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

Letter

Background

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.

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

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.

Various Sources Cite Planning as a Critical Element in Helping Organizations Prepare for Potential Large-Scale Disasters

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.

SBA Did Not Engage in Comprehensive Disaster Planning Prior to Gulf Coast Hurricanes

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.

SBA Faced Logistical Challenges during its Initial Response to Gulf Coast Hurricanes

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.

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

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.

SBA Utilized a Variety of Outreach Approaches during the Gulf Coast Hurricanes, but Several Factors May Have Limited Their Effectiveness

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.

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

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.

SBA Has Initiated an Internal Review of Outreach Provided to Victims of the Gulf Coast Hurricanes

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.

Conclusions

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.

Recommendations for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Objectives, Scope, and Methodology

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.

Appendix II: Comments from the Small Business Administration

Appendix III: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

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.