden, if you end up with an extra—if you have been double or triple 

paid, you would know. 

Mr. RIVERA. Yeah, you know, so in the grand scheme of things, 

you know, there is always going to be fraud. I mean, it is naive for 

me to say there is never fraud. We did process 85,000 applications 

and here we are talking about 300, 400, 500, you know. So unfortunately, that happens. But generally speaking we have pretty good 

internal controls that catch these kind of things, and we refer most 

all of these situations. When the loan officer or account manager 

catches it, we will refer it to the inspector general if it does not 

look like it is copasetic. 

Mr. BACON. Thank you very much. And again, this is an important mission. We have to respond from time to time, so thank you. 

Chairman CHABOT. The gentleman yields back. Thank you very 

much. 

SBREP-219A with DISTILLER

23 

And we want to thank the witnesses very much for their excellent testimony this morning and a little bit this afternoon. 

We are fortunate, of course, as has been mentioned, we are not 

directly in the middle of a major natural disaster right now, but 

we know it is only a matter of time before another one will hit, and 

hopefully today’s hearing will help the SBA continue to improve its 

Disaster Loan Program so that when that day does come that we 

are best positioned to help this Nation’s disaster victims. So thank 

you very much for responding to all the questions that members on 

both sides had and continue to improve. It is very, very important. 

And I would ask unanimous consent that members have 5 legislative days to submit statements and supporting materials for the 

record. Without objection, so ordered. 

And if there is no further business to come before the Committee, 

we are adjourned. Thank you. 

[Whereupon, at 12:17 p.m., the Committee was adjourned.] 

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A P P E N D I X 

Good morning Chairman Chabot, Ranking Member Velazquez, 

and distinguished members of the Committee. Thank you for inviting me here today to discuss SBA’s Disaster Loan Program. SBA 

appreciates your strong support of the agency’s disaster assistance 

mission and your continued leadership to ensure as a country we 

are prepared to meet the challenges of future large natural disasters. 

I am James Rivera, the Associate Administrator for the SBA’s 

Office of Disaster Assistance (ODA). ODA provides affordable, timely and accessible financial assistance following a declared disaster 

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to businesses of all sizes, private non-profit organizations, as well 

as homeowners and renters. This financial assistance is available 

in the form of low-interest loans, and since SBA’s inception in 

1953, we have provided over two million loans for more than $56 

billion dollars. 

Role in Responding to a Disaster 

Even though SBA is on the ground immediately following a disaster, we are not a ‘‘first responder’’ agency. Our primary focus is 

to provide low-interest, long-term loans for privately-owned property losses as part of the recovery effort in coordination with other 

Federal, state, local, Indian Tribal and territorial government partners. The SBA and the Federal Emergency Management Agency 

(FEMA) partner to ensure disaster survivors obtain the maximum 

amount of assistance for which they are eligible. SBA and FEMA 

share information to ensure no benefits are duplicated when providing assistance. In events where a Presidential disaster declaration including Individual Assistance is authorized, disaster survivors should first contact FEMA since in order to apply for an 

SBA loan, they will need to obtain a FEMA Registration ID Number. 

As part of an overall effort to assist disaster survivors to get back on their feet, SBA provides loan assistance up to $200,000 to help 

homeowners repair or replace their damaged or destroyed primary 

residence. We also provide up to $40,000 in loans to help homeowners and renters replace damaged or destroyed personal property such as furniture, clothing, appliances, and vehicles. For businesses of all sizes and private non-profit organizations, SBA provides up to $2 million dollars in loans to repair or replace damaged 

real estate, leasehold improvements, furniture and fixtures, inventory, and machinery and equipment. 

Additionally, SBA offers Economic Injury Disaster Loans (EIDL) 

to small businesses, small agricultural cooperatives, and most private non-profit organizations that have suffered economic injury 

caused by a disaster. These loans provide working capital to a business or organization until normal operations can resume following 

a disaster. 

I should also note that SBA provides additional loan funds for 

mitigation—up to 20 percent of the total physical losses as verified 

by SBA—to help prevent damages from similar disaster events 

which may occur in the future. SBA disaster loans funds can only 

be used for uninsured, underinsured or uncompensated losses. 

Preparedness and SBA’s Key Improvements to the Disaster Assistance Program 

Over the past several years, SBA has made a number of key improvements that help us to better respond to disaster survivors. We 

have this committee to thank for some of the most meaningful improvements, which are a result of legislation that SBA worked with 

this committee to pass. For example, the Recovery Improvements 

for Small Entities After Disaster Act of 2015 (RISE Act) included 

several measures that SBA was quick to implement such as reSBREP-219A with DISTILLER

26 

opening the application period for Hurricane Sandy, increasing the 

unsecured loan limit from $14,000 to $25,000, expanding mitigation 

assistance to include safe rooms and storm shelters that will save 

lives, and the creation of a Disaster Loan Assistance Portal that 

provides disaster survivors with quick and easy access to their loan 

application status, filing requirements, document uploads, and includes some electronic signature capability. 

The re-opening of the application period for Hurricane Sandy resulted in 1,151 approved business, homeowners and renters loans 

totaling $58.5 million, which is in addition to the original 36,918 

approved business, homeowners and renters loans for a total of 

$2.5 billion that SBA approved in response to Sandy. 

Increasing the unsecured loan limit up to $25,000 for physical 

damages and economic injury makes a real difference to the disaster survivor who is rebuilding a home or business. SBA typically 

makes an initial disbursement within five days of receiving the borrower’s signed loan closing documents, but instead of a homeowner 

only receiving $14,000, he or she can now receive $25,000, helping 

to speed up the reconstruction project. 

Similarly, a small business that has both physical damages and 

economic injury can now receive $50,000 in an initial disbursement—$25,000 for the physical repairs and $25,000 for working 

capital—within five days of returning the signed loan closing documents. This increase in the unsecured loan limit translates into 

SBA getting more disaster loan funds into the hands of disaster 

survivors faster. The increase in the unsecured loan limit included 

in the RISE Act is temporary authority that expires in November 

2018. 

The creation of the Disaster Loan Assistance Portal is changing 

the way SBA interacts with disaster survivors. Prior to the launch 

of the portal, the primary way for disaster survivors to check on 

the status of their loan application was to call the customer service 

center. While our customer service representatives are helpful and 

quick to respond, disaster survivors deserve more options and expect online access in these technological times. The portal provides 

disaster survivors with online communications regarding the status 

of their application, access to filing requirements and SBA forms, 

even the ability to electronically sign the IRS Form 4506-T, which 

is needed to verify income and repayment ability. To maintain pace 

with the lending industry online advancements, SBA plans to continue enhancing the portal so that disaster survivors receive the 

best customer service experience possible when applying for SBA 

disaster assistance. 

Response to August 2016 Louisiana Flooding 

The August 2016 Louisiana Flood is the largest disaster event 

that SBA responded to since Hurricane Sandy in 2012. As of April 

17, 2017, SBA approved 17,468 disaster loans to businesses, homeowners and renters for a total of $1.2 billion. 

Following that event in the same year, SBA responded to Hurricane Matthew, which resulted in disaster declarations for Florida, 

SBREP-219A with DISTILLER

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Georgia, North Carolina, South Carolina, and Virginia. As of April 

17, 2017, for Hurricane Matthew, SBA has approved 7,517 disaster 

loans to businesses, homeowners and renters totaling more than 

$262 million. 

For fiscal year 2017, I am pleased to report that we have maintained low processing times—seven days for home loans and 12 

days for business loans—while responding to periods of increased 

activity for the Louisiana Floods and Hurricane Matthew. 

As reflected in SBA’s, ‘‘Disaster Preparedness and Response 

Plan’’, ODA currently maintains 1,750 workstations in the Fort 

Worth processing and disbursement center and 350 more surge 

workstations in our Sacramento disaster center. During Hurricane 

Sandy, the third largest disaster event in SBA’s history, we peaked 

at 2,451 employees. To meet this demand, SBA ODA not only used 

the Fort Worth center and the Sacramento surge space, we also expanded the loan processing footprint to include 50 workstations at 

the Buffalo call center. 

In closing, I appreciate the opportunity to update this Committee 

on SBA’s disaster recovery efforts. We firmly believe that the reforms we instituted enable us to be better prepared to efficiently 

and effectively respond to the needs of our nation’s disaster survivors. I look forward to answering any questions. 

Thank You. 

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STATEMENT OF 

HANNIBAL "MIKE" WARE 

ACTING INSPECTOR GENERAL 

U.S. SMALL BUSINESS ADMINISTRATION 

BEFORE THE 

COMMITTEE ON SMALL BUSINESS 

U.S. HOUSE OF REPRESENTATIVES 

APRIL 26, 2017 
29 

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INTRODUCTION 

Chairman Chabot, Ranking Member Velazquez, and distinguished members of the Committee, 

thank you for the opportunity to discuss our oversight of the U.S. Small Business 

Administration's (SBA' s) Disaster Assistance Program. Disaster assistance has been part of 

SBA since its inception in 1953. Through its Office of Disaster Assistance (ODA), SBA 

provides long-term, low-interest financial assistance to businesses of all sizes, private non-profit 

organizations, homeowners, and renters following a disaster. Each year, SBA approves hundreds 

of millions of dollars in disaster assistance loans. SBA's FY 2016 year-end disaster financial 

assistance portfolio balance was $6.2 billion. It is the mission of the Office of Inspector General 

(OIG) to provide independent, objective oversight to improve the integrity, accountability, and 

performance of the SBA and its programs, to include the Disaster Assistance Program, for the 

benefit of the American people. 

OIG'sROLE 

OIG was established within SBA by statute to promote economy, efficiency, and effectiveness 

and to deter and detect waste, fraud, abuse, and mismanagement in the Agency's programs and 

operations. During fiscal year (FY) 2016, OIG achieved nearly $145 million in monetary 

recoveries and savings-an ahnost seven-fold return on investment relative to our FY 2016 

operating budget-and made 81 recommendations for improving SBA's operations and reducing 

fraud and unnecessary losses in the Agency's programs. 

Among its duties and responsibilities, OIG is responsible for conducting reviews and 

investigations of the Disaster Assistance Program. hnportantly, as Acting Inspector General 

(IG), I am charged with keeping the Administrator and Congress fully and currently informed 

about problems and deficiencies in SBA. Our work in the disaster assistance area is performed 

in an independent manner to ensure the objectivity of our work. It is our statutory guarantee of 

independence that makes our work and insight into SBA's programs unique. 

OIG audits are conducted in accordance with Federal audit standards established by the 

Comptroller General, and other reviews generally are conducted in accordance with standards 

established by the Council of the Inspectors General for Integrity and Efficiency (CIGIE). In 

addition, we coordinate with the Government Accountability Office to avoid duplicating Federal 

audits. We also establish criteria to ensure that the non-Federal auditors that OIG uses (typically, 

certified public accountant firms) comply with Federal audit standards. 

OIG investigations are conducted in accordance with the CIGIE Quality Standards for 

Investigations and Federal law. In conducting investigations, whenever the IG has reason to 

believe that Federal criminal law has been violated, the IG must promptly report that evidence 

directly to the Department of Justice, without prior clearance by Agency officials outside OIG. 

MANAGEMENT CHALLENGES FACING DISASTER ASSISTANCE PROGRAM 

OIG has identified the competing priorities of delivering timely assistance and the need of 

reducing improper payments as a top management challenge for SBA. Prior audits performed by 

OIG have found that SBA had not taken sufficient steps to prepare for large-scale disasters, such 

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as properly preparing and training a new workforce for high application volumes. As a result, 

the program often has been unable to provide timely assistance in the aftermath of major 

disasters. Unfortunately, the need to disburse such loans quickly poses many challenges, many 

of which are evidenced through improper payments. Additionally, the need to provide disaster 

assistance quickly can increase opportunities for dishonest applicants to commit fraud. 

SBA's improper payment rate for disaster direct loan disbursements has continued to decrease, 

although its efforts prior to 2012 were not sufficient due to the absence of an effective corrective 

action plan. Specifically, SBA missed its target goals of reducing improper payments in the 

Disaster Assistance Program during these years. Target goals were 16.7 percent for FY 2010, 

20.0 percent for FY 2011, and 17.0 percent for FY 2012. Instead, SBA reported rates of34.2 

percent, 28.4 percent, and 17.9 percent, respectively for FY 2010 through 2012 The high rates 

and the absence of an effective corrective plan made clear that this is a top management 

challenge and would continue to be so for the foreseeable future. 

By addressing OIG-identified concerns and prioritizing internal controls, SBA has been able to 

significantly reduce improper payments, though the challenge persists. In FY 2016, SBA 

reported an improper payment rate of5.32 percent, which is lower than the reported rate of8.13 

percent in FY 2015 and 12 percent reported in FY 2014. However, it remains a concern since 

the reported rate is above the threshold for significant improper payments, as defined by the 

Improper Payments Elimination and Recovery Act (lPERA) of2010. 

We also remain concerned that SBA does not limit the proportion of a borrower's gross income 

that may be relied on to service debt, potentially leaving borrowers with insufficient income to 

cover living expenses and taxes. In addition, SBA did not effectively implement statutory 

provisions intended to assist in disbursing funds quickly and effectively. 

The Recovery Improvements for Small Entities (RISE) After Disaster Act of2015 extended the 

period for Hurricane Sandy survivors to apply for disaster assistance, increasing the difficulty of 

loan eligibility determinations due to the lapse in time since the disaster occurred in October 

2012. The Act also allowed express loans in disaster areas and required a report on the 2008 

Private Disaster Loan Program. Historically, SBA has faced challenges standing up private 

lender disaster programs and has been unable to implement statutory private sector disaster loan 

programs in the past. 

RISKS TO SBA DISASTER ASSISTANCE PROGRAM 

SBA provides low-interest disaster loans to businesses of all sizes, private non-profit 

organizations, homeowners, and renters. SBA disaster loans can be used to repair or replace the 

following items damaged or destroyed in a declared disaster: real estate, personal property, 

machinery and equipment, and inventory and business assets. The program includes four 

categories ofloans for disaster-related losses: home disaster loans, business disaster loans, 

economic injury disaster loans (EIDL), and military reservist economic injury loans (MREIDL). 

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Disaster Loans Vulnerable to Fraud 

Unfortunately, the need to disburse such loans quickly poses many complications and may create 

opportunities for dishonest applicants to commit fraud. OIG audits have identified that SBA's 

disaster loans have been vulnerable to fraud and losses in the past because (I) loan transactions 

are often expedited in order to provide quick relief to disaster survivors, (2) lending personnel 

hired in connection with a disaster declaration may lack sufficient training or experience, and (3) 

the volume ofloan applications may overwhelm SBA's resources and its ability to exercise 

careful oversight oflending transactions. 

Most of the Hurricane Sandy loan fraud allegations investigated by OIG include false eligibility 

declarations, misuse of proceeds, and submission of false invoices or other false statements. For 

example, fraud can occur when a property owner attempts to represent their secondary residence, 

such as a vacation home, as their primary residence. OIG has worked closely with state and 

Federal agencies to address residence eligibility fraud and has observed that SBA appears to 

have been more effective in detecting fraudulent and ineligible disaster assistance applications 

for secondary residences than in previous disaster responses. 

Systemic improvements are key to reducing fraud and delivering efficient services. In recent 

years, OIG audits and investigations have identified specific instances of fraud as well as 

necessary systemic improvements to reduce fraud and provide effective and efficient loan 

delivery and protect taxpayer dollars. For example, a 2010 report, SBA 's Role in Addressing 

Duplication of Benefits Between SBA Disaster Loans and Community Development Block 

Grants, (Report 10-13), found that SBA took the lead in working with States to identify and 

recover duplicate benefits. Although SBA did so because it thought it was acting in the best 

interest of the Government to reduce duplicate benefits, SBA incorrectly placed HUD CDBGs 

ahead of SBA assistance in the delivery sequence, thereby making them the primary assistance 

provider. This essentially resulted in $925.6 million in CDBG funding being used before SBA 

loan funds, contrary to the delivery sequence. Specifically, $643.8 million ofCDBG funds were 

sent to SBA to pay down fully disbursed SBA loans, and SBA canceled $281.8 million of 

undisbursed SBA disaster loans. The report's five recommendations were primarily geared 

toward having SBA, in coordination with HUD and FEMA, develop agreements and roles 

consistent with sequence of delivery outlined in 44CFR 206.191. 

In 2014, we initiated a similar review to determine SBA' s posture in minimizing duplicate 

benefits as it pertained assistance provided in response to Hurricane Sandy. We determined that 

SBA's internal controls to prevent duplication of benefits were adequately designed and 

generally working as intended. 

SBA's role to prevent duplication of benefits with HUD's CDBG Program is to provide timely, 

accurate, and complete loan information to HUD grantees that administer the grants for HUD. 

To accomplish this, we found SBA (I) signed a memorandum of understanding with each 

grantee that specified the information to be shared between the grantee and SBA; (2) obtained 

the grantee's action plans approved by HUD; and (3) provided program guidance to case 

managers and loan modification officers for each individual program offered by the grantees. 

We also found a few instances where SBA did not timely annotate in the loan file that a grant 

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had been awarded. However, no benefits were duplicated since the disaster survivor had not 

requested a loan, loan reinstatement, reconsideration or reacceptance, or increase of a loan from 

SBA after they were awarded CDBG fund. It is clear that system improvements can 

dramatically reduce risks to the taxpayer. 

Improper Payment Rate Remains Above IPERA Significance Threshold 

The Disaster Assistance Program is deemed susceptible to significant improper payments. 

Office of Management and Budget Circular M-15-02 defines significant improper payments as 

"gross annual improper payments (i.e., the total amount of overpayments and underpayments) in 

the program exceeding (1) both 1.5 percent of program outlays and $10,000,000 of all program 

or activity payments made during the fiscal year reported or (2) $100,000,000 (regardless of the 

improper payment percentage of total program outlays)." In FY 2015, the Disaster Assistance 

Program's improper payment rate was 8.13 percent ($24.6 million), and for FY 2016, SBA 

reported an improper payment rate of 5.32 percent ($18.4 million). As such, the Disaster 

Assistance Program continues to be a program that is susceptible to significant improper 

payments. Of note, the improper payment rate achieved by SBA in FY 2016 was lower than the 

agency's 7.3 percent reduction target .and below the 10 percent improper payment rate necessary 

to comply with IPERA requirements. 

SBA's corrective action plan for the Disaster Direct Loan Program has been effective in reducing 

the improper payment rate. Specifically, SBA conducted training for the disbursement staff at 

the PDC regarding acceptable documentation for the various types of insurance coverage. 

Additionally, SBA continues to perform independent reviews on all disbursements equal to or 

greater than $100,000 to identify and prevent improper payments prior to loan disbursement. 

SBA also continues to conduct multilayered reviews of loan approvals and disbursements on a 

random basis, by teams within the two major departments of the PDC, to identify and reduce 

improper payments. 

SBA also includes improper payment reduction as a rating factor in the annual performance 

evaluations of all loan processing staff, including loan officers, attorneys, and PDC management 

officials. Finally, ODA's Management and Quality Control teams continue to hold biweekly 

meetings to discuss ongoing improper payment issues and develop strategies on how to resolve 

the issues and prevent future improper payments. 

Maximum Allowable Fixed Debt May be Exceeded, Limiting Borrower "s Ability to Repay 

Disaster Loans 

SBA provides eligible disaster survivors with the maximum available financial assistance on 

attractive terms. On occasion, in order to facilitate widespread program delivery of disaster 

home loan benefits, SBA exceeds its normal home loan debt-to-income lending parameters, 

potentially straining and/or limiting the borrowers' ability to repay the disaster loans. SBA's 

Disaster Assistance home loan rules do not specify an upper limit to the proportion of a 

borrower's gross income that may be relied upon to service debt. Allocating too much of the 

borrower's income for debt servicing could result in the borrower having insufficient income to 

repay the loan, resulting in defaulted loans and additional financial distress to disaster survivors. 

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In the past, the maximum allowable fixed debt, the proportion of a borrower's income that can be 

safely allocated for home loan debt repayment was generally capped at 40 percent; higher 

income proportions allocated for debt repayment were considered unaffordable. The revised 

Disaster Assistance standard operating procedure (SOP) issued in 2015 implemented a tiered 

approach to the maximum income allocation for home loan debt service ranging from 36 percent 

for incomes below $25,000 to 50 percent for incomes of above $60,000. These limits may be 

exceeded with supervisory approval, but the SOP does not establish an upper threshold for the 

supervisor to consider relative to income allocated for home loan debt service under this 

provision. While SBA's Disaster Assistance SOP does provide a formula for determining the 

minimal amount of income reserved for living expenses and taxes when evaluating disaster 

business loan guarantors' repayment ability, the disaster home loan program rules do not include 

a similar required reserve of income to meet necessary living expenses. 

An August 2016 report on early-defaulted Hurricane Sandy loans (Report 16-18) found that 

loans to borrowers who did not otherwise have repayment ability were approved by allocating 

high proportions of borrower income to service debt. Home loans with higher than normal debt 

service ratios given to borrowers with low incomes and poor credit histories appeared especially 

vulnerable to default. SBA should determine when the borrower's proposed debt service ratio 

creates an unacceptable financial burden to the disaster survivor and should train its loan officers 

to safeguard loan affordability. 

Statutory Provisions Intended to Quickly Disburse Disaster Funds Not Implemented 

In the wake of disasters like Hurricane Sandy, congressional representatives expressed concern 

that SBA did not effectively develop and utilize progranunatic innovations intended to assist in 

disbursing funds quickly and effectively. For instance, SBA did not implement statutory 

provisions of the Immediate Disaster Assistance Program (IDAP), Economic Injury Disaster 

Assistance Program (EDAP), and the Private Disaster Assistance Programs (PDAP), collectively 

known as the "Guaranteed Disaster Assistance Programs" mandated by Congress in 2008. These 

provisions were enacted with the expectation that they would allow SBA to provide expedited 

disaster loans in partuership with private sector lenders. These provisions remain 

unimplemented. 

In July 2016, SBA prepared a memorandum to notify Congress of the work that management 

performed to address these provisions. Ultimately, SBA stated that it sought advance public 

comment on proposed rulemaking for these loan programs and received limited public responses, 

the majority of which were opposed to implementing the three loan programs. The objections 

were based on the cost of program participation under the current pricing structure and the 

lender's lack of infrastructure to deliver loans that meet SBA standards (such as evaluating 

eligibility and duplication of benefits); loan terms that include longer maturities than 

conventional lending practices; the high cost of providing these loans; inadequate collateral 

security; and their lack of expertise in the home loan sector. Lenders were also concerned that 

loan guarantees would be denied due to improper eligibility determinations. 

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Recovery Improvements for Small Entities After Disaster Act Introduces New Risks 

The RISE After Disaster Act, enacted November 25, 2015, introduced new initiatives that may 

pose additional risks and difficulties for SBA's loan programs. First, the Act directed SBA to 

make disaster loans available to Hurricane Sandy survivors for a !-year period following its 

enactment-over 3 years after the disaster. Because of the significant time elapsed, SBA may 

have difficulty verifying whether physical losses and economic injury were attributable to 

Hurricane Sandy, potentially resulting in ineligible recipients receiving loans. We are currently 

performing an audit of eligibility controls for applications approved during the extended 

eligibility period of the Act. Second, the Act introduced the Express Recovery Opportunity Loan 

Program, which provides loans up to $150,000 to disaster survivors from private lenders. Given 

that SBA has not yet implemented the Guaranteed Disaster Assistance Programs authorized in 

2008, SBA is likely to experience difficulties implementing this program as well. 

RECENT ANDONGOINGOIGOVERSIGHT 

In October 2012, Hurricane Sandy struck the northeastern United States with its aftermath being 

rated as the second costliest storm in U.S. history. OIG was appropriated $5 million in 

supplemental funds to provide oversight over the SBA's disaster response to Hurricane Sandy. 

The funds are intended to supplement our oversight capacity to address Hurricane Sandy disaster 

assistance and potentially other ma:jor disasters for a period of at least 4 to 6 years. This funding 

level is based on experience with major disasters in the past such as the Gulf Coast hurricanes in 

2005. Availability of funds for this timeframe is particularly important because experience has 

shown that fraudulent loans are not immediately identified, have a deferment period for 

repayment, and take years to default. Additionally, there is a 5-year statute oflimitations (from 

the date of the last false statement) to prove a false statement to the SBA. With the passage of 

RISE, the potential for Sandy related criminal and civil investigations will continue until at least 

2022. To date, we have issued nine reports and have an additional ongoing review pertaining to 

our oversight efforts ofSBA's Hurricane Sandy disaster assistance. 

OIG criminal investigators aggressively investigate fraud allegations pertaining to Hurricane 

Sandy and other disaster assistance. In doing so, we have partnered on many occasions with our 

colleagues in OIGs of the Department of Homeland Security and the Department of Housing and 

Urban Development, as well as other federal, state, and local counterparts. Fraud allegations and 

schemes frequently involve unauthorized use of loan proceeds, overstatement of financial losses, 

material false statements in the application process, false or counterfeit supporting 

documentation, and false assertions regarding primary residency in affected areas at the times of 

disasters. To date, our office has initiated 72 investigations involving allegations of fraud 

pertaining to Hurricane Sandy. As of April6, 2017, OIG had 33 open cases involving disaster 

loans with potential dollar losses of nearly $13.5 million. 

In response to the potential for fraud following Hurricanes Katrina, Wilma, and Rita, the OIG 

joined other law enforcement organizations in establishing the National Center for Disaster 

Fraud. From FY 2006 through FY 2016, the OIG, in conjunction with other law enforcement 

agencies, produced 86 arrests, 97 indictments/informations, and 96 convictions related to 

wrongdoing in SBA's Disaster Loan Program for these three hurricanes. Investigations for these 

disasters to date have resulted in over $7.9 million in court-ordered restitution and related 

Page [6 
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recoveries, as well as the denial of nearly $4.5 million in loans to potentially fraudulent 

borrowers. 

OIG reviews will continue to focus on loan eligibility, origination, disbursement, repayment, 

servicing, and liquidation activities related to disaster loans. OIG criminal investigators also 

continue to aggressively investigate fraud allegations pertaining to disaster assistance. 

CONCLUSION 

The Disaster Assistance Program is a vital component to the nation's response plan for 

homeowners and business owners in the wake of significant disasters. As such, it is critical that 

the program is operated in the most effective and efficient manner. Having implemented 

corrective actions for dozens ofOIG recommendations since Hurricane Katrina, it is evident 

ODA is better positioned to provide assistance to disaster victims, though every disaster tests 

SBA's ability to deliver anew. Each disaster has unique circumstances and poses unforeseen 

challenges that SBA personnel must adapt to and overcome to be successful. The need to 

disburse loans quickly, and in some instances in large volumes, poses many complications and 

may create opportunities for dishonest applicants to commit fraud and SBA personnel to make 

errors in the lending process. 

Having effective internal controls, robust technology design and resources, and training 

programs are keys to mitigating risks to the taxpayer. OIG has and will continue to play an 

important role in identifying risks and making recommendations for corrective action in these 

regards. Our focus is to keep SBA leadership, our congressional stakeholders, and the public 

currently and fully informed about the problems and deficiencies in the program as identified 

through our work. We value our relationship with the Committee and the Congress at large, and 

we look forward to working together to address identified risks and the most pressing 

management challenges facing the Disaster Assistance Program. 

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GltO 

For Release on Delivery 

Expected at 11 a.m. ET Wednesday, April 26, 2017 

GA0-17-566T 

United States Government Accountability Office 

Testimony 

Before the Committee on Small 

Business, House of Representatives 

SMALL BUSINESS 

ADMINISTRATION 

Actions Taken to Help 

Improve Disaster Loan 

Assistance 

Statement of William B. Shear, Director, Financial 

Markets and Community Investment 
37 

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Highlights ofGA0--17~566T, 1tteStimony 

before the Commlttee,on Small Business, 

House of Representatives 

Why GAO Die! Tl:lls Study 

While SBA is known primarily for its 

financial suppon of small businesses, 

the agency also as~ists businesses of 

all sjzes and jlomE>Qwners affected by 

natural anti other deClared disasters 

through its Disil:ster.toan l>rl)gram. 

Disas,er loans can be used to help 

rebuild or replace damaged property or 

continul!business operations. After 

S!3A was qritloi1:ed for.lts pe)fQrm~nce 

following t)1e 2005 Gulf Coast 

hurricanes; the·:agent;)t.tGok steps, to 

reform the program and Congress also 

passed the. 200!\ 1\<ll, Alter Hurricane 

Sandy(2012J •. quastiqrts.aro,seonlh<> e~ten!to whlcll the program had 

improvectsinoetne 2005Gui1Cojlsf 

Hun:icanes. and whether. preViously 

Identified deflclencies had ·tl.een addre~sea. 

This st:!llem~ntdiswss~s (1) SBA 

implementation of provisions from the 

2008 Act; (2)act<!itfonal improvements 

to agency plano in\! following Hurri9ane 

Sandy; and (;l) SBA's reCe~t and. 

plannel! actions to improve information 

resources for business loan applicants. 

Tnis statement is based on GAO 

~~d~~~~~:~'2~~:8A6~is~o~;t with SBA officials in Aprtl 2017 to 

discuss the status of open 

recommendations and other aspects of 

the program. 

View GAO~i7~566T. For more information, 

contactWilflam B. Shear at (202) 512-8678 or shearw@gao.gov. 

SMALL BUSINESS ADMINISTRATION 

Actions Taken to Help Improve Disaster loan 

Assistance 

What GAO Found 

The Small Business Administration (SBA) implemented most requirements of the 

Small Business Disaster Response and Loan Improvements Act of 2008 (2008 

Act). For example, in response to the 2008 Act, SBA appointed an official to 

head the disaster planning office and annually updates its disaster response 

plan. SBA also implemented provisions relating to marketing and outreach; 

augmenting infrastructure, information technology, and staff; and increasing 

access to funds for non profits, among other areas. However, SBA has not yet 

implemented provisions to establish three guaranteed loan programs. In 2010, 

SBA received an appropriation to pilot one program and performed initial 

outreach to lenders. However, in 2014, GAO found that SBA had not 

implemented the programs or conducted a pilot because of concerns from 

lenders about loan features. GAO recommended that SBA evaluate lender 

feedback and report to Congress about implementation challenges. In response, 

SBA sought comments from lenders and sent a letter to Congress that explained 

remaining implementation challenges. 

After Hurricane Sandy, SBA further enhanced its planning for disaster response, 

including processing of loan applications. In a 2014 report on the Disaster Loan 

Program, GAO found that while SBA encouraged electronic submissions of loan 

applications. SBA did not expect early receipt of a high volume of applications 

after Sandy and delayed increasing staffing. SBA also did not update key 

disaster planning documents to adjust for the effects of such a surge in future 

disasters. GAO recommended SBA revise its disaster planning documents to 

anticipate the potential impact of early application submissions on stafflng and 

resources. In response, SBA updated its planning documents to account for such 

impacts. 

SBA has taken some actions to enhance information resources for business loan 

applicants but could do more to improve its presentation of online disaster loanrelated information. In 2016, GAO found that SBA took or planned to take 

various actions to improve the disaster loan program and focused on promoting 

disaster preparedness, streamlining the loan process, and enhancing online 

application capabilities. However, GAO found that SBA had not effectively 

presented information on disaster loans (in a way that would help users 

efficiently find it), had not consistently described key features and requirements 

of the loan process in print and online resources, or dearly defined financial 

terminology used in loan applications. Absent better integration of, and 

streamlined access to, disaster loan-related information, loan applicants may not 

be aware of key information and requirements for completing the applications. 

Therefore, GAO recommended that SBA (1) integrate disaster loan-related 

information into its web portals to be more accessible to users, (2) ensure 

consistency of content about the disaster loan process across information 

resources. and (3) better define financial terminology used in the loan application 

forms. In January 2017, SBA indicated it was working on a glossary for the 

application. GAO plans to follow up with SBA about the other two open 

recommendations. 

-------------United States Government Accountability Office 
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Chairman Chabot, Ranking Member Velazquez, and Members of the 

Committee: 

Thank you for the opportunity to discuss the Disaster Loan Program of 

the Small Business Administration (SBA) and actions the agency has 

taken to help ensure timely disaster assistance in response to major 

disasters. While 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 through its Disaster Loan Program. 

After SBA was widely criticized for its performance following the 2005 

Gulf Coast hurricanes (Katrina, Rita, and Wilma). the agency took steps 

to reform the Disaster Loan Program and Congress enacted the Small 

Business Disaster Response and Loan Improvements Act of 2008 (2008 

Act).' In the wake of Hurricane Sandy in 2012. there were questions on 

the extent to which the program had improved since the 2005 Gulf Coast 

hurricanes and whether previously identified deficiencies, such as delays 

in processing disaster loan applications. had been addressed. We 

reported in 2014 that following Hurricane Sandy, business owners found 

documentation requirements for disaster loan applications to be onerous. 

and we found SBA did not meet its timeliness goals for processing such 

applications. 2 

In this statement. I will discuss SBA's efforts in recent years to improve 

disaster planning and response to loan applicants for the Disaster Loan 

Program. Specifically, this statement discusses (1) SBA implementation 

of provisions from the 2008 Act; (2) additional improvements to agency 

planning following Hurricane Sandy; and (3) SBA's recent and planned 

actions to improve information resources for business loan applicants. In 

preparing this statement. we relied on the body of work we issued 

L. No. 110-246, Title XII, subtitle B, 122 Stat. 2168 (2008). 

2

See GAO, Small Business Administration: Additional Steps Needed to Help Ensure More 

Timely Disaster Assistance, GA0-14-760 (Washington, D.C.: Sept. 29, 2014). 

Page 1 GA0-17-566T 
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Background 

between July 2009 and November 2016. 3 Our prior work includes 

examinations of SBA's efforts to address requirements of the 2008 Act; 

the timeliness of SBA's disaster assistance to small businesses and 

factors that affected timeliness in response to Hurricane Sandy; and the 

steps SBA took to improve information resources for business loan 

applicants. More detailed information on our scope and methodology can 

be found in each of the reports cited in this statement. In addition, in April 

2017 we met with SBA officials to discuss the status of open 

recommendations and other aspects of the program. We also reviewed 

updated documentation related to SBA's disaster planning efforts. 

The work on which this statement is based was performed 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. 

Administered by SBA's Office of Disaster Assistance (ODA), the Disaster 

Loan Program is the primary federal program for funding long-range 

recovery for nonfarm businesses that are victims of disasters. It is also 

the only form of SBA assistance not limited to small businesses. 

Small Business Development Centers (SBDC) are SBA's resource 

partners that provide disaster assistance to businesses. SBA officials said 

that SBDCs help SBA by doing the following: 

3

See GAO, Small Business Administration: Agency Has Controls to Comply with 

Paperwork Reduction Act but Could Improve Accessibility and Consistency of Disaster 

Loan Information, GA0-17-67 (Washington, D.C.: Nov. 21, 2016); Small Business 

AdminiStration: Additional Steps Needed to Help Ensure More Timely Disaster Assistance, 

GA0-15-727T (Washington, D.C.: July 8, 2015); GA0-14-760; Small Business 

Administration: Progress Continues in Addressing Reforms to the Disaster Loan Program, 

GA0-12-253T (Washington D.C.: Nov. 30, 2011); Small Business Administration: 

Continued Attention Needed to Address Reforms to the Disaster Loan Program, 

GA0-10-735T (Washington, D.C.: May 19, 2010); and Small Business Administration: 

Addiffonal Steps Should Be Taken to Address Reforms to the Disaster Loan Program and 

Improve the Application Process for Future Disasters, GA0-09-755 (Washington, D.C.: 

July 29, 2009). 

Page 2 GA0·17-566T 
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conducting local outreach to disaster victims, 

assisting declined business loan applicants or applicants who have 

withdrawn their loan applications with applications for reconsideration 

or re-acceptance, 

assisting declined applicants in remedying issues that initially 

precluded loan approvals, and 

providing business loan applicants with technical assistance, including 

helping businesses reconstruct business records, helping applicants 

better understand what is required to complete a loan application, 

compiling financial statements, and collecting required documents. 

SBA can make available several types of disaster loans, including two 

types of direct loans: physical disaster loans and economic injury disaster 

loans. 

Physical disaster loans are for permanent rebuilding and 

replacement of uninsured or underinsured disaster-damaged property. 

They are available to homeowners, renters, businesses of all sizes, 

and nonprofit organizations. 

Economic injury disaster loans provide small businesses that are 

not able to obtain credit elsewhere with necessary working capital 

until normal operations resume after a disaster declaration. 

Businesses of all sizes may apply for physical disaster loans, but only 

small businesses are eligible for economic injury loans. 

SBA has divided the disaster loan process into three steps: application, 

verification and loan processing, and closing. Applicants for physical 

disaster loans have 60 days from the date of disaster declaration to apply 

for the loan and applicants for the economic injury disaster loan 

applicants have 9 months. 4 Disaster victims may apply for a disaster 

business loan through the disaster loan assistance web portal or by paper 

4

SBA publishes notices of disaster declarations in the Federal Register, which generally 

include the application deadline and location for filing a loan application. 13 C.F.R § 

123.3(b). According to SBA officials, for major disasters, SBA adopts the same deadline 

for physical disaster loans that the Federal Emergency Management Agency sets for 

disaster victims to register for assistance (generally, 60 days after the Federal Register 

notice). If the Federal Emergency Management Agency extends the registration period, 

SBA grants the same extension. For SBA~declared disasters, officials said that SBA sets 

its own application deadlines for physical disaster loans and economic injury disaster 

loans. 

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SBA Implemented 

Most Provisions of 

the 2008 Act, but Has 

Not Yet Implemented 

New Disaster Loan 

Programs 

SBA Implemented Most of 

the Provisions in 2008 Act 

submission. 5 The information from online and paper applications is fed 

into SBA's Disaster Credit Management System, which SBA uses to 

process loan applications and make determinations for its disaster loan 

program. 

SBA has implemented most of the requirements of the 2008 Act, which 

comprises 26 provisions with substantive requirements for SBA, including 

requirements for disaster planning and simulations, reporting, and plan 

updates (see app. I for a summary of the provisions). 

For example, SBA made several changes to programs, policies, and 

procedures to enhance its capabilities to prepare for major disasters. 

Section 12063 states that SBA should improve public awareness of 

disaster declarations and application periods, and create a marketing 

and outreach plan. In 2012, SBA completed a marketing and outreach 

plan that included strategies for identifying regional stakeholders 

(including SBDCs, local emergency management agencies, and other 

local groups such as business and civic organizations) and identifying 

regional disaster risks. SBA's plan stated that it would (1) develop 

webinars for specific regional risks and promote these before the 

traditional start of the season for certain types of disasters such as 

hurricanes; and (2) establish a recurring schedule for outreach with 

stakeholders when no disaster is occurring. Furthermore, the most 

recent Disaster Preparedness and Recovery Plan from 2016 outlines 

specific responsibilities for conducting region-specific marketing and 

outreach through SBA resource partners and others before a disaster 

5

SBA implemented the Electronic Loan Application online portal in August 2008. In 2008, 

17 percent of loan applications were submitted electronically. In 2016, 90 percent of loan 

applications were submitted electronically. 

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as well as plans for scaling communications based on the severity of 

the disaster. (See below for more information about SBA's Disaster 

Preparedness and Recovery Plan.)• 

Section 12073 states that SBA must assign an individual with 

significant knowledge of, and substantial experience in, disaster 

readiness and planning, emergency response, maintaining a disaster 

response plan, and coordinating training exercises. In June 2008, 

SBA appointed an official to head the agency's newly created 

Executive Office of Disaster Strategic Planning and Operations. SBA 

officials recently told us that the planning office, now named the Office 

of Disaster Planning and Risk Management, is under the office of the 

Chief Operating Officer. Although the organizational structure 

changed; the role of the director remains the same: to coordinate the 

efforts of other offices within SBA to execute disaster recovery as 

directed by the Administrator. Among the director's responsibilities are 

to create, maintain, and implement the comprehensive disaster 

preparedness and recovery plan, and coordinate and direct SBA 

training exercises relating to disasters, including simulations and 

exercises coordinated with other government departments and 

agencies. 

Section 12075 states that SBA must develop, implement, or maintain 

a comprehensive written disaster response plan and update the plan 

annually. SBA issued a disaster response plan in November 2009 and 

the agency has continued to develop, implement, and revise the 

written disaster plan every year since then. The plan, now titled the 

Disaster Preparedness and Recovery Plan, outlines issues such as 

disaster responsibilities of SBA offices, SBA's disaster staffing 

strategy, and plans to scale disaster loan-making operations. The plan 

is made available to all SBA staff as well as to the public through 

SBA's website. 

SBA has taken actions to fully address other provisions, such as those 

relating to augmenting infrastructure, information technology and staff as 

well as improving disaster lending. For example, to improve its 

infrastructure, information technology, and staff, SBA put in place a 

secondary facility in Sacramento, California, to process loans during 

times when the main facility in Fort Worth, Texas, is unavailable. SBA 

also improved its Disaster Credit Management System, which the agency 

uses to process loan applications and make determinations for its 

disaster loan program, by increasing the number of concurrent users that 

Business Administration, 2016 Disaster Preparedness and Recovery Plan. 

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SBA Has Not Yet 

Implemented Three 

Guaranteed Disaster Loan 

Programs 

can access it. Furthermore, SBA increased access to funds by making 

nonprofrts eligible for economic injury disaster loans. 

SBA has not piloted or implemented three guaranteed disaster loan 

programs. The 2008 Act included three provisions requiring SBA to issue 

regulations to establish new guaranteed disaster programs using privatesector lenders: 

Expedited Disaster Assistance Loan Program (EDALP) would 

·provide small businesses with expedited access to short-term 

guaranteed loans of up to $150,000. 

Immediate Disaster Assistance Program (IDAP) would provide 

small businesses with guaranteed bridge loans of up to $25,000 from 

private-sector lenders, with an SBA decision within 36 hours of a 

lender's application on behalf of a borrower. 

Private Disaster Assistance Program (PDAP) would make 

guaranteed loans available to homeowners and small businesses in 

an amount up to $2 million. 

In 2009, we reported that SBA was planning to implement requirements 

of the 2008 Act, including pilot programs for IDAP and EDALP. SBA 

requested funding for the two programs in the President's budget for 

fiscal year 2010 and received subsidy and administrative cost funding of 

$3 million in the 2010 appropriation, which would have allowed the 

agency to pilot about 600 loans under IDAP. SBA officials also told us 

that they performed initial outreach to lenders to obtain reactions to and 

interest in the programs. They believed such outreach would help SBA 

identify and address issues and determine the viability of the programs. In 

May 2010, SBA told us its goal was to have the pilot for IDAP in place by 

September 2010. Furthermore, the agency issued regulations for IDAP in 

October 2010. 

In 2014, we reported on the Disaster Loan Program (following Hurricane 

Sandy) and found that SBA had yet to pilot or implement the three 

programs for guaranteed disaster loans. In July 2014, SBA officials told 

us that the agency still was planning to conduct the IDAP pilot. However, 

based on lender feedback, SBA officials said that the statutory 

requirements, such as the 10-year loan, made a product like IDAP 

undesirable and lenders were unwilling to participate unless the loan term 

was decreased to 5 or 7 years. Congressional action would be required to 

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revise statutory requirements, but SBA officials said they had not 

discussed the lender feedback with Congress. SBA officials also told us 

the agency planned to use IDAP as a guide to develop EDALP and 

PDAP, and until challenges with IDAP were resolved, it did not plan to 

implement these two programs. As a result of not documenting, 

analyzing, or communicating lender feedback, SBA risked not having 

reliable information-both to guide its own actions and to share with 

Congress-on what requirements should be revised to encourage lender 

participation. Federal internal control standards state that significant 

events should be promptly recorded to maintain their relevance and value 

to management in controlling operations and making decisions. 7 

We conl::luqed that not sharing information with Congress on challenges 

to implementing IDAP might perpetuate the difficulties SBA faced in 

implementing these programs, which were intended to provide assistance 

to disaster victims. Therefore, we recommended that SBA conduct a 

formal documented evaluation of lenders' feedback on implementation 

challenges and statutory changes that might be necessary to encourage 

lenders' participation in IDAP, and then report to Congress on these 

topics. 

In response to our recommendations, SBA issued an Advance Notice of 

Proposed Rulemaking in October 2015 to seek comments on the three 

guaranteed loan programs. In July 2016, SBA sent a letter to the Ranking 

Member of the House Committee on Small Business that discussed how 

the agency evaluated feedback on the three programs and explained the 

remaining challenges to address the statutory provisions for the three 

programs. Based on this action, we closed the recommendations for SBA 

to develop an implementation plan, formally evaluate lender feedback, 

and report to Congress on implementation challenges. SBA has yet to 

announce how it will proceed with the statutory requirements to establish 

these loan programs. 

7

See GAO, Standards for Internal Controf.in the Federal Government, 

GAOIAIMD-00-21.3.1 (Washington, D.C.: November 1999). 

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SBAMade 

Improvements in 

Response to Our 

Recommendation to 

Further Enhance 

Disaster Planning 

after Hurricane Sandy 

SBA made several changes to its planning documents in response to 

recommendations in our 2014 report about the agency's response to 

Hurricane Sandy. In 2014, we found that after Hurricane Sandy, SBA did 

not meet its goal to process business loan applications (21 days from 

receipt to loan decision). SBA took an average of 45 days for physical 

disaster loan applications and 38 days for economic injury applications. 

According to SBA, the agency received a large volume of electronic 

applications within a few days of the disaster. While SBA created webbased loan applications to expedite the process and encouraged their 

use, the agency noted that it did not expect early receipt of such a high 

volume of loan applications early in its response and delayed increasing 

staffing. 

At the time of our 2014 report, SBA also had not updated its key disaster 

planning documents-the Disaster Preparedness and Recovery Plan and 

the Disaster Playbook-to adjust for the effects a large-volume, early 

surge in applications could have on staffing, resources, and forecasting 

models for future disasters. 8 According to SBA's Disaster Preparedness 

and Recovery Plan, the primary goals of forecasting and modeling are to 

predict application volume and application receipt as accurately as 

possible. Federal internal control standards state that management 

should identify risk (with methods that can include forecasting and 

strategic planning) and then analyze the risks for their possible effect. 9 

Wtthout taking its experience with early application submissions after 

Hurricane Sandy into account, SBA risked being unprepared for such a 

situation in future disaster responses, potentially resulting in delays in 

disbursing loan funds to disaster victims. We therefore recommended that 

SBA revise its disaster planning documents to anticipate the potential 

impact of early application submissions on staffing, resources, and timely 

disaster response. 

In response to our recommendation, SBA updated its key disaster 

planning documents, including the Disaster Preparedness and Recovery 

Plan and Disaster Playbook, to reflect the impact of early application 

aWhile the plan is an agency-wide document intended to help ensure coordination, 

awareness, and support throughout the organization, the Disaster Playbook is an OOA 

document that describes steps the office will take to respond to a declared disaster. It 

outlines the roles and responsibilities of ODA departments, resource partners, and other 

partners in the private sector at each major phase of the disaster recovery process. 

9

GAO/AIMD-00-21.3.1. 

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SBA Took Some 

Actions to Improve 

Information for 

Business Loan 

Applicants but Could 

Improve Presentation 

of the Information 

SBA Implemented Some 

Actions and Planned 

Others to Improve 

Information Resources for 

Business Loan Applicants 

submissions on staffing for future disasters. For example, the documents 

note that the introduction of the electronic loan application increased the 

intake of applications soon after disasters. SBA received 83 percent of 

applications electronically in fiscal year 2015 and 90 percent in 2016. The 

documents also note that the electronic loan application has reduced the 

time available to achieve maximum required staffing and that SBA has 

revised its internal resource requirements model for future disasters to 

activate staff earlier based on the receipt of applications earlier in the 

process. Furthermore, our review of the most recent Disaster 

Preparedness and Recovery Plan from 2016 shows that SBA continues 

to factor in the effect of electronic loan application submissions on staffing 

requirements. 

In our November 2016 report, we reviewed the actions SBA took or 

planned to take to improve the disaster loan program, as discussed in its 

Fiscal Year 2015 Annual Performance Report. 10 SBA focused on 

promoting disaster preparedness, streamlining the loan process, and 

enhancing online application capabilities (see table 1). 11 

1

'7he Recovery Improvements for Small Entities after Disaster Act of 2015 included a 

provision for us to evaluate SBA's compliance with the Paperwork Reduction Act in 

administering the Disaster loan Program. See GA0w17-67. For the report, among other 

things, we reviewed SBA documentation on recent and planned actions relating to 

improving the application process for disaster business loans and interviewed a 

nongenera!izable sample of eight SBDCs that provided disasterwre!ated assistance to 

businesses, among other things. 

11Small Business Administration, Fiscal Year 2017 Congressional Budget Justification and 

Fiscal Year 2015 Annual Performance Report 

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Table 1: Small Business Administration (SBA) 2015 Performance Report: Implemented and Planned Actions to the Disaster 

Business Loan Program, Fiscal Years 2015-2017 

SBA 2015 Performance Report Disaster Highlights of SBA actions taken (fiscal Highlights of planned SBA actions 

Assistance Strategies year 2015) (fiscal years 2016-2017) 

Strategy 1: Promote disaster preparedness 

in targeting of pr&<lisaster outreach by 

region and type of disaster. 

Strategy 2: Strengthening disaster 

operations to enhance effectiveness and 

efficiency. 

Strategy 3: Utilize SBA's nationwide 

infrastructure for short~ and long~tenn 

recovery. 

Legend: SBA = Small Business Administration 

Source: SBA I GA0-17-566T 

Co-sponsored monthly disaster business 

preparedness webinars. 

Published a reference guide that 

summarizes the loan program and promotes 

disaster preparedness, assistance, and 

recovery. 

Tailored preparedness outreach by region 

and by disaster type. 

Gontinually reviewed and implemented 

improv!3:ments. For example, the electronic 

loan application improves data integrity and 

speeds up loan processing. 

Established approximate loan processing 

time standards, with goals ranging from 2 

weeks to more than 4 weeks. 

Streamlined operating procedures and 

removed redundancies. 

Created separate tracks for home and 

business loan processing and expedited 

processing for both loan types. 

Continued to promote SBA's ~three~step 

process" to explain the loan process to 

disaster victims; the process is: victims 

apply, SBA verifies and processes 

applications, and the parties close on loans. 

SBA also shared the reference guide with 

resource partners. 

Continue encouraging preparedness and 

continue the Technical Assistance Loan 

Approval initiative (an effort implemented 

by the Small Business Development 

Centers). 

Modify loan-processing procedures to 

establish standard 15- and 30-year fixed 

loan terms. 

Release new web portal wlth more 

features, including general information and 

questions, loan notifications, upload 

documents, live chat and secure 

messaging, electronic signature, and 

mobile application. 

Continue long-term outreach efforts with 

resource partners and continue expanding 

the T echnica! Assistance Loan Approval 

initiative outreach. 

We also reported in November 2016 that, according to SBA officials, the 

agency made recent enhancements to the disaster loan assistance web 

portal, such as a feature that allows a loan applicant to check the status 

of an application and the application's relative place in the queue for loan 

processing. The web portal also includes a frequently asked questions 

page, telephone, and e-mail contacts to SBA customer service, and links 

to other SBA information resources. These enhancements may have had 

a positive impact on the agency's loan processing. For example, we 

reported that an SBA official explained that information from online 

applications is imported directly into the Disaster Credit Management 

System, reducing the likelihood of errors in loan applications, reducing 

follow-up contacts with loan applicants, and expediting loan processing. 

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SBA Has Opportunities to 

Further Refine Its 

Presentation of 

Information on the 

Disaster Business Loan 

Process 

Disaster Loan-Related 

Information Not Easily 

Accessible 

As we found in our November 2016 report, SBA published information 

(print and electronic) about the disaster loan process, but much of this 

information is not easily accessible from the disaster loan assistance web 

portal. SBA's available information resources include the following: 

Di!~aster business loan application form (Form 5) lists required 

documents and additional information that may be necessary for a 

decision on the application. 

Fact Sheet for Businesses of All Sizes provides information about 

disaster business loans, including estimated lime frames, in a 

question-and-answer format. 

2015 Reference Guide to the SBA Disaster Loan Program and 

Three-Step Process Flier describe the three steps of the loan 

process, required documents, and estimated time frames. 

Partner Training Portal provides disaster-loan-related information 

and resources for SBDCs (at https:/lwww.sba.gov/ptp/disaster). 

However, we found SBA had not effectively integrated these information 

resources into its online portals; much of the information was not easily 

accessible from the loan portal's launch page or available on the training 

portal. For example, when a user clicks on the "General Loan Information" 

link in the loan portal, the site routes the user to SBA's main website, 

where the user would encounter another menu of links. To access the 

fact sheet, the reference guide, and the three-step process flier, a site 

user would click on three successive links and then select from a menu of 

15 additional links. Among the group of 15 links, the link for Disaster Loan 

Fact Sheets contains additional links to five separate fact sheets for 

various types of loans. 

According to SBA officials, SBA plans to incorporate information from the 

three-step loan process flier in the online application, but does not have a 

time frame for specific improvements. SBA officials also said that 

disaster-loan information is not prominently located on SBA's website 

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Disaster-Related Resources 

Do Not Consistently Feature 

Key Information 

because of layout and space constraints arising from the agency's other 

programs and priorities. We concluded that absent better integration of, 

and streamlined access to, disaster loan-related information on SBA's 

web portals, loan applicants-and SBDCs assisting disaster victimsmay not be aware of key information for completing applications. Thus, 

we recommended that SBA better integrate information (such as its 

reference guide and three-step process flier) into its portals. 12 

In response· to our report, SBA stated in a January 2017 letter that the 

disaster loan assistance portal includes links to various loan-related 

resources and a link to SBA.gov, where users can access the SBA 

Disaster Loan Program Reference Guide and online teaming center. 

However, SBA did not indicate what actions it would take in response to 

our recommendation. We plan to follow up with SBA on whether the 

agency plans to centrally integrate links to loan-related resources into its 

disaster loan assistance web portal and Partner Training Portal. 

We also found in our November 2016 report that SBA has not 

consistently described key features of the loan process in its information 

resources, such as the application form, fact sheet, and reference guide, 

and none of these resources include explanations for required documents 

(see table 2). The Paperwork Reduction Act has a broad requirement that 

an agency explain reasons for collecting information and use of the 

collected information. 13 

1344 U.S. C.§ 3506(c)(1)(B)(iii). 

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Table 2: Key Information Featured in Small Business Administration (SBA) Olsaster~Related Resources, as of October 2016 

Key information about disaster loans 

Disaster Business Loan 

Application Form (Form 5) 

Fact Sheet for Businesses 

of All Sizes 

2015 Reference Guide to 

the SBA Disaster Loan 

Program 

Three~Step Process Flier 

Partner Training Portal: 

Disaster Loans Vignette 

Video 

Partner Training Portal: 

Disaster Assistance 

Program Video 

Electronic Loan Application 

Legend: ./ = yes X = no 

Source: SBA I GA0-17-566T 

Three-step loan Required and Reasons for required Estimated loan time 

process 

X 

X 

./ 

./ 

X 

./ 

X 

additional loan documents frames 

documentation 

./ X X 

X X ./ 

./ X ./ 

./ X ./ 

X X X 

./ X X 

X X ./ 

./ X X 

According to SBDCs we interviewed and responses from SBA and 

American Customer Satisfaction Index surveys, some business loan 

applicants found the process confusing due to inconsistent information 

about the application process, unexpected requests for additional 

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Some Business Loan 

Applicants Confused about 

Financial Tenminology 

documentation, and lack of information about the reasons for required 

documents. 14 

We concluded that absent more consistent information in print and online 

resources, loan applicants and SBDCs might not understand the disaster 

loan process. As a result, we recommended SBA ensure consistency of 

content about its disaster loan process by including information, as 

appropriate, on the (1) three-step process; (2) types of documentation 

SBA may request and reasons for the requests; and (3) estimates of loan 

processing time frames and information on factors that may affect 

processing time. 

In response to our report, SBA stated in a January 2017 letter that the 

agency provides consistent messaging about the time frame for making 

approval decisions on disaster loan applications: SBA's goal is to make a 

decision on all home and business disaster loan applications within 2-3 

weeks. However, SBA did not indicate that what actions it would take in 

response to our recommendation. We plan to follow up with SBA on 

whether the agency will take any action to ensure content is consistent 

across print and online resources, among other things. 

In our November 2016 report, we further found that some business loan 

applicants were confused about the financial terminology and financial 

forms required in the application. Three SBDCs we interviewed 

mentioned instances in which applicants had difficulty understanding the 

parts of the loan application dealing with financial statements and 

financial terminology. For example, applicants were not familiar with 

financial statements, did not know how to access information in a financial 

statement, and did not know how to create a financial statement. 

Although the loan forms include instructions, the instructions do not define 

the financial terminology. According to SBA officials, the agency's 

customer service representatives can direct applicants to SBDCs for help. 

Two of the three SBDCs said these difficulties arose among business 

owners who did not have formal education or training in finance or related 

14The American Customer Satisfaction Index (ACSJ} is a national indicator of customer 

evaluations of the quality of goods and services available in the United States. According 

to SBA officials, not every loan applicant and recipient is surveyed {SBA provides a 

sample list of loan applicants and recipients for ACSI}. For example, for fiscal year 2015, 

among the 33,743 !oan applicants, SBA selected a sample size of about 17 percent of 

applicants who were contacted by a thlrd party to take the survey. The final response rate 

was 12 percent. 

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disciplines-and were attempting applications during high-stress periods 

following disasters. 

The Plain Writing Act of 2010 requires that federal agencies use plain 

writing in every document they issue. 15 According to SBA officials, 

although the agency does not provide a glossary for finance terminology 

in loan application forms, the disaster loan assistance web portal has a 

"contextual help" feature that incorporates information from form 

instructions. SBA customer service representatives and local SBDCs also 

can help explain forms and key terms. SBA has taken other actions to 

inform potential applicants about its loan program, including holding 

webinars and conducting outreach. However, these efforts may not offer 

sufficient assistance or reach all applicants. We concluded that without 

explanations of financial terminology, loan applicants may not fully 

understand application requirements, which may contribute to confusion 

in completing the financial forms. Therefore, we recommended that SBA 

define financial terminology on loan application forms (for example, by 

adding a glossary to the "help" feature on the web portal). 

In response to our report, SBA stated in a January 2017 letter that the 

agency has been developing a glossary of financial terms used in SBA 

home and business disaster loan applications and in required supporting 

financial documents. Once completed, SBA stated that it will make the 

glossary available through the agency's disaster loan assistance portal 

and the SBA.gov website. We plan to follow up with SBA once the agency 

completes the glossary. 

15Pialn writing is defined as clear, well-organized writing that follows best practices 

appropriate for the intended audience. Pub. L No.111-274, § 4, 124 Stat 2861, 2862 

(codified at 5 U.S. C.§ 301 note). 

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GAO Contacts and 

Staff 

Acknowledgments 

Chairman Chabot, Ranking Member Velazquez, and Members of the 

Committee, this concludes my prepared statement. I would be pleased to 

respond to any questions that you may have at this time. 

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. GAO staff who made key contributions to this testimony 

are Marshall Hamlett (Assistant Director), Christine Ramos (Analyst in 

Charge), John McGrail, and Barbara Roesmann. 

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Appendix 1: Summary of Provisions in the 

Small Business Disaster Response and 

Loan Improvements Act of 2008 

Table 3: Provisions of the Small Business Disaster Response and loan Improvements Act of 2008 

Section 

12061 

12062' 

12063 

12064 

12065 

12066 

12067 

12068 

12069 

12070 

12071 

12072 

12073 

12074 

12075 

12076 

12077 

12078 

12079 

12081 

12082 

12083' 

12064 

Description of requirement 

Small Business Administration {SBA) permitted to make economic injury disaster loans to nonprofits. 

SBA must ensure its disaster assistance programs are coordinated to the maximum extent practicable with 

Federal Emergency Management Agency programs. 

Better public awareness of disaster declaration, application periods, and creation of a marketing and 

outreach plan. 

SBA must conduct a study looking at the consistency between standard operating procedures and 

regulations of the Disaster Loan Program. 

SBA increased loan amounts from $10,000 to $14,000 without requiring collateral. 

SBA authorizes private contractors to process disaster loans and coordinate efforts with the Internal 

Revenue Service to expedite loan processing. 

SBA must develop, implen;~ent,·or maintain a centralized information system to track and follow up with 

disaster loan applicants. 

SBA is authorized to increase the deferment period of loans, but the deferment may not exceed 4 years. 

SBA must put in a place a secondary facility for processing disaster loans in case the primary facility is 

unavailable. 

SBA cannot require the borrower to pay any non~amortized amount for the first 5 years after repayment 

begins. 

SBA is authorized to make economic injury disaster loans in cases of ice storms and blizzards. 

SBA must develop and implement a major disaster response plan and conduct a disaster simulation exercise 

at least once every 2 years. 

SBA must assign an individual the disaster planning responsibilities and report to Congress. 

SBA should ensure that the number of full-time equivalent Office of Disaster Assistance employees is not 

fewer than 800 and in the disaster cadre not fewer than 1 ,000. 

SBA must develop, implement, or maintain a comprehensive written disaster response plan and update the 

plan annually. 

SBA must develop long-term plans to secure sufficlent office space to accommodate an increased workforce 

in times of disaster. 

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. 

Maximum disaster loan amount increased from $1.5 to $2 million. 

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 mil1lon. 

If the President declares a major disaster, SBA may declare eligibility for additional disaster assistance. 

SBA permitted to make economic injury disaster loans to eligible small business concerns located anywhere 

in the United States (including outside the disaster area) when the SBA declares eligibility for additional 

disaster assistance. 

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. 

SBA must establish an Immediate Disaster Assistance Program to provide immediate small dollar loans 

through private lenders. 

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Section 

12085" 

12086 

12091 

Source: GAO analysis. ! GA0.17-566T 

(101965) 

Appendix 1: Summary of Provisions in the 

Small Business Disaster Response and Loan 

Improvements Act of 2008 

Description of requirement 

SBA must establish an Expedited Disaster Assistance Business Loan Program. 

SBA is allowed to institute a program to refinance Gulf Coast disaster loans resulting from Hurricanes 

Katrina, Rita, or Wilma up to an amount no greater than the original loan. 

SBA must submit reports to Congress on disaster assistance. 

Note: The Act explicitly establishes appropriation requirements for procurements related to a major 

disaster for Section 12079. 

aThe Act requires SBA to issue regulations for these provisions. 

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