Small Business Administration: Additional Steps Needed to Enhance Agency Preparedness for Future Disasters
Published: 2007-02-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Small Business Administration (SBA) is the federal government's primary provider of disaster loans to businesses, homeowners, and renters. In a previous report (GAO- 06-860), GAO found that SBA's limited information systems planning contributed to delays in processing disaster loans for the victims of the 2005 Gulf Coast Hurricanes (Katrina, Rita, and Wilma). To provide further insight into how SBA's disaster preparedness could be enhanced, this second report, initiated under the Comptroller General's authority, assesses other logistical issues (e.g., staffing and space acquisition) that may have affected the efficiency of the agency's response to the hurricanes. Specifically, this report (1) assesses SBA's logistical planning efforts prior to the Gulf Coast hurricanes and current planning efforts and (2) discusses SBA's outreach services to hurricane victims. GAO reviewed disaster planning reports, interviewed SBA officials, and visited the Gulf Coast region.
section_title: What GAO Found
paragraphs: SBA engaged in limited logistical disaster planning prior to the Gulf Coast hurricanes, which, in retrospect, likely contributed to the initial challenges that the agency faced in processing the related surge in disaster loan applications on a timely basis. GAO reports, reports by other investigative agencies, and disaster management experts have stated that comprehensive planning and the supplementary use of sophisticated techniques (e.g., simulations of varying disaster scenarios) can help organizations prepare for potential disasters and mitigate their effects. However, SBA did not engage in or complete comprehensive disaster plans prior to the Gulf Coast hurricanes, in part, due to the view by headquarters agency officials that such planning yielded limited benefits and that local agency officials were in the best position to estimate logistical requirements. With better planning, available evidence suggests the agency could have been better positioned to provide initial disaster assistance to hurricane victims in an organized and efficient manner. In particular, SBA faced challenges in training and supervising thousands of temporary employees hired to process loan applications, had not taken steps to help ensure additional trained staff would be available, and encountered difficulties in obtaining suitable office space for the expanded workforce. In the wake of the Gulf Coast hurricanes, SBA officials said that they recognized the importance of disaster planning and have initiated a planning process designed to address key areas, which includes cross-training other agency staff to provide disaster assistance and recruiting and training a reserve of potential temporary employees. SBA has also taken steps to expedite the process for disbursing approved disaster loans. However, GAO continues to have concerns about several limitations in SBA's current planning process, including the lack of a timetable for competing key elements of its disaster management plan and the fact that the agency has not assessed whether its disaster plan would benefit from the supplemental use of disaster simulations or catastrophe models. SBA took a variety of steps under trying conditions to inform victims of the Gulf Coast hurricanes about its assistance programs, but several factors may have limited the effectiveness of these outreach efforts. SBA staff members reached out to disaster victims by speaking at about 600 organized events and advertising. However, the effectiveness of SBA's outreach efforts may have been reduced by, among other things, both the extensive damage and victim relocations associated with the hurricanes. According to SBA officials, the agency has initiated an internal review of the outreach that it provided to victims of the Gulf Coast hurricanes and is developing a plan to better provide such outreach in future disasters.

section_title: Letter
paragraphs: While the Small Business Administration (SBA) is generally known for the  While the Small Business Administration (SBA) is generally known for the  financial support it provides to small businesses, the agency also plays a  financial support it provides to small businesses, the agency also plays a  critical if less publicized role in assisting the victims of natural and other  critical if less publicized role in assisting the victims of natural and other  disasters. Specifically, SBA provides financial assistance through its  disasters. Specifically, SBA provides financial assistance through its  Disaster Loan Program to help homeowners, renters, and businesses of all  Disaster Loan Program to help homeowners, renters, and businesses of all  sizes recover from disasters such as earthquakes, hurricanes, and terrorist  sizes recover from disasters such as earthquakes, hurricanes, and terrorist  attacks. In 2005 and 2006, SBA faced unprecedented demand for its  attacks. In 2005 and 2006, SBA faced unprecedented demand for its  disaster loan assistance services in the wake of Hurricanes Katrina (which  disaster loan assistance services in the wake of Hurricanes Katrina (which  made landfall in late August 2005), Rita, and Wilma, which battered the  made landfall in late August 2005), Rita, and Wilma, which battered the  U.S. Gulf Coast region. The Gulf Coast hurricanes caused more than $80  U.S. Gulf Coast region. The Gulf Coast hurricanes caused more than $80  billion in estimated insured and uninsured property damages and over  billion in estimated insured and uninsured property damages and over  1,400 deaths. Nine months following Hurricane Katrina, SBA had  1,400 deaths.processing all disaster loan applications within 21 days.
In  information technology planning also played a significant role.
In this report, we refer to Katrina, Rita, and Wilma collectively as the Gulf Coast  hurricanes.
See GAO, Small Business Administration: Actions Needed to Provide More Timely  Disaster Assistance, GAO-06-860 (Washington, D.C.: July 28, 2006).
GAO-06-860. number of staff that would need to concurrently use DCMS during a  disaster situation. In planning for the maximum user capacity of DCMS,  we found that SBA relied on data on the volume of disaster loan  applications it had received from victims of the most severe disaster in the  agency’s experience—the Northridge, California, earthquake of 1994—and  other agency historical data. If SBA had considered information available  from disaster simulations and risk modeling firms (particularly potentially  more severe disaster scenarios than the Northridge earthquake), we  concluded that the agency may have acquired additional capacity for  DMCS that would have allowed it to process Gulf Coast hurricane-related  applications on a timelier basis. We recommended, among other things,  that SBA reassess DCMS’s maximum user capacity based on lessons  learned from the Gulf Coast hurricanes and information from catastrophe  risk modeling firms, among other sources. Although SBA took issue with  some of our analysis that supported this recommendation, the agency  generally agreed to implement it.
We have prepared this second report under the Comptroller General’s  authority to conduct evaluations on his own initiative as part of a  continuing effort to assist Congress in reviewing how SBA’s preparedness  for future disasters can be enhanced. This report generally focuses on  SBA’s disaster planning and preparations prior to the Gulf Coast  hurricanes for logistical areas other than DCMS, such as hiring of  additional staff necessary to process applications in large disaster  situations, space acquisition, obtaining telecommunication and other  necessary technologies, and efforts to inform disaster victims of the  agency’s relevant loan programs. Specifically, our objectives were to (1)  assess SBA’s logistical planning efforts prior to the Gulf Coast hurricanes  and current disaster planning efforts and (2) discuss outreach efforts that  SBA provided to Gulf Coast hurricane victims.
To address the first objective, we reviewed our previous reports and  reports from other organizations that have investigated the federal  response to the Gulf Coast hurricanes, including the Association of  Contingency Planners and the Office of Inspector General of the  Department of Homeland Security. We also interviewed disaster  management experts, SBA officials in headquarters and agency field  offices, and state officials in Mississippi and Louisiana. Further, we  reviewed SBA documents that pertain to the agency’s disaster planning  process. For the second objective, we reviewed SBA documentation that  describes the agency’s outreach efforts during the Gulf Coast hurricanes  and discussed these outreach efforts with SBA officials. Further, we  discussed SBA’s current plans to evaluate its disaster outreach program  with agency officials. Appendix I explains our objectives, scope and  methodology in greater detail.
We conducted our work in Washington, D.C., at SBA’s headquarters and at  agency field offices that played a role in the agency’s response to the Gulf  Coast hurricanes, including the disaster loan processing center in Ft.  Worth, Texas, the satellite loan processing facility in Sacramento,  California, the disaster loan customer service call center in Buffalo, N.Y.,  and the Atlanta field office, which along with the Sacramento office, is  responsible for disaster services outreach, among other duties.  Additionally, we visited the DCMS operations center in Virginia, and SBA’s  Georgia District Office. We also visited state and local disaster response  offices in Louisiana and Mississippi. Our work was conducted from  November 2005 to January 2007 in accordance with generally accepted  government auditing standards.
subsections: section_title: Background
paragraphs: The Gulf Coast hurricanes formed a catastrophe that was one of the most  devastating natural disasters in U.S. history. In August 2005, Hurricane  Katrina struck first on the East Coast of Florida before hitting the northern  Gulf Coast region, including Louisiana and Texas, resulting in a substantial  loss of life and widespread devastation. The storm also caused substantial  damage in the Florida panhandle, Georgia, and Alabama. In September  2005, Hurricane Rita caused substantial devastation and deaths near the  Texas and Louisiana border.  In October 2005, Hurricane Wilma made  landfall in Florida, and also caused fatalities and created a significant  amount of damage and destruction there.
The federal government provides funding and assistance to individuals and  businesses after disasters, primarily through FEMA and SBA. FEMA is  responsible for coordinating response and recovery efforts under  presidential disaster declarations. FEMA works with other federal, state,  and local agencies to assist victims after major disasters, and volunteer  organizations such as the American Red Cross also participate in these  efforts. Following a presidential disaster declaration, FEMA will open  Disaster Recovery Centers where disaster victims can meet with  representatives, obtain information about the recovery process, and  register for federal disaster assistance. Victims may also register with  FEMA by telephone or via FEMA’s Internet site. FEMA provides housing  assistance to disaster victims through the Individuals and Households  Program (IHP). Under the IHP, FEMA can make grants available to repair  or replace housing damaged in a disaster that is not covered by insurance.  However, the IHP is a minimal repair program that is designed to make the  victim’s home habitable and functional, not to restore the home to its  predisaster condition. When disaster victims register for FEMA assistance,  they are asked to provide their approximate household income. If the  applicant’s income exceeds certain thresholds, FEMA automatically refers  them to SBA’s Disaster Loan Program.
SBA’s Disaster Loan Program is the primary federal program for funding  long-range recovery for private sector, nonfarm disaster victims and the  only form of SBA assistance not limited to small businesses. The Small  Business Act authorizes SBA to make available the following two types of  disaster loans:    Physical disaster loans—These loans are for permanent rebuilding and  replacement of uninsured or underinsured disaster-damaged property.  They are available to homeowners, renters, businesses of all sizes, and  nonprofit organizations. These loans are intended to repair or replace the  disaster victims’ damaged property to its predisaster condition.
Economic injury disaster loans—These loans provide small businesses  with necessary working capital until normal operations resume after a  disaster declaration. They cover operating expenses the business could  have paid had the disaster not occurred. The act restricts economic injury  disaster loans to small businesses only.
A key element of SBA’s loan program is that the disaster victim must have  repayment ability before a loan can be approved. If SBA determines that a  victim cannot afford a loan, SBA will automatically refer the individual  back to FEMA where they may be eligible for other grant assistance.  FEMA may be able to provide funds for “other than housing” needs,  however, this additional help is not available to businesses. FEMA’s  additional help is intended to meet necessary expenses and serious needs  not met by any other form of help, including insurance and SBA disaster  loans.
In 2004, SBA began a process to realign its Office of Disaster Assistance’s  organizational structure (referred to as “workforce transformation”) that  was designed to allow the agency to better provide disaster assistance,  leverage technology such as DCMS, and reduce operating costs.  Previously, SBA maintained four area offices nationwide that generally  operated independently of one another. For example, each area office had  its own customer service duties and loan processing functions, and  provided administrative support within a geographic area. As a result of its  transformation effort, SBA centralized its Disaster Loan Program’s  customer service function in its Buffalo office and its loan processing  function in its Ft. Worth office. Additionally, SBA established two field  operations centers in both Sacramento and Atlanta that are responsible for  all disaster field operations, public information, and congressional  relations functions. The centers also provide space for SBA’s Field  Inspection Team, which conducts property inspections in order to verify  loan applicants’ losses. SBA collocated its administrative and personnel  support center in Herndon, Va., with the DCMS operations center. Figure 1  shows SBA’s revised structure as of June 2006.
Prior to Hurricane Katrina, SBA’s Office of Disaster Assistance had a staff  of approximately 800 individuals, including about 350 to 400 permanent  staff and about 400 temporary staff (who had generally been hired to  process disaster loan applications associated with the four hurricanes that  struck Florida in 2004). However, due to the volume of disaster loan  applications associated with the Gulf Coast hurricanes, SBA had increased  the size of its disaster loan staff to more than 4,300 employees by January  2006, primarily through hiring temporary employees. SBA largely hired  these temporary employees through advertisements in newspapers and on  local radio stations.
section_title: SBA’s Limited Planning Likely Contributed to Initial Delays in Processing Gulf Coast Hurricane Disaster Loan Applications, and Announced Disaster Planning Improvements Also Have Potential Limitations
paragraphs: Our previous reports and reports of others as well as disaster experts have  stated that advance contingency planning is a crucial element in helping  organizations function and respond to large-scale disasters. However, we  found that prior to the Gulf Coast hurricanes, SBA had generally not  engaged in such comprehensive planning efforts in either headquarters or  in field offices. SBA had not (1) taken practical steps to help ensure that  there would be additional trained and experienced staff available to  process applications, (2) established plans to secure additional office  space configured to meet the needs of the agency, and (3) established  adequate telecommunications support for the customer call center in  Buffalo. While SBA partnered with GSA on an ad hoc basis to help address  these challenges, in some cases it was fortunate to obtain the necessary  logistical capacity. In the wake of the Gulf Coast hurricanes, SBA officials  said that they had initiated steps to better plan and prepare for potential  disasters, including developing more advanced disaster forecasting  techniques and establishing measures to help ensure the availability of  additional trained and experienced staff. SBA has also taken steps to  expedite the process for disbursing approved disaster loans. However,  SBA’s planning approach appears to be limited in that the agency has not  established a time frame for completing key aspects of its comprehensive  disaster management plan, such as cross-training other agency staff to  provide backup support in a disaster and has not assessed whether it  could leverage outside resources—such as the results of disaster  simulations or catastrophe models—to enhance its disaster planning  processes. Further, SBA has not developed a strategy to help strengthen  its long-term ability to obtain suitable office space in the event of a major  disaster.
subsections: section_title: Various Sources Cite Planning as a Critical Element in Helping Organizations Prepare for Potential Large-Scale Disasters
paragraphs: As we have stated in a previous report and in testimony, the ability of the  United States to prepare for, respond to, and recover from catastrophic  disasters can be enhanced through strong advance contingency planning,  both within and among organizations responsible for responding to such  disasters.  Our work has also identified instances where advance  planning allowed federal agencies to respond effectively to the Gulf Coast  hurricanes.  For example, we found that the Coast Guard, Social Security  Administration, and the National Finance Center were able to continue  their services to Gulf Coast disaster victims with minimal interruptions  because of their disaster planning initiatives.  In contrast, our work  identified other federal agencies, which did not engage in comprehensive  planning prior to the Gulf Coast hurricanes, and thereby faced significant  challenges in fulfilling their disaster response and recovery obligations.  For example, as discussed previously, our July 2006 report found that  SBA’s limited information technology planning prior to the Gulf Coast  hurricanes negatively affected the agency’s capacity to process disaster  loan applications.  SBA based its information technology processing  requirements primarily on the Northridge earthquake experience of 1994,  which was the largest disaster that the agency had previously experienced,  and did not evaluate the consequences of other potentially more severe  disaster scenarios that were available from existing disaster simulations or  catastrophe risk model results.  For example, SBA did not take part in the  Hurricane Pam disaster simulation, which FEMA organized in 2004 to help  prepare for a hurricane striking New Orleans.  In an earlier report, we  found that a lack of advance planning at all levels of government hindered  response and recovery efforts to Hurricane Andrew, which struck South  Florida in 1992.
In addition to findings from our previous studies, other studies have  concluded that a lack of contingency planning can affect an organization’s  ability to carry out its mission and meet program goals at the time of a  major disaster, and that there is no substitute for thorough preparation.  Thus, these reports, such as Department of Homeland Security studies,  congressional and White House reports, as well as private studies all  identified the necessity for conducting rigorous planning. For example, a  study by the Association of Contingency Planners (ACP) emphasized the  need for organizations to formally train their staff in disaster planning and  engage in thorough disaster simulations, particularly worst case scenarios,  to help ensure adequate preparation. In addition, the Department of  Homeland Security Inspector General reported, in March 2006, that FEMA  lacked final plans that specifically addressed the types of challenges the  agency could be expected to face in catastrophic circumstances. The  Inspector General recommended that FEMA develop a comprehensive  plan to aid in responding to potential disasters.
Disaster experts we interviewed agreed that sound planning can help  organizations—such as federal agencies—prepare for potential disasters.  The experts said that the failure to have an established plan can negatively  affect an agency’s response and recovery efforts. Additionally, the experts  said that the failure to establish a plan requires agencies to relearn  experiences from one disaster to the next, thereby further slowing agency  recovery efforts. One expert stated that, to provide for an effective agency  response to a disaster, a comprehensive plan should address, to a certain  extent, components of command, operations, logistics, finance, and  administrative needs. For example, the expert said that the logistical  component should entail a detailed staffing plan to help ensure an  organization’s ability to fulfill its mission at the time of a major  catastrophe. The individual noted that most organizations, including  federal agencies, did not have staffing plans in place at the time of the Gulf  Coast hurricanes. However, the experts cautioned that an agency’s  disaster contingency plan must be a flexible blueprint that can respond to  changing circumstances and disaster scenarios. In estimating the potential  consequences of varying disaster scenarios, another expert advised that  organizations could benefit from the further use catastrophe models, given  that such technology has been available for about 20 years.
section_title: SBA Did Not Engage in Comprehensive Disaster Planning Prior to Gulf Coast Hurricanes
paragraphs: As was the case with SBA’s limited planning efforts for the implementation  of DCMS, the agency also did not engage in comprehensive disaster  planning for other logistical areas prior to the Gulf Coast hurricanes. For  example, SBA had not completed a formal, centralized staffing plan to help  manage the surge in disaster loan applications that could be anticipated  under various disaster scenarios. SBA headquarters officials said that they  had not developed agency wide disaster planning guidance due to their  view that field office staff were in a better position to plan their response  in the event of a crisis. That is, the SBA headquarters staff said that agency  field office staff had a vast level of knowledge and experience that allowed  them to establish plans for a range of potential disaster scenarios and that,  given the uncertainty of disaster scenarios, centralized advance planning  would likely yield limited benefits. SBA management said they considered  this decentralized approach as appropriate and viewed headquarters’ role  as being more of a resource that the field offices could rely on for policy  and high-level strategic guidance. However, at the time of the Gulf Coast  hurricanes, SBA field offices had not completed written plans to guide  their efforts in the event of a disaster. One field office official said, while  SBA headquarters encouraged field offices to establish written disaster  plans, field offices were not required to do so. While SBA had not engaged  in comprehensive contingency planning, the agency had projected various  logistical requirements during a disaster largely based on the expertise of  its staff and experiences in responding to previous disasters (none of  which reached the magnitude of destruction of the Gulf Coast hurricanes,  as discussed earlier). SBA officials said that they did not use other  information—such as the results of disaster simulations or catastrophe  models—in developing their logistical projections.
section_title: SBA Faced Logistical Challenges during its Initial Response to Gulf Coast Hurricanes
paragraphs: We recognize that even if SBA had engaged in comprehensive planning  prior to the Gulf Coast hurricanes, it likely would have encountered  logistical challenges (staffing, space acquisition, and technological  support) in providing timely disaster assistance due to the volume of loan  applications, including erroneous applications.  However, information  obtained during the course of our review indicates that SBA’s limited  disaster planning process, including the lack of a written plan for staffing  requirements associated with surges in loan applications under varying  disaster scenarios, further impeded the efficiency of the agency’s  response. For example, officials at SBA’s Ft. Worth disaster loan  processing center said that they developed staffing requirements as  Hurricane Katrina struck the Gulf Coast and in its immediate aftermath.  The officials said they initially estimated that the hurricane would require  enough staff to process 150,000 to 200,000 loan applications, but they  doubled the staffing estimate after the levees in New Orleans failed, based  on reports from the media, FEMA, and SBA loss verification teams.  During the immediate aftermath of Hurricane Katrina, SBA had to move  urgently to hire more than 2,000 staff by January 2006 at the Ft. Worth  center, which previously had a permanent and temporary staff of about  325 on board including 40 supervisors (see fig. 2).  SBA officials said that  most of the individuals hired to work in the Ft. Worth center were  temporary employees who received notice of the job opportunities  through SBA advertisements in newspapers and other media outlets.  Additionally, the SBA officials said that ensuring the appropriate training  and supervision in hiring such a large number of inexperienced staff  proved challenging.
Moreover, in preparing for potential disasters, SBA did not take practical  steps to help ensure the availability of additional trained and experienced  staff as described below:    SBA did not have a system for “cross-training” its staff so that individuals  not normally associated with disaster assistance could help out in the case  of an emergency. With such cross-training, SBA could have potentially  quickly leveraged the expertise of loan officers who are normally involved  in the agency’s other small business lending programs to help process  disaster loan applications. We note that, subsequent to Hurricane Katrina’s  landfall, SBA’s former Administrator directed some of the agency’s district  offices to request that staff not normally involved in disaster assistance  volunteer to process disaster loans. However, SBA officials at one district  office we visited said that staff who volunteered to processes disaster  loans lacked access to the agency’s loan processing system—DCMS—and,  consequently, this presented further challenges in their ability to process  disaster loan applications in a timely manner. For example, without access  to DCMS, the district staff needed to take additional time to contact SBA’s  Ft. Worth disaster loan processing center to verify data and other  information contained in disaster applications. Moreover, the Ft. Worth  staff, as mentioned in our previous report, had to engage in a labor- intensive process of shipping files to the district office and manually  inputting information into DCMS because the district office staff lacked  access to the system.
SBA did not maintain the status of a reserve group of potential voluntary  employees with expertise in the agency’s disaster assistance programs.  According to an SBA official, in approximately 2001, the agency had in  place a disaster reserve corps of about 600 individuals, who had a  background in areas such as finance, accounting, property inspections,  and customer service who could be asked to volunteer as temporary  employees in the event of a crisis. SBA officials said that the agency’s  disaster reserve corps includes retirees and students who must be willing  to locate within 48 hours of notification that their services are required to  assist in an emergency. As discussed in our 2003 report, SBA officials  believed that the disaster reserve corps facilitated the agency’s capacity to  process the surge in disaster loan applications associated with the  September 11, 2001, terrorist attacks.  However, SBA officials said that  the agency did not subsequently maintain the status of the disaster reserve  corps afterwards, and after the terrorist attacks, it largely dissolved. While  an official said that SBA was in the process of rebuilding the corps when  Hurricane Katrina struck, a senior agency official said the corps had fewer  than 100 individuals at that time.
Moreover, SBA did not have adequate plans in place to help ensure that it  had adequate office space to house its expanded workforce—particularly  in the Ft. Worth and Buffalo offices—or telecommunications support in  Buffalo. While SBA partnered with GSA on an ad hoc basis to address its  logistical challenges after Hurricane Katrina made landfall, in some cases,  the agency was fortunate to quickly obtain the needed capacity. The  following provides specific information regarding SBA’s Ft. Worth and  Buffalo offices at the time of and after the Gulf Coast hurricanes:    At the Ft. Worth office, SBA did not initially have adequate space to  accommodate the more than 2,000 employees that were hired to process  disaster loans or an established plan to acquire such space (e.g., the Ft.  Worth center could only accommodate 500 out of the 2,700 staff that were  ultimately employed, by September 2006, to process Gulf Coast hurricane- related disaster loan applications). In September 2005, SBA worked with  GSA on an ad hoc basis in an effort to locate additional space for the  newly hired staff and was able to identify available offices near its existing  facility. However, SBA officials said that the newly acquired space was not  configured to serve as a disaster loan processing center, so the agency had  to upgrade the space to accommodate its needs. Even so, we note that  SBA still lacked sufficient capacity in Ft. Worth to process the growing  backlog of disaster loan applications. To address this challenge, SBA was  also able to reestablish the loan processing function at its Sacramento  office, which had previously been discontinued as a result of its workforce  transformation initiative. The Sacramento office space was available  shortly after Hurricane Katrina struck because the lease had not yet  expired. SBA established a workforce of approximately 250 individuals at  the Sacramento office, and the office played a significant role in reducing  the backlog of Gulf Coast hurricane disaster loan applications.  In June  2006, SBA also leased a 60,000 square foot facility in Ft. Worth, which,  upon acquisition, was configured to meet the agency’s needs to house the  staff that are processing disaster loans associated with the Gulf Coast  hurricanes, according to officials.
SBA’s Buffalo office did not initially have sufficient space to serve as a  customer call center in a catastrophic disaster situation. In June 2005, SBA  closed a loan processing facility in Niagara Falls, New York, and opened a  facility in Buffalo, with the intention of it becoming the agency’s customer  service center (i.e., call center) at a later date. While SBA provided us with  planning documents that recognized that the Buffalo office lacked  sufficient space in order to expand during an emergency, the agency did  not develop a contingency plan to guide its efforts in identifying suitable  space to accommodate an expanded workforce if a major disaster  occurred. As was the case in Ft. Worth, SBA collaborated with GSA on an  ad hoc basis after Hurricane Katrina and was able to locate nearby  available space in a federal office building.
Further, SBA faced challenges due to limited support for the  telecommunications system at its disaster loan customer service call  center in Buffalo. According to SBA field managers, while the customer  service call center’s telephone system processed calls as required, vendor  service and support for the system were inadequate. An SBA official said  that there was only one vendor in the Buffalo region that services the type  of phone system that the agency uses. The SBA official said that limited  support and maintenance for the agency’s phone system impacted the  agency’s ability to be able to efficiently respond to inquiries from disaster  loan applicants. Further, an SBA official said that the phone system was  not designed to interface with other key agency systems, which also  affected the center’s operations. For example, due to limitations in the  phone system’s design, SBA customer service managers were forced to  manually track and tally critical information necessary to effectively  manage the center, such as the number of inbound/outbound calls  received in a given time period. According to an SBA field official, this  information is necessary in order for the office’s workforce manager to  accurately forecast staffing needs, but tracking this data manually is time  consuming and inefficient. SBA officials said that they have initiated a  review of the Buffalo phone system and are considering options to  upgrade it.
section_title: SBA Has Initiated Measures to Better Prepare for Potential Disasters but Has Not Established Time Frames for Plan Completion or Leveraged Available Disaster Planning Resources
paragraphs: In the wake of the Gulf Coast hurricanes, SBA officials said that they  recognized the importance of further enhancing their disaster planning  and have developed a master plan and initiated measures based on  “lessons learned” from the experience. In particular, SBA convened a  Disaster Oversight Council composed of senior agency leadership, to  better leverage the resources of the agency as a whole, and incorporate  new ideas and best practices into the agency’s preparedness capability. In  September 2006, SBA also appointed a single individual to coordinate the  agency’s disaster preparedness planning and coordination efforts. Further,  SBA officials said that the agency is taking steps to address limitations that  existed in its disaster planning prior to the Gulf Coast hurricanes and  weaknesses in disbursing approved disaster loan applications as follows:    Developing enhanced disaster forecasting and response capabilities.
SBA officials said that the agency is developing automated models to  better estimate loan application volumes when disasters strike. The  officials said that these models are based on data from the agency’s  experiences in responding to previous disasters, including the Gulf Coast  hurricanes. The officials said that the models allow the agency, for  example, to estimate the number of loan applications that can be expected  under varying disaster scenarios. Officials said that the models’ estimates  can be refined, after disasters occur, based on information provided by  FEMA and SBA loss verification teams. SBA officials also said that they  are developing the capacity to better estimate resource requirements—- such as staffing requirements—-to better respond to potential disaster  scenarios. Additionally, SBA stated that DMCS has been tested and  verified to support a minimum of 8,000 concurrent users (the agency  maintained a workforce of about 4,300 at its peak in January 2006 to  respond to the Gulf Coast hurricanes). SBA stated that it continues to  explore the best means of upgrading DCMS’ capacity.
Ensuring additional trained and experienced staff in the event of a  disaster.  SBA officials said that the agency is developing a plan to cross- train staff agencywide to provide disaster loan assistance. They also said  SBA is planning to develop partnerships with private sector lenders who  could assist SBA with loan processing and loan closing activities in the  event of a major disaster. Additionally, SBA officials said that the agency  has reestablished a disaster reserve corps of about 750 individuals, the  majority of whom have been trained in the agency’s policies and systems.  An SBA official added that the agency plans to ensure that corps members  will be able to quickly obtain government identification and credit cards to  help ensure their immediate availability in the event of a disaster.  However, SBA officials said that maintaining the status of the corps may  prove challenging over the longer term if their services are not required for  long periods. The officials said it can be difficult to ensure the training of  potential volunteers or their continued availability.
Acquiring office space to provide additional capacity. SBA officials said  that the agency has acquired additional facilities to house its disaster  assistance staff. As described previously, for example, SBA officials said  that, in June 2006, they leased a third facility in Ft. Worth with 60,000  square feet of space that has been configured to serve as a disaster loan  processing center (this facility has a 2-year lease). However, SBA officials  said that there are trade-offs associated with maintaining such space over  the longer term. A senior SBA official also said that, if the space is  ultimately no longer required to process Gulf Coast hurricane-related loan  applications, SBA would be required to incur lease costs at a time when  funding for federal agency operations is limited.
Revising the existing approach to processing disaster loan applications  to help ensure expedited fund disbursements. According to senior SBA  officials, in July 2006, they reviewed the agency’s approach to disbursing  approved Gulf Coast hurricane disaster loan applications and found that  inefficiencies in the process were contributing to substantial disbursement  delays. Senior SBA officials said that the previous loan disbursement  approach was an “assembly-line” type process wherein loan applications  moved from one stage to another (e.g., from loss verification to the legal  department) and that mistakes or delays in any one stage could result in  significant disbursement backlogs. Further, SBA officials said that the  previous approach lacked accountability and made it difficult for  applicants to find the status of their application or to obtain consistent  information from the agency.  Subsequently, SBA officials said that they  have instituted a “case-manager” model in which each loan application is  assigned to a case manager to ensure accountability, and the loan review  units use in a team-oriented approach. According to SBA officials, the  revised approach reduced the backlog of disbursed loans associated with  the Gulf Coast hurricanes from about 93,000 in August 2006 to  approximately 35,000 in November 2006.  SBA officials also said that the  revised approach should allow the agency to more efficiently disburse  approved disaster loans in a future catastrophe.
While SBA’s announced changes address key limitations in its disaster  planning process and preparedness efforts prior to the Gulf Coast  hurricanes, agency officials have not established a time line for completing  key elements of the disaster management plan. SBA officials explained  that the planning process is ongoing and that they intend to review and  implement a variety of changes in the agency’s Office of Disaster  Assistance in coming years. However, we note that several elements of  SBA’s planning and preparedness process are discrete tasks that lend  themselves to the establishment of a time line for completion. These  elements include cross-training agency staff to provide backup support for  disaster assistance services and reaching agreements with private sector  lenders to process a surge in loan applications associated with disasters.  Without the establishment of reasonable time frames for completing such  planning and preparedness elements, it is difficult for SBA management,  Congress, the public, and others to assess the progress of the agency’s  efforts to better prepare for future disasters.
Moreover, until recently, SBA had not taken steps to assess whether it  could leverage outside resources to enhance its disaster planning and  preparation efforts.  SBA officials said that they had contacted other  organizations, including FEMA, the National Weather Service, and the U.S.  Geological Survey, in developing the agency’s enhanced model for  forecasting loan application volumes when disasters strike. However, as  discussed previously, SBA officials said that they were largely relying on  the agency’s previous disaster experiences in enhancing their forecasting  capacity, which is similar to the agency’s disaster planning approach prior  to the Gulf Coast hurricanes. SBA officials said that they had not used  other outside resources, such as the results of disaster simulations or  catastrophe models, in the disaster planning process. A senior SBA official  said that the agency has not determined how catastrophe models could be  incorporated into its planning process, given the differences that exist  between the insurance sector and SBA’s Disaster Loan Program. For  example, the official noted that insurers use the models to limit their  financial losses, due to hurricanes or earthquakes of varying severity, in  specific areas where they insure properties, whereas SBA covers  uninsured homes and businesses on a nationwide basis. While we  recognize these differences, as discussed in our report on SBA’s  implementation of DCMS, the results of disaster simulations or  catastrophe models could provide SBA with additional insight into  potential disaster loan application volumes, and related agency logistical  resource requirements, for particularly severe events that potentially rival  or surpass the scope of disasters that the agency has previously  encountered, including the Gulf Coast hurricanes.
In December 2006, SBA took initial steps to assess whether an available  catastrophe model could help enhance its disaster planning efforts. SBA  contacted FEMA regarding a catastrophe model that the agency has  developed, referred to as HAZUS, that is designed to help estimate the  damages associated with potential hurricanes, earthquakes, and floods, as  well as the potential financial losses associated with varying disaster  scenarios. SBA informed FEMA that the agency was interested in  exploring the use of HAZUS as part of its disaster planning program. SBA  requested that FEMA brief the agency’s senior managers on HAZUS, as  well as the types of training on the system that is available. It remains to  be seen the extent to which SBA will decide to incorporate the HAZUS  system into its disaster planning efforts.
Finally, while we acknowledge that SBA would incur lease and other costs  associated with maintaining facilities in anticipation of disasters,  developing pragmatic strategies to help ensure the timely acquisition of  suitable space over the long-term should be a key component of the  agency’s disaster contingency planning. Currently, SBA has a substantial  amount of office space leased in Ft. Worth, for example, to complete the  processing of Gulf Coast hurricane-related disaster applications, and  which agency officials said could be used if another disaster occurs in the  near term. However, if no such disaster occurs, and SBA reduces its office  space inventory in Ft. Worth over the next several years to save costs, and  the agency closes its Sacramento satellite loan processing facility in fiscal  year 2007 as planned, the agency would lack adequate loan processing  space to respond to a future disaster the size of the Gulf Coast hurricanes  or larger. Under such a scenario, a repeat of the steps SBA took during the  Gulf Coast hurricanes (i.e., contacting GSA after Hurricane Katrina made  landfall) could similarly compromise the agency’s capacity to provide  efficient and timely disaster services. Analyzing the cost-effectiveness of  obtaining and retaining certain office facilities over the long-term could  improve SBA’s preparedness for future disasters.
section_title: SBA Utilized a Variety of Outreach Approaches during the Gulf Coast Hurricanes, but Several Factors May Have Limited Their Effectiveness
paragraphs: SBA took a number of steps, under trying conditions, to reach out to Gulf  Coast hurricane victims to provide information and assistance regarding  disaster recovery loan assistance services. For example, the agency  mobilized its staff members to reach out to victims by speaking at  organized events and by advertising in a variety of media including the  Internet. However, various factors (including the fact that many people do  not equate SBA with disaster assistance) may have limited the  effectiveness of the agency’s efforts. For example, due to the number and  dislocation of the hurricane victims, the catastrophic damage caused by  the storms, and limited agency resources, SBA was not able to comply  with an informal policy of conducting follow-up calls with all individuals  who were mailed disaster assistance loan applications. According to SBA  officials, the agency has initiated a review of its outreach to Gulf Coast  hurricane victims and is developing a plan to better provide such outreach  in future disasters.
subsections: section_title: SBA’s Outreach to Gulf Coast Hurricane Victims May Have Been Reduced by the Complexity of Federal Disaster Assistance Programs and the Damage Associated with the Hurricanes
paragraphs: SBA officials told us that they took a variety of steps to explain the  agency’s disaster assistance programs to the victims of the Gulf Coast  hurricanes. After Hurricane Katrina made landfall, officials from SBA’s  field operations centers said they acted quickly to mobilize their staff and  sent them to the Gulf Coast region to begin assisting the victims by  providing information about their Disaster Loan Program. These officials  told us that staff members shared information about SBA’s Disaster Loan  Program at meetings with various groups including congressional offices,  chambers of commerce, community-based organizations, and local  businesses. According to an SBA official, staff members from one field  operations center attended more than 600 of these meetings between  October 1, 2005, and May 15, 2006. This official said that the number of  meetings they participated in was more than were typically held, due to  the increased needs of the hurricane victims. SBA also provided  information about its Disaster Loan Program to Small Business  Development Centers, as well as state and local disaster management  agencies. Further, SBA staff members provided outreach at FEMA- established Disaster Recovery Centers where they conducted initial  interviews with disaster victims to determine whether the victim and the  damaged property were generally eligible for the loan program and to  explain the application forms and process. SBA also established Business  Recovery Centers to provide business owners with information on how  disaster loans could help them in financing recovery from the hurricanes.
In addition, SBA advertised through various forms of media such as the  SBA Internet site, radio, television, and newspapers. Figure 3 shows an  example of a newspaper advertisement SBA placed following Hurricane  Katrina. SBA advertisements about its Disaster Loan Program are intended  to inform potential loan applicants where to obtain loan applications and  otherwise to assist victims in applying for disaster loans. Following the  Gulf Coast hurricanes, field operations center staff members also posted  informational flyers throughout the declared disaster areas, according to  SBA officials.  An SBA official also told us that many of these outreach  activities were not just localized to the declared disaster areas, but staff  members also conducted these activities in the cities where victims had  relocated.
However, SBA officials said that the agency’s outreach efforts face  challenges even under normal (nondisaster) circumstances, which can  limit their effectiveness. For example, agency officials said that most  people tend to equate SBA with small business lending activities rather  than its disaster assistance programs. In a limited survey of 62 Gulf Coast  hurricane victims who filed SBA disaster loan applications, we found that  more than half reported not being aware of the agency’s disaster  assistance program prior to August 2005. Additionally, an SBA official  said that the public tends to confuse SBA’s disaster assistance programs  with those of FEMA. As noted previously, this potential for confusion was  heightened when, in the wake of the Gulf Coast hurricanes, FEMA referred  many disaster loan applications to SBA even though such applications did  not meet SBA’s creditworthiness standards. Furthermore, SBA’s outreach  efforts may face substantial challenges when disasters of the magnitude of  the Gulf Coast hurricanes or greater strike. In such cases, millions of  people may be relocated throughout the United States, and widespread  telephone and electrical service disruptions may take place.
To illustrate the potential impact that a large-scale disaster can have on  SBA’s outreach efforts, we note that the agency was not able to comply  with an informal policy requiring follow-up phone calls to all individuals  who did return disaster assistance loan applications after the Gulf Coast  hurricanes. While such phone calls are not mandatory, SBA officials said  that in previous disasters they had attempted to contact 100 percent of all  individuals who did not return applications that had been mailed to them.   The officials said that such follow-up phone calls provided the agency with  another opportunity to explain the Disaster Assistance Loan Program and  potentially assist victims.  While SBA mailed about 2 million disaster loan  applications to victims of the Gulf Coast hurricanes, it only received about  400,000 completed applications in return.  SBA officials said that the  agency made follow up phone calls to 800,000 individuals who did not  return the applications but was unable to contact the remaining 800,000.   Although SBA officials said the agency makes it a practice to make such  follow up phone calls, it lacked the necessary staff resources to do so and  that contacting people who may be relocated in such circumstances is  highly challenging.
section_title: SBA Has Initiated an Internal Review of Outreach Provided to Victims of the Gulf Coast Hurricanes
paragraphs: According to SBA officials, the agency has initiated a follow-up internal  review of its outreach to victims of the Gulf Coast hurricanes. An SBA  official said that the agency is developing a plan to strengthen its outreach  communication and coordination and that this plan will be submitted to  the SBA Administrator in early 2007. According to this official, SBA has  consulted internal outreach staff as well as federal disaster relief agencies,  including FEMA, and local agencies to conduct the evaluation of its  outreach efforts. Additionally, the SBA official said that the agency has  created a revised brochure to explain its disaster outreach services to the  public and that the SBA Administrator has held forums with the public in  the Gulf Coast region to explain the agency’s assistance services.
section_title: Conclusions
paragraphs: While the unprecedented volume of disaster loan applications clearly  affected SBA’s capability to provide timely assistance to Gulf Coast  hurricane victims, the absence of a comprehensive and sophisticated  planning process beforehand also likely limited the efficiency of the  agency’s initial response. SBA officials said that they recognize the  importance of better disaster planning and are in the process of  developing a disaster plan that is designed to addresses key limitations in  the agency’s previous planning approach (e.g, strengthening loan surge  capacity through potential agreements with private sector lenders and  reestablishing the disaster reserve corps). Additionally, according to SBA  officials, the agency has significantly revised its loan processing approach  to reduce the backlog of approved, but not disbursed, disaster loan  applications associated with the Gulf Coast hurricanes. SBA officials said  that the revised approach should allow the agency to more efficiently  disburse approved disaster loans in a future catastrophe. However, SBA  has not established a time frame for competing key elements of the  disaster management plan such as cross-training other agency staff to  provide backup support, and has not assessed whether the plan would  benefit from the supplemental use of available resources, such as the  results of disaster simulations or catastrophe models (although SBA did  recently contact FEMA about using its catastrophe model). Further, while  we recognize that maintaining unused office space would not be cost- effective, SBA has not developed a long-term strategy to help ensure that it  could acquire necessary and suitable office space in an emergency.  Consequently, SBA should take additional steps to help ensure that it  would be better prepared to provide timely and effective assistance to the  victims of a future disaster.
section_title: Recommendations for Executive Action
paragraphs: To better position SBA to prepare for and respond to potential disasters,  we recommend that the Administrator of SBA direct the Office of Disaster  Assistance to take the following two actions:    develop time frames for completing key elements of the disaster  management plan and a long-term strategy for acquiring adequate office  space; and   direct staff involved in developing the disaster management plan to further  assess whether the use of disaster simulations or catastrophe models  would enhance the agency’s disaster planning process.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided SBA with a draft of this report for review and comment. The  Associate Administrator for Disaster Assistance provided written  comments that are presented in appendix II. The agency also provided  technical comments, which we have incorporated as appropriate. In its  comments, SBA stated that the agency is better prepared to respond to  potential disasters as a result of the measures that have been initiated  since the Gulf Coast hurricanes. Additionally, SBA stated that it agreed  with the report’s recommendations. Specifically, SBA stated that the  agency will (1) establish clear time-lines for completing key disaster  planning initiatives discussed in the report and (2) assess the more  extensive use of disaster simulations and external catastrophe models to  enhance its disaster planning process.
SBA also said that it had taken steps to help strengthen its capacity to  ensure the availability of adequate office space in the event of a future  disaster. In particular, SBA stated that it will retain 100,000 square feet of  additional office space that it obtained in Ft. Worth after Hurricane  Katrina to process disaster loans. SBA said that the additional space  should allow the agency to respond to the initial surge in loan applications  of a future disaster while allowing time for it to work with GSA to obtain  additional space as needed. We contacted SBA to obtain additional  information about its space acquisition plans.  SBA officials said that the  agency will retain a 60,000 square foot facility in Ft. Worth that has been  specifically configured to process disaster loans and plan to expand it by  another 40,000 square feet.  Further, the officials said that SBA will retain  the facility for at least 5 years (the facility originally had a 2-year lease)  and may retain it longer. We acknowledge that such an approach, if  implemented, is a step that is consistent with the development of a  comprehensive disaster management plan.
We are sending copies of this report to appropriate congressional  committees, the Administrator of the SBA, and other interested parties,  and we will also make copies available to others upon request. In addition,  the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you are your staff have questions regarding this report, please contact  me at (202)512-8678 or shearw@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to (1) assess the Small Business  Aministration’s (SBA) logistical planning efforts prior to the Gulf Coast  hurricanes and current disaster planning efforts and (2) discuss SBA’s  outreach efforts to Gulf Coast hurricane victims.
To address the first objective, we reviewed our previous studies related to  disaster planning as well as similar studies by other organizations and  available disaster simulation reports. We also interviewed disaster experts  to obtain their insight and views on appropriate planning efforts and the  aspects that a comprehensive disaster plan should entail. Further, we  reviewed relevant SBA planning and other documentation including the  agency’s standard operating procedures, internal policy memos, and the  Office of Disaster Assistance’s 2003-2008 strategic plan. Moreover, we  reviewed SBA documentation regarding the agency’s workforce  transformation initiative, which aided our assessment of the logistical  challenges that SBA encountered in its response to the Gulf Coast  hurricanes. These documents included an organizational impact study and  a cost-benefit analysis. We also interviewed officials from SBA’s Office of  Disaster Assistance (ODA) in headquarters regarding the agency’s disaster  planning initiatives both before and after the Gulf Coast hurricanes.  Additionally, we conducted site visits to each of SBA’s four disaster loan  field offices to discuss the agency’s disaster planning initiatives.  Finally,  we visited the Gulf Coast region and met with federal, state and local  officials, as well as disaster victims.
To address the second objective, we reviewed SBA’s various methods and  techniques for informing and educating disaster victims about the disaster  loan program. Further, we reviewed the section of SBA’s 2003-2008  strategic plan that described the agency’s goals and objectives for  promoting public awareness, which includes outreach. We also  interviewed officials in SBA’s headquarters and the public information  officers in the Atlanta and Sacramento field offices to discuss the agency’s  outreach efforts during the Gulf Coast hurricanes, as well as current plans  to evaluate such outreach efforts.
To obtain further insight into SBA’s outreach efforts, we conducted a  limited structured telephone survey of 62 Gulf Coast hurricane victims  who had applied for an SBA disaster assistance loan. Using data from its  Disaster Credit Management System (DCMS), SBA provided us with a list  of the 414,289 loan applications, for either a home or business physical  disaster loan, or an economic injury disaster loan in response to losses due  to the Gulf Coast hurricanes. We selected a stratified random sample of  400 loan applications based on the type of loan—business and economic  injury, home, and economic injury only—and loan decision—approved,  withdrawn, declined, or pending—in order to get coverage across loan  type and decision outcomes. We attempted to reach 168 loan applicants by  phone and were able to contact and complete telephone interviews with a  total of 62 applicants. Of the 62 respondents to our survey, 46 were  affected by Hurricane Katrina, 9 by Hurricane Wilma, and 7 by Hurricane  Rita. Of those, 28 had applied for home loans, 22 had applied for economic  injury and business loans, and 12 had applied for economic injury loans. At  the time we surveyed the applicants, SBA had approved loans for 24 of the  applicants, declined loans for 26 of the applicants, and had decisions  pending for 6 of the applicants. The other 6 applicants had either  withdrawn their applications or had their applications withdrawn by SBA.
From the survey, among other things, we obtained the loan applicants’  views on how and when they learned of the disaster loan program. In  developing the survey questions, we relied on SBA’s 2003-2008 strategic  plan, strategic operation plans, SBA 2003-2005 customer satisfaction  surveys, and other information that SBA officials provided to us through  interviews as it related to our request. We pretested our survey with five  loan applicants who represented a mix of home, business, and economic  injury loans, as well as decisions that were approved and withdrawn. We  conducted analysis using the Statistical Analysis System (SAS) version 9  with appropriate checks for missing data and incorrect responses and  deemed it to be sufficiently reliable for the purpose of this report. Because  of the small sample size, the survey results are limited to those we spoke  with but may also be considered as indicative of how Gulf Coast victims  might have responded; however, results could not be projected to the  entire population.
We conducted our work in Washington, D.C.; Sacramento, Calif.; Atlanta,  Ga.; Ft. Worth, Texas; Buffalo, N.Y.; and in state and local offices in  Louisiana and Mississippi from November 2005 to January 2007, and in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Comments from the Small Business Administration
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Wesley Phillips, Assistant  Director; Daniel Blair; Tania Calhoun; William Chatlos; Landis Lindsey;  Marc Molino; David Pittman; Cheri Truett; and Michelle Zapata made key  contributions to this report.