Small Business Administration: Agency Has Controls to Comply with Paperwork Reduction Act but Could Improve Accessibility and Consistency of Disaster Loan Information
Released: 2016-11-21T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: According to SBA, the agency received more than 40,000 disaster business loan applications from fiscal years 2010 through 2014, and estimates that applicants spent on average a total of more than 25,000 hours per year filling out disaster loan application forms. PRA requires agencies to minimize paperwork burden on individuals and small businesses. The Recovery Improvements for Small Entities After Disaster Act of 2015 includes a provision for GAO to evaluate SBA's compliance with PRA. This report examines (1) controls in SBA's process for complying with PRA form renewal requirements in administering its disaster business loans, and (2) SBA's recent and planned actions to reduce burden for business loan applicants.

GAO analyzed applicable laws and guidance, including PRA and OMB and SBA guidance and policies, relevant reports, and loan applicants' responses to SBA and other surveys. GAO also interviewed SBA officials and a nongeneralizable sample of eight SBA resource partners (Small Business Development Centers) that provided disaster-related assistance to businesses, based on county-level loan approvals for 2012 through April 1, 2016.

section_title: What GAO Found
paragraphs: The Small Business Administration (SBA) process for complying with the Paperwork Reduction Act (PRA) includes a number of controls to help disaster business loan forms comply with the act and Office of Management and Budget (OMB) requirements (see figure). For example, SBA has a standard operating procedure that documents its clearance process; a requirement to solicit public comments; and a requirement that offices of Disaster Assistance, General Counsel, and Inspector General review submission packages for PRA clearance. SBA surveys business loan applicants to solicit suggestions for improving the loan process. The disaster business loan forms also include a valid OMB control number, as required by PRA.

SBA has implemented and planned actions to streamline the disaster business loan process, but the agency has not made loan-related information and requirements easily accessible or consistent, or defined key terms, contributing to applicants' burden. SBA's 2015 Performance Report set out the agency's recent and planned actions, including streamlining the loan process and enhancing online loan application capabilities. SBA has published written and electronic materials about the disaster loan process, but applicants cannot easily access these materials from SBA's dedicated disaster loan web portal, contrary to federal guidelines for improving digital services. Also, SBA's materials provide inconsistent information on the process, required documents, and estimated processing time frames. Business loan applicants reported that they found the documentation requirements confusing and the application time frames unclear. PRA and an OMB directive on open government generally state that agencies should explain the collection and use of information and promote transparency by providing the public with information about government activities. Similarly, some Small Business Development Centers told GAO that loan applicants have expressed confusion over undefined financial terminology in SBA's loan application, particularly terminology in the required personal financial statement. Federal law requires agencies' forms be written using plain language that is appropriate for the intended audience. Improved integration of electronic resources and consistency of information in SBA's materials would help business disaster victims better access resources and understand the disaster loan process and expected time frames. Further, providing definitions of loan terminology can help reduce victims' confusion.

section_title: What GAO Recommends
paragraphs: SBA should (1) better integrate disaster-loan-related information on its web portal; (2) improve consistency of information, including the loan process, required documents, and estimated time frames, in paper and electronic resources; and (3) define financial terminology on disaster business loan application forms. SBA agreed with GAO's recommendations.

section_title: Letter
paragraphs: According to the Small Business Administration (SBA), the agency  received more than 40,000 disaster business loan applications from fiscal  years 2010 through 2014, and estimated that applicants spent on average  a total of more than 25,000 hours per year filling out disaster business  loan application forms. SBA’s Office of Disaster Assistance (ODA)  administers the Disaster Loan Program, and its mission is to provide  affordable, timely, and accessible low-interest disaster loans to  businesses of all sizes and others to repair or replace real estate,  personal property, machinery and equipment, and inventory and business  assets that have been damaged or destroyed in a declared disaster. The  Paperwork Reduction Act of 1995 requires agencies to minimize the  paperwork burden on individuals and small businesses and maximize the  utility of information collected by agencies. We previously reported in  2014 that, following Hurricane Sandy, business owners found the disaster  loan application documentation requirements to be time-consuming and  onerous, and that SBA did not meet its timeliness goals for processing  disaster business loan applications, which resulted in delays in disaster  victims’ receipt of loan funds.

The Recovery Improvements for Small Entities After Disaster Act of 2015  includes a provision for us to evaluate the steps that SBA has taken to  comply with the Paperwork Reduction Act in administering its Disaster  Loan Program. Specifically, this report examines (1) controls in SBA’s  process for complying with the form renewal requirements of the  Paperwork Reduction Act in administering its Disaster Loan Program, and  (2) SBA’s recent and planned actions to reduce the burden of business  loan applicants for the Disaster Loan Program. Although the processes  we are evaluating apply to disaster loans for homeowners and  businesses, this report focuses on disaster business loans for  businesses.

To examine the first objective, we reviewed and analyzed applicable  federal laws, regulations, and guidance, including SBA policies and  procedures, to identify relevant Paperwork Reduction Act requirements  and SBA’s processes and controls for meeting the act’s requirements. We  assessed SBA’s Paperwork Reduction Act compliance process and  controls against internal control principles to determine the effectiveness  of SBA’s process and controls. We also interviewed SBA officials to  understand SBA’s compliance with the act’s requirements and the  effectiveness of SBA’s controls.

To examine the second objective, we reviewed relevant federal guidance  and reports to identify SBA’s recent and planned actions as well as  leading practices intended for burden reduction. We analyzed SBA and  third-party customer satisfaction surveys to obtain business loan  applicants’ and business loan recipients’ feedback about the extent to  which SBA has reduced burdens or enhanced processes for loan  applicants. We conducted semi-structured interviews with a  nongeneralizable sample of eight Small Business Development Centers  (SBDC)—SBA’s resource partners that provide disaster assistance to  businesses—to identify burdens encountered by business loan applicants  and their suggestions for addressing challenges. We selected our sample  of eight SBDCs based on county-level disaster loan approvals for 2012 to  April 1, 2016. We also interviewed SBA representatives to obtain SBA’s  plans to and actions taken that further reduce burden or enhance  processes for business loan applicants. We assessed SBA’s actions  against criteria for accessibility of and plain writing in government  information as found in federal Guidelines for Improving Digital Services,  an Office of Management and Budget directive, the Plain Writing Act, and  the Paperwork Reduction Act. Appendix I contains a more extensive  discussion of our scope and methodology.

We conducted our work from February 2016 to November 2016 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.
subsections: section_title: Background
subsections: section_title: SBA Disaster Loan Program
paragraphs: According to SBA officials, when a disaster is declared in an area, a staff  member from an SBA field operations center, located in Atlanta, Georgia,  or Sacramento, California, contacts the area’s SBDC network to identify a  site for setting up a business recovery center, which may be the local  SBDC office. Officials added that SBDC staff members co-locate in a  business recovery center, when possible, so business loan applicants can  access SBDC services at the center. Additionally, SBA officials said that  SBDCs help SBA by doing the following:  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 offers two types of disaster loans for businesses: (1) Physical  Disaster Loans, which help replace damaged property or restore property  to pre-disaster condition, and (2) Economic Injury Disaster Loans, which  provide working capital to help small businesses survive until normal  operations resume after a disaster. See table 1 for additional details of  both types of disaster business loans.

SBA has divided the disaster loan process into three steps: application,  verification and loan processing, and closing, as shown in figure 1. This  report focuses on step 1, the loan application process. Physical Disaster  Loan applicants have 60 days and Economic Injury Disaster Loan  applicants have 9 months from the date of disaster declaration to apply  for a loan. Disaster victims may apply for a disaster business loan  through the Electronic Loan Application online portal or by paper  submission. The information from online and paper applications is  loaded into SBA’s Disaster Credit Management System, which is the  system SBA uses to process loan applications and make determinations  for its disaster loan program.

section_title: Paperwork Reduction Act
paragraphs: The Paperwork Reduction Act seeks to “ensure the greatest possible  public benefit from and maximize the utility of information created,  collected, maintained, used, shared, and disseminated by or for the  Federal Government.” A collection of information, such as forms,  includes a request for information from 10 or more persons to be  submitted to the federal government. The act requires agencies to  establish a process for evaluating and approving collections of  information. The act created the Office of Information and Regulatory  Affairs (OIRA) within the Office of Management and Budget (OMB) to  perform all Paperwork Reduction Act functions. As part of the review  process for a collection of information, OMB’s director must determine  whether or not an agency’s proposed collection of information should be  approved for public use. The director may approve a collection of  information for a maximum of 3 years. Agencies are required to renew  information collection forms before expiration to maintain a valid OMB  control number.

In addition to the process requirement, the act includes broader  requirements, including that agencies reduce information collection  burdens on the public, ensure that the public has timely and equitable  access to public information, and improve information technology  practices to reduce burden.

section_title: SBA Disaster Loan Application Forms
paragraphs: SBA’s disaster business loan application forms are examples of a  collection of information, so each form must be approved by OMB. SBA  requires all disaster victims in need of a disaster business loan to submit  the applicable loan application forms. To apply for a loan, a disaster  victim must complete the required disaster business loan application  forms (see app. II) and relevant additional forms:

SBA Form 5 – Disaster Business Loan Application; OMB Control  Number 3245-0017; expiring on January 31, 2018 (see app. II, fig. 5).

SBA Form 413D – Personal Financial Statement; OMB Control  Number 3245-0188; expiring on January 31, 2018 (see app. II, fig. 6).

SBA Form 1368 – Additional Filing Requirements Economic Injury  Disaster Loan and Military Reservist Economic Injury Disaster Loan;  OMB Control Number 3245-0017; expiring on January 31, 2018 (see  app. II, fig. 7).

SBA Form 159D – Fee Disclosure Form and Compensation  Agreement; OMB Control Number 3245-0201; expiring on October 31,  2017 (see app. II, fig. 8).

Internal Revenue Service (IRS) Form 4506-T – Request for Transcript  of Tax Return; OMB Control Number 1545-1872; expiring on  December 31, 2016 (see app. II, fig. 9).

Figure 2 shows that, according to SBA, in fiscal year 2014 it took a  disaster business loan applicant approximately 4.5 hours to complete all  the relevant forms, including gathering required documentation such as  the most recent tax return.

section_title: SBA Generally Meets Paperwork Reduction Act Form Renewal Requirements through Its Clearance Process and Internal Controls
subsections: section_title: SBA’s Form Renewal Process Generally Meets Paperwork Reduction Act Requirements
paragraphs: Consistent with the Paperwork Reduction Act’s requirement that agencies  establish a review process, SBA’s Records Management Division  oversees SBA’s Paperwork Reduction Act Clearance Process, which is  documented in a standard operating procedure (SOP). The Paperwork  Reduction Act requires an agency to establish a process to evaluate an  information collection. SBA’s 2006 Forms Management Program, SOP 00  30 3, provides written operating procedures for the agency’s Paperwork  Reduction Act clearance process. Figure 3 shows the overall process.  First, Records Management Division officials identify which SBA forms  will expire in 6 months, determine the program office responsible for each  form, and issue an expiration memorandum to the program office with a  timeline to complete the Paperwork Reduction Act clearance process.  The Records Management Division uses the Regulatory Information  Service Center and Office of Information and Regulatory Affairs  Consolidated Information System, OMB’s electronic system, to identify  which collections of information, such as loan application forms, will  expire in 6 months. Next, Records Management Division officials said  they solicit public comments and coordinate with the relevant program  offices as well as Office of General Counsel (OGC) and Office of  Inspector General (OIG) to evaluate the information collection. After the  internal reviews are completed, the Records Management Division  submits the Paperwork Reduction Act submission package to OMB  electronically and concurrently posts a 30-day Federal Register notice  seeking public comment on the proposed collection of information.

Following this comment period, OMB notifies SBA whether it has  approved SBA’s Paperwork Reduction Act submission package and, if  approved, provides the OMB control number and expiration date for the  approved forms.

SBA’s requirement that program offices complete and sign routing forms  aligns with Paperwork Reduction Act requirements that the head of an  agency certify that the information collection is necessary for the proper  performance of the agency’s functions. The Records Management  Division coordinates the program office reviews. For example, ODA  oversees the renewal of Forms 5 and 1368. Two forms, OMB Form 83-I  and SBA’s Form 58, document that program offices involved in the  collection of information have reviewed and approved the Paperwork  Reduction Act submission package. The first form is OMB Form 83-I,  which is OMB’s Paperwork Reduction Act submission form that an  agency uses to certify that it is in compliance with the Paperwork  Reduction Act requirements by identifying the type and purpose of the  collection information being submitted to OMB. Form 83-I also includes a  supporting statement, which justifies the necessity of a collection of  information and use of statistical methods to reduce burden, if applicable.  The second form is SBA’s Form 58, which is SBA’s Record of Clearance  and Approval that tracks the completion of SBA’s Paperwork Reduction  Act Clearance Process. SBA program offices responsible for the renewal  of the collection of information, such as ODA, complete these forms and  document approval by the necessary SBA stakeholders.

SBA’s requirement that OGC review and provide feedback on each  Paperwork Reduction Act submission package before it is sent to OMB  conforms to the act’s requirements for independent review of the  information collection. The Paperwork Reduction Act requires an  agency to establish an independent process that evaluates whether or not  the Paperwork Reduction Act submission package meets the act’s  requirements. SBA Form 58 allows the involved program offices and  OGC to review the Paperwork Reduction Act submission package and  verify its compliance with the act’s requirements. OGC officials stated that  they review OMB Form 83-I, supporting statements, and applicable  information collection instruments to ensure compliance with Paperwork  Reduction Act requirements. OGC also determines whether recent  statutory, regulatory, or other changes are reflected in the collection of  information and described in the supporting statement document.

OIG also reviews and comments on each Paperwork Reduction Act  submission package before it is sent to OMB. According to OIG officials,  their comments are intended to make the program stronger and address  difficulties encountered in criminal, civil, or administrative matters that  changes to the form could help avoid in the future. OIG officials said they  also review for clarity and check for issues and deficiencies that OIG has  identified in prior audits. OIG officials stated that they do not sign the SBA  Form 58 to preserve their independence and not create a perception that  the OIG endorses a program office’s document. According to SBA, the  agency’s policy to have both OGC and OIG review and have OGC sign- off on a Paperwork Reduction Act submission package helps the agency  not only to achieve its goal of getting OMB to approve the package prior  to the expiration of a disaster business loan form, but also to identify and  address risks or areas of noncompliance.

section_title: SBA Has Internal Controls to Monitor Compliance with Form Renewal Process
paragraphs: Consistent with applicable federal internal controls, SBA has a monitoring  system to identify and remedy deficiencies in the Paperwork Reduction  Act clearance process. Federal internal control standards state that  management should establish and operate activities to monitor controls  and that management should also remediate identified internal control  deficiencies on a timely basis. According to SBA officials, as part of its  monitoring system, if a program office is nonresponsive or fails to meet  the timelines outlined in its expiration memorandum, then the Records  Management Division may elevate the issue to the Chief Operating  Officer, who would contact the program office’s Associate or Assistant  Administrator to address the matter. Records Management Division  officials also said that they may obtain from OMB an extension of an  expiration date so that a collection of information is not out of compliance  with the Paperwork Reduction Act.

We found that SBA’s disaster business loan application forms generally  include the required elements, such as having an OMB control number,  valid expiration date, an estimate of how long it will take to complete the  form, and a statement notifying applicants that they are not required to  respond to the request for information if the form does not display a valid  OMB control number. We also observed from a demonstration that the  Electronic Loan Application disaster business loan application forms  include the OMB control number, expiration date, and a disclaimer that if  the OMB control number is missing, an applicant is not required to  complete the forms.

Although SBA’s disaster business loan forms generally are in compliance  with these Paperwork Reduction Act requirements, we identified three  instances of noncompliance. Consistent with OMB’s finding in its 2014  Information Collection Budget Report, we found an instance of  noncompliance when SBA’s Form 159D – Fee Disclosure and  Compensation Agreement was not submitted for OMB’s review prior to its  expiration date. SBA was aware of this violation, and to address it,  Records Management Division officials said that the program office  responsible for Form 159D instituted personnel and operational changes,  including weekly reviews of pending expirations, progress reports for  renewals in progress, and designation of individuals accountable for  Paperwork Reduction Act compliance. In addition, we found that SBA  Form 159D – Fee Disclosure and Compensation Agreement did not have  an expiration date and SBA Form 413D – Personal Financial Statement  did not include a statement informing applicants that they do not have to  complete a form that does not display a valid OMB control number. SBA  officials corrected these forms in October 2016.

SBA’s Records Management Division officials told us that it documents  any deficiencies in a memorandum to the appropriate program office and  directs that office to remedy the issue in consultation with other program  offices, if necessary. Records Management Division officials also said  that the program office resubmits the collection of information to the  division. Records Management Division officials added that no standard  time frames have been set for remediation because timing depends on  when the deficiency is identified and the nature and complexity of the  issue.

In addition to the Paperwork Reduction Act clearance process and the  related monitoring system, SBA has feedback mechanisms in place. The  federal internal control standards state that management should use  quality information to achieve its objectives. SBA uses two survey  instruments to solicit customer feedback from a sample of business loan  applicants and recipients (see app. III). According to SBA officials, SBA  uses the surveys, both administered by phone, to solicit input and  suggestions for improvements. First, SBA contracts with a third-party  group to administer the American Customer Satisfaction Index (ACSI)  survey. Second, SBA’s Customer Service Center conducts its own  customer satisfaction survey to solicit feedback from selected business  loan applicants and recipients, including suggestions for improving the  disaster loan process. One question from the Customer Service Center  questionnaire asks, “Based on your experience with the SBA, do you  have any suggestions for making the process easier?” According to SBA  officials, the collected suggestions undergo multiple levels of  consideration within SBA’s Continuous Improvement Process Board and  ODA’s Associate Administrator decides whether to implement a  recommendation. In addition to receiving suggestions from loan  applicants, the Continuous Improvement Process Board receives  suggestions from SBA employees.

section_title: SBA Plans to Continue Streamlining the Process, but Could Do More to Integrate and Clarify Available Information Resources
subsections: section_title: SBA Has Implemented Some Actions and Has Planned Others Intended to Reduce Burdens on Loan Applicants
paragraphs: Recent and planned actions for the disaster loan program, described in  SBA’s Fiscal Year 2015 Annual Performance Report, have focused on  promoting disaster preparedness, streamlining the loan process, and  enhancing online application capabilities (see table 2). According to the  report, SBA’s objectives with respect to disaster assistance are to deploy  its resources quickly, effectively, and efficiently in a manner that  preserves jobs and helps small businesses return to operation. The  actions SBA has taken or plans to implement are intended to achieve  these objectives.

Many of SBA’s recent and planned changes to the disaster loan program  described in its 2015 performance report incorporate various leading  practices intended to reduce paperwork burdens. We reviewed and  identified leading practices from the Hurricane Sandy Rebuilding Task  Force Report (2013), an OMB memorandum to agency heads (June  2012), and the Small Business Paperwork Relief Task Force Reports  (2003, 2004). These materials note the following leading practices,  among others:

Separating application tracks for business and home disaster loans:  As we previously reported, SBA implemented separate tracks in  October 2013.

Expediting approval of loan applications that meet minimum credit  score and other requirements: SBA revised its disaster loan program  regulations in April 2014 so that SBA now may consider an applicant’s  credit rather than business cash flow in assessing the applicant’s  repayment ability.

Using electronic communication and “fillable fileable” forms: SBA  introduced the online application capability in August 2008, where  loan applicants can complete and submit forms online, and SBA is  currently updating the system with more features.

Using “smart” electronic forms to assure data submitted meets  information system requirements: SBA’s online application portal  includes system checks that ensure information entries meet  formatting requirements. The portal also provides notices specifying  formatting requirements.

Further, SBA has reported that increased use of electronic loan  applications has reduced errors and loan-processing times. SBA has a  dedicated web portal for disaster loan assistance (available at  https://disasterloan.sba.gov/ela/, see app. IV, fig. 12) where disaster  victims can apply for a loan online and check on the status of a loan  application. According to SBA officials, recent enhancements to the web  portal include a feature that allows a loan applicant to check the status of  an application, including the application’s relative place in the queue for  loan processing. The web portal also includes a frequently asked  questions page, phone and email contacts to SBA customer service, and  links to other SBA information resources. An SBA official we interviewed  explained that information from electronic applications is imported directly  into the Disaster Credit Management System, instead of SBA staff  manually entering information from paper applications into the system. As  a result, SBA officials said, the agency has reduced the likelihood of  errors in loan applications, reduced follow-up contacts with loan  applicants, and expedited loan processing.

section_title: SBA Could Better Integrate Consistent Information about the Disaster Business Loan Process into Its Web Portal and More Fully Define Loan Terminology
subsections: section_title: Disaster Loan-Related Information Is Not Easily Accessible
paragraphs: SBA has published several written and electronic resources about the  disaster loan process, but much of this information is not easily  accessible to loan applicants and SBA’s resource partners from the  disaster loan assistance web portal. Available resources include the  following:

The disaster business loan application form (Form 5, see app. II, fig.  1) lists documents required for a loan application along with additional  information that may be necessary for a decision on the application.

SBA’s Fact Sheet for Businesses of All Sizes (see app. IV, fig. 13)  provides information about disaster business loans, including  estimated time frames, in a question-and-answer format. For  example, the fact sheet answers questions concerning collateral  requirements of disaster loans, information that must be submitted for  a loan, and the amount of time an applicant might expect to wait  before the application is approved or denied.

The 2015 Reference Guide to the SBA Disaster Loan Program and  three-step process flier (see app. IV, fig. 14 and 15) set out the three  steps of the loan process, required documents, and estimated time  frames.

SBA’s online Partner Training Portal provides disaster-loan-related  information and resources for SBDCs (available at  https://www.sba.gov/ptp/disaster; see app. IV, fig. 16). The training  portal includes two videos—one explaining the disaster loan process  and the other explaining the disaster assistance program—and three  documents that provide information on disaster preparedness, types  of disaster loans, and loan procedures.

However, SBA has not effectively integrated these resources into its  disaster loan assistance web portal, as much of this information is not  easily accessible from the web portal’s launch page. The federal  Guidelines for Improving Digital Services state that an agency should (i)  integrate its digital presence into its overall customer experience  strategies, and (ii) publish information in ways that make it easy to find,  access, share, distribute, and repurpose. Additionally, the Paperwork  Reduction Act has a broad requirement that an agency disseminate  information in a manner that is efficient, effective, and economical.  SBA’s web portal appears to serve as a one-stop shop where disaster  victims can apply for and access more information about loans, among  other things. However, when a user clicks on the “General Loan  Information” link in the web portal, it routes the user back to SBA’s main  website, and the web page featuring loan-related information contains a  menu of additional links. In particular, and as shown in figure 4, to access  the fact sheet, the reference guide, and the three-step process flier, a site  user may click on three successive links and then select from a menu of  15 additional links. Among the latter group of 15 links, the link for Disaster  Loan Fact Sheets contains further links to five separate fact sheets for  various types of loans. Similarly, to access the reference guide or the  three-step flier, the user must click on the Disaster Policies and  Procedures link, which is 1 of 15 available link selections.

In addition, key disaster loan information resources are not integrated into  SBA’s Partner Training Portal and SBDCs were unaware of key  resources. As mentioned earlier, SBA’s performance reporting indicates  that the agency shared the reference guide with resource partners. Most  SBDCs we interviewed were aware that SBA was promoting online  applications through the web portal and had assisted disaster victims in  completing online applications. However, at least half of the SBDCs we  interviewed were not aware of additional information resources. Among  the eight SBDCs we interviewed, four SBDCs were not aware of SBA’s  three-step process flier and five SBDCs were not aware of the Partner  Training Portal. Additionally, the Partner Training Portal does not include  the fact sheet, the reference guide, or the loan process flier. SBA officials  said that SBDCs that have not experienced a declared disaster in recent  years may not be aware of more recently developed information  resources because those SBDCs would not have encountered the need  for them. However, two of the four SBDCs we interviewed that were not  aware of the three-step process flier experienced a disaster during or  after 2014—which, according to SBA, was when the flier was created.

Although SBA has created and posted key disaster loan information  online, these efforts are not effectively integrated in a way that helps  users efficiently find needed information following a disaster. According to  SBA officials, SBA plans to incorporate updated information from the  three-step process flier on the Electronic Loan Application, but it does not  have a time frame for specific improvements. SBA officials also said that  disaster-loan information and resources are not prominently located on  SBA’s website because of the website’s layout and space constraints  arising from the agency’s other programs and priorities. However, officials  said that the website’s launch page includes a banner section that  prominently features recent news, including information related to major  disasters. But, SBA officials added that any information displayed on the  banner is temporary. Absent better integration of disaster business loan- related resources into SBA’s web portal and streamlined access to  business loan-related resources on SBA’s website and its Partner  Training Portal, loan applicants—and SBDCs assisting disaster victims— may not be aware of key information for completing disaster business  loan applications.

section_title: Disaster-Related Resources Do Not Consistently Feature Key Information
paragraphs: The contents of SBA’s disaster-loan-related resources do not consistently  feature key information about (1) the three-step loan process, (2)  documentation requirements and reasons for requiring such information,  and (3) estimated time frames for the loan process. Each resource  includes some of the information; however, none of the resources provide  all of the information and none include reasons or explanations for  documentation requirements (see table 3).

We found that business loan applicants reported confusion to SBDCs  about the overall loan process, required documentation, and time frames,  and inconsistent information from SBA may have contributed to these  issues. For example, according to SBDCs we interviewed as well as  responses to SBA and the ACSI surveys, some business loan applicants  found the loan process and required documentation confusing for the  following reasons:  Inconsistent information about loan application process.  According to the SBA 2015 Performance Report, SBA uses a “three- step process” communications strategy to provide a consistent  message to the public in promoting the disaster loan application  process. However, as previously mentioned, not all SBA disaster- related resources include information about the three-step process  and the consistency of information varies among information  resources (see table 3). Moreover, three SBDCs told us that business  loan applicants felt SBA did not clearly communicate parts of the  process involved in applying for disaster business loans. For example,  according to two of the three SBDCs, there were instances when  applicants who applied to SBA for a disaster business loan were told  to first register with the Federal Emergency Management Agency to  obtain a disaster number. The SBDCs stated that the applicants were  confused by directions from SBA indicating that such registration was  required. Based on our follow-up with SBA officials, SBA encourages  business loan applicants to also register with the Federal Emergency  Management Agency, but it is not required. However, the Partner  Training Portal’s Disaster Assistance Video conveys an inconsistent  message and seems to suggest that a disaster victim must first  register with the Federal Emergency Management Agency before  applying for a disaster loan.

Unexpected requests for additional documentation. One of the  three SBDCs told us of instances where applicants thought they had  provided all the required documentation, but received subsequent  requests from SBA for additional documentation. In a 2014 report on  disaster assistance, we found in interviews with SBDCs and local  business organizations that SBA’s follow-up requests for additional  documentation prolonged the application process and loan decision.  Furthermore, we observed that although the paper application form  includes a list of additional information that may be requested, the  Electronic Loan Application does not include a list of other information  an applicant may have to provide SBA in addition to the required  forms. Also, as of August 2016, the Electronic Loan Application did  not contain two disaster business loan forms: (1) SBA Form 159D –  Fee Disclosure and Compensation, and (2) SBA Form 1368 –  Additional Filing Requirements Economic Injury Disaster Loan, and  Military Reservist Economic Injury Disaster Loan. According to SBA  officials, SBA includes links to these two forms in follow-up letters sent  to disaster business loan applicants after they submit their loan  applications.

Lack of information about the reasons for required documents.

According to responses from SBA’s survey of loan applicants  provided by SBA, one survey respondent said that the loan process  required too much information from applicants when SBA could  access the same information elsewhere. The applicant cited that she  should not have to locate copies of her tax return when SBA can use  her signed tax transcript form to obtain tax information from the IRS.  Further, according to one SBDC we interviewed, applicants it assisted  did not understand why SBA requires applicants to submit both a  current tax return and complete an IRS tax transcript authorization  form. SBA officials said that tax transcripts do not provide all the  information contained in a tax return. Therefore, they need information  from transcripts and returns to make loan decisions. However, the  reasons why are unclear to applicants because none of the available  resources provide this explanation.

Consistent with comments provided by SBDCs, the loan application  process received the lowest satisfaction scores on the ACSI survey.  According to the ACSI survey results for 2012 through 2015, the loan  application process received business loan applicants’ and recipients’  lowest satisfaction scores of any SBA disaster loan program processes.  The SBA Disaster Loan Program processes surveyed in the ACSI are  application process, decision process, Customer Service Center, loan  closing, inspection process, SBA staff, and recovery center. In response  to questions about the application process, survey respondents were  least satisfied with the “amount of paperwork required to complete the  loan application” and “ease of attaining the information required to fill out  the application.” Moreover, based on the survey results, ACSI  recommended from 2012 to 2015 that SBA focus on improving the  application process as a means of increasing business loan applicants’  and recipients’ satisfaction with the process.

In addition, SBDCs reported and surveys found that applicants’  expectations about the time frames associated with the entire process  were unmet and available resources do not consistently inform applicants  about expected time frames.

Unmet expectations about time frame to apply for and receive  loans. Two SBDCs we interviewed told us that business applicants  commonly complained about how long it took to go through the loan  process and that it took too long to receive their loans. Two other  SBDCs suggested that SBA could provide more information about the  loan process to better manage applicants’ expectations. Specifically,  one SBDC suggested SBA could provide more information about  estimated time frames. Another SBDC said some of the applicants the  SBDC assisted expected a faster loan process, and many business  owners may start a loan application but never complete the  application because they cannot spare time away from their business  to collect all the required documents and to complete the loan  application forms. In addition, according to responses from SBA’s  survey of loan applicants provided by SBA, one survey respondent  suggested that the business loan process should require fewer and  shorter application forms. Another respondent said that the business  loan process is too complicated and too time-consuming, and the  respondent withdrew the loan application as a result.

Information about time frames not included in all resources. The  three-step process flier and the resource guide for businesses provide  estimates of expected time frames for the processing and closing  steps of the loan process. However, the Electronic Loan Application  and some other resources do not provide an applicant with any  estimated time frame of when the disaster business loan application  will be processed. The Electronic Loan Application does provide the  applicant with application status messages, such as “processing  application.” See appendix V for application status messages and  descriptions. According to SBA officials, SBA has updated its disaster  forecasting model and planning documents that enable SBA to better  estimate loan processing time frames based on the severity of a  disaster, the volume of expected loan applications, and other factors.

According to the ACSI survey results for 2012 through 2015, loan  applicants and recipients surveyed consistently rated the loan decision  process with the second-lowest satisfaction scores. In response to  questions about the decision process, survey respondents were least  satisfied with the “timeliness of the decision.” Based on the survey results,  ACSI recommended from 2012-2015 that SBA focus on improving the  loan decision process as a means of increasing applicants’ and  recipients’ satisfaction with the process.

The Paperwork Reduction Act and OMB state that agencies should  explain the collection and use of personal information and promote  transparency with the public. In particular, the Paperwork Reduction Act  has a broad requirement that an agency explains to the person receiving  an information collection the reasons for collecting the information and the  agency’s use of the collected information. Furthermore, according to  OMB’s directive on open government, transparency promotes  accountability by providing the public with information about government  activities. However, SBA’s paper and online resources do not provide  consistent information about the three-step loan process, required  documents and reasons for the requirements, and processing time  frames, which could be contributing to applicants’ confusion. According to  SBA officials, SBA’s customer service representatives working in disaster  areas provide applicants information about the loan process, including  explaining the three-step loan process and estimated time frames for  completing the process. SBA officials also added that they refer business  applicants to SBDCs for additional assistance in completing disaster loan  applications. However, as previously mentioned, we found that SBDCs  were not always well informed about information resources that explained  the disaster loan process. Further, business applicants who apply without  seeking assistance from SBA or SBDCs may see only SBA’s fact sheet,  reference guide, loan-process flier, or application forms. Absent more  consistent disaster loan-related information in each of the agency- produced paper and online resources, loan applicants and SBDCs may  not understand the disaster loan process, documentation requirements,  and time frames and may continue to find the loan process confusing.

section_title: Some Business Loan Applicants Are Confused about Finance Terminology
paragraphs: Our SBDC interviews indicate that some business loan applicants are  confused about the finance terminology and financial forms required in  the application, particularly the requirement that they submit a personal  financial statement. According to three SBDCs we interviewed, they  mentioned instances where business applicants had difficulty  understanding the parts of the loan application dealing with financial  statements and finance terminology; for example, there were applicants  who were not familiar with financial statements, did not know how to  access information contained 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, when applicants do not know how to create a  personal financial statement, the agency’s customer service  representatives direct applicants to SBDCs for help. Two of the three  SBDCs said these difficulties arise among business owners who do not  have formal education or training in finance or related disciplines—and  who are attempting applications during high-stress periods following  disasters.

Federal statute requires agencies to use clear and understandable  terminology. Specifically, the Plain Writing Act of 2010 requires that  federal agencies use plain writing in every document that they issue.  Plain writing is defined as clear, well-organized writing that follows best  practices appropriate for the intended audience. According to SBA  officials, although the agency does not provide a glossary that defines  finance terminology in loan application forms, the online application portal  has a “contextual help” feature that incorporates information from  application forms’ instructions to help applicants complete disaster loan  forms. Additionally, as previously stated, SBA officials said that there are  other resources, such as SBA customer service representatives and local  SBDCs, available to assist business loan applicants and to explain the  loan forms and key terms. As mentioned earlier, promoting disaster  preparedness among businesses is one of the strategies in SBA’s 2015  performance report and actions SBA has taken include holding disaster  preparedness webinars and conducting regional outreach. However,  these efforts may not offer sufficient assistance or reach all applicants.  Without explanations of finance terminology, loan applicants may not fully  understand the disaster business loan application requirements, which  may contribute to confusion in completing the financial forms.

section_title: Conclusions
paragraphs: Generally, lack of integration of resources into the disaster loan  assistance web portal, inconsistent information in written and online  resources, and undefined finance terminology on the loan application  have contributed to the burden of businesses applying for disaster loans.

In particular, disaster business loan applicants and resource partners may  not be aware of key information for completing disaster business loan  applications because key resource materials such as SBA’s fact sheet,  reference guide, and three-step process flier are not easily accessible  from the web portal. In addition, without consistent information about the  loan process, explanation of documentation requirements, and expected  time frames in SBA’s resource materials, loan applicants and resource  partners may continue to find the loan process confusing. Further, without  defining financial terminology in loan forms some applicants may not fully  understand the requirements of the application. A more integrated,  consistent, and clear dissemination of information by SBA would help  business disaster victims better access information about the disaster  loan process, better understand the loan document requirements and  expected time frames, and better understand the definition of loan  terminology, thus helping to reduce victims’ burdens in recovering from  disasters.

section_title: Recommendations for Executive Action
paragraphs: We are recommending the following three actions:  To help business disaster victims and resource partners better access  information about the disaster loan process, the Administrator of the  Small Business Administration should integrate information resources  such as the fact sheet, reference guide, and three-step process flier into  its disaster loan assistance web portal and Partner Training Portal in a  way that is more accessible to users.

To help reduce confusion about the disaster loan process and the time  frames applicants may experience, the Administrator of the Small  Business Administration should ensure the consistency of content across  its disaster loan process resources by including in these written and  online resources, as appropriate, the following: (1) the three-step process;  (2) the types of documentation SBA may request and the general reasons  why such information may be requested; and (3) estimates of loan  processing time frames applicants might experience and external factors,  such as the severity of a disaster, that may affect these time frames  using, for example, estimates from its forecasting and related planning  tools.

To further assist disaster business loan applicants, the Administrator of  the Small Business Administration should define technical terminology  related to financial statements and other finance terminology on the  disaster business loan application forms, in both electronic and paper  format. For example, in the online application portal, SBA could  incorporate a glossary in the “help” feature. Additionally, SBA could  include a glossary in the paper application, so that business applicants  who apply by mail can access the definitions as well as the general  reasons why such information may be requested.

section_title: Agency Comments
paragraphs: We provided a draft of this report to SBA for review and comment. The  SBA liaison—Program Manager, Office of Congressional and Legislative  Affairs—stated in an e-mail that SBA’s Office of Disaster Assistance  agreed with our recommendations. The SBA liaison also provided  technical comments in an e-mail, which we incorporated where  appropriate.

We are sending copies of this report to appropriate committees and the  Administrator of SBA. In addition, the report will be available at no charge  on the GAO website at http://www.gao.gov.

If you or your staff have any questions about 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 key contributions to this report  are listed in appendix VI.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The Recovery Improvements for Small Entities After Disaster Act of 2015  includes a provision for us to evaluate the steps that the Small Business  Administration (SBA) has taken to comply with the Paperwork Reduction  Act of 1995 in administering its Disaster Loan Program. Specifically, this  report examines (1) controls in SBA’s process for complying with the form  renewal requirements of the Paperwork Reduction Act in administering its  Disaster Loan Program, and (2) SBA’s recent and planned actions to  reduce the burden of business loan applicants for the Disaster Loan  Program. Although the processes we are evaluating apply to disaster  loans for homeowners and businesses, this report focuses on disaster  business loans for businesses. Additionally, SBA has divided the disaster  loan process into three steps: application, verification and loan  processing, and closing (see fig. 1). This report focuses on step 1, the  loan application process.

To examine the extent to which SBA has processes to implement and  monitor compliance with the Paperwork Reduction Act’s requirements in  administering its Disaster Loan Program and the effectiveness of the  processes and controls in ensuring the requirements are met, we  reviewed the act and Office of Management and Budget (OMB)  regulations to identify relevant requirements. We also reviewed SBA’s  policies and procedures, including the Forms Management Standard  Operating Procedures, to identify its processes for meeting Paperwork  Reduction Act requirements, and we assessed the processes against the  act and applicable federal internal controls. We also interviewed SBA  officials to understand SBA’s compliance with the act’s requirements and  the effectiveness of SBA’s controls.

Additionally, we reviewed each disaster business loan form to determine  if SBA’s disaster business loan application forms satisfied the Paperwork  Reduction Act requirements of having an OMB control number; valid  expiration date; an estimate of how long it will take to complete the form;  and a statement notifying applicants that if a form does not display a valid  OMB control number then applicants do not have to complete that form.

Specifically, we reviewed SBA Form 5 – Disaster Business Loan  Application; SBA Form 159D – Fee Disclosure Form and Compensation  Agreement; SBA Form 1368 – Additional Filing Requirements Economic  Injury Disaster Loan, and Military Reservist Economic Injury Disaster  Loan; and SBA Form 413D – Personal Financial Statement. For each  form, we also reviewed the form renewal package—OMB Form 83-I;  OMB Form 83-I supporting statement; and SBA Form 58—for SBA Form  5, Form 1368, and Form 413D, for years 2008, 2011, and 2014; and for  SBA Form 159D, for years 2009, 2013, and 2014. For information on how  an applicant would navigate the Electronic Loan Application portal to  submit a disaster business loan application, we received an in-person  demonstration of the Electronic Loan Application portal at SBA’s  headquarters.

To examine the extent to which SBA has developed plans or  implemented actions to further reduce the paperwork burden of disaster  business loan applicants, we reviewed SBA’s 2015 Performance Report  and other SBA documentation that set out recent and planned actions  intended to reduce burden or enhance loan processes for disaster  business loan applicants. Moreover, we reviewed and identified leading  practices intended to reduce paperwork burdens from the Hurricane  Sandy Rebuilding Task Force Report (2013), an OMB memorandum to  agency heads (June 2012), and the Small Business Paperwork Relief  Task Force Reports (2003, 2004). We also interviewed Office of Disaster  Assistance officials responsible for administering the Disaster Loan  Program to discuss recent and planned actions to reduce the paperwork  burden on disaster business loan applicants.

In addition, we conducted semi-structured interviews with Small Business  Development Centers (SBDC) to identify burdens faced by disaster loan  applicants and suggestions to improve such issues. We selected a  nongeneralizable sample of eight SBDCs to interview, based on which  counties in each of the four Census regions had the highest number of  approved disaster business loans for calendar years 2012 through April 1,  2016. Specifically, we associated each state within SBA’s 10 regions  with one of the four Census regions—Northeast, Midwest, South, and  West—which allowed us to have geographic diversity in the SBDCs we  interviewed. Within each Census region, we identified two counties with  the highest number of approved disaster business loans. In cases where  more than one county tied for the highest number of approved disaster  business loans, the county with the highest loan amount disbursed was  selected. In instances where a county had the two highest number of loan  approvals, the county with the third highest number of approved disaster  business loans was selected. To select the eight SBDCs to interview, we  used the city and zip code of the counties with the highest number of  approved disaster business loans to identify the SBDCs located either  within or nearby these counties. If a county with the highest number of  approved disaster business loans did not have an SBDC located within it,  we then selected the SBDC closest to the zip code receiving the highest  number of disaster business loan approvals. If a county had multiple  SBDCs located within it, we then looked at the zip code affected by the  disaster in the county and selected the SBDC closest to the zip code  receiving the highest number of disaster business loan approvals. Our  selections do not represent the views of other SBDCs that were not  included.

We also reviewed both SBA’s and the American Customer Satisfaction  Index’s (ACSI) customer satisfaction survey results. For analysis of SBA’s  customer satisfaction survey results, we obtained survey suggestions  submitted by disaster business loan applicants from June 2012 to March  2015. We selected this time period to be consistent with the time period  used in the selection of SBDCs. The results comprised a list of 19 survey  suggestions submitted by disaster business loan applicants and referred  to the Continuous Improvement Process Board for review. For analysis of  ACSI’s customer satisfaction survey results, we looked at ACSI’s 2012  through 2015 reports and identified the loan process areas that negatively  and positively affected survey respondent’s satisfaction with SBA’s  disaster business loan program and ACSI’s identified recommendations  for improvements. We determined that these data were sufficiently  reliable for the purpose of describing applicants’ experiences with the  disaster business loan application process.

We conducted this performance audit from February 2016 to November  2016 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.

section_title: Appendix II: Small Business Administration Disaster Business Loan Application Forms

section_title: Appendix III: SBA and ACSI Customer Satisfaction Surveys

section_title: Appendix IV: Small Business Administration Disaster Business Loan Resources

section_title: Appendix V: Small Business Administration Electronic Loan Application Notification Messages

section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Jill Naamane (Assistant Director),  Kun-Fang Lee (Analyst-in-Charge), Bethany Benitez, Tim Bober, William  R. Chatlos, Camille Henley, Lindsay Maple, Marc Molino, and Tovah Rom  made key contributions to this report.


Question-summary annotations: questions: question: How does the SBA reinforce compliance with the PRA?
answer: The Small Business Administration (SBA) process for complying with the Paperwork Reduction Act (PRA) includes a number of controls to help disaster business loan forms comply with the act and Office of Management and Budget (OMB) requirements (see figure).
child_questions: question: What steps does this process include?
answer: For example, SBA has a standard operating procedure that documents its clearance process; a requirement to solicit public comments; and a requirement that offices of Disaster Assistance, General Counsel, and Inspector General review submission packages for PRA clearance.

question: What steps has the SBA taken to improve this process?
answer: SBA surveys business loan applicants to solicit suggestions for improving the loan process. The disaster business loan forms also include a valid OMB control number, as required by PRA.

questions: question: What is the SBA's record regarding the disaster business loan process?
answer: SBA has implemented and planned actions to streamline the disaster business loan process, but the agency has not made loan-related information and requirements easily accessible or consistent, or defined key terms, contributing to applicants' burden. SBA's 2015 Performance Report set out the agency's recent and planned actions, including streamlining the loan process and enhancing online loan application capabilities.
child_questions: question: How do loan recipients typically access this materials?
answer: SBA has published written and electronic materials about the disaster loan process, but applicants cannot easily access these materials from SBA's dedicated disaster loan web portal, contrary to federal guidelines for improving digital services.

question: How do SBA's materials fail to help loan applicants?
answer: Also, SBA's materials provide inconsistent information on the process, required documents, and estimated processing time frames. Business loan applicants reported that they found the documentation requirements confusing and the application time frames unclear.

question: What do PRA guidelines state in regards to promoting transparency?
answer: PRA and an OMB directive on open government generally state that agencies should explain the collection and use of information and promote transparency by providing the public with information about government activities.
child_questions: question: How does the SBA fail to meet these guidelines?
answer: Similarly, some Small Business Development Centers told GAO that loan applicants have expressed confusion over undefined financial terminology in SBA's loan application, particularly terminology in the required personal financial statement.

question: How would meeting these guidelines likely benefit SBA and business disaster victims?
answer: Federal law requires agencies' forms be written using plain language that is appropriate for the intended audience. Improved integration of electronic resources and consistency of information in SBA's materials would help business disaster victims better access resources and understand the disaster loan process and expected time frames. Further, providing definitions of loan terminology can help reduce victims' confusion.

questions: question: What volume of disaster business loan applications does the SBA receive?
answer: According to SBA, the agency received more than 40,000 disaster business loan applications from fiscal years 2010 through 2014, and estimates that applicants spent on average a total of more than 25,000 hours per year filling out disaster loan application forms.
child_questions: question: How does PRA seek to ease disaster victims' burden?
answer: PRA requires agencies to minimize paperwork burden on individuals and small businesses.

question: What does the Recovery Improvements for Small Entities After Disaster Act of 2015 ask of GAO?
answer: The Recovery Improvements for Small Entities After Disaster Act of 2015 includes a provision for GAO to evaluate SBA's compliance with PRA.
child_questions: question: How does this report accomplish that goal?
answer: This report examines (1) controls in SBA's process for complying with PRA form renewal requirements in administering its disaster business loans, and (2) SBA's recent and planned actions to reduce burden for business loan applicants.