As of June 2009, SBA fully addressed requirements for 13 of 26 provisions of the Act; partially addressed 8; and took no action on 5 that are not applicable at this time (see table 1). For the 13 provisions SBA fully addressed, the agency’s actions included putting in place a secondary facility in Sacramento, California to process loans during times when the main facility in Fort Worth, Texas is unavailable, making improvements to DCMS to track and follow up with applicants, and expanding its disaster reserve staff from about 300 to more than 2,000 individuals. Furthermore, according to SBA and our review, 5 provisions require no action by SBA at this time because they are discretionary or additional appropriations are needed before SBA can satisfy the Act’s requirements. SBA permitted to mke economic injry disaster lo to nonprofit. SBA must ensure it disaster assnce progr re coordinted to the mximm extent prcticable with FEMA progr. Better public reness of disaster decltion, ppliction period, nd cretion of rketing nd otrech pln. SBA must condct dy looking t the contency etween ndrd operting procedre nd regtion of the Disaster Lon Progrm. SBA increased lomont from $10,000 to $14,000 withot requiring collterl. SBA authorize privte contrctor to process disaster lo nd coordinte effort with IRS to expedite lon processing. SBA must develop, implement, or mintin centrlized informtion tem to trck nd follow p with disaster lopplicnt. SBA i authorized to increase the deferment period of lo, but the deferment my not exceed 4 ye. SBA must pt in plce econdry fcility for processing disaster lo in case the primry fcility i ilable. SBA cn not require the orrower to pny non-mortized mont for the firt 5 ye fter repyment egin. SBA i authorized to mke economic injry disaster lo in cas of ice torm nd lizzrd. SBA must develop nd implement jor disaster repone plnd condct disaster imtion exercit least once every 2 ye. SBA musassign n individual the disaster plnning reponilitie nd report to Congress. SBA hold ensure tht the ner of fll-time equivlent ODA employee not fewer thn 800 nd in the disaster cdre not fewer thn 1,000. SBA must develop, implement, or mintin comprehenive written disaster repone plnd pdte the plnnually. SBA must develop long-term pl to ecre sufficient office ce to ccommodte n increased workforce in time of disaster. SBA my not rely olely on the lopplicnt’ us as jor rce of employment prior to the disaster to qualify for disaster lo eyond the crrent tory limit. Mximm disaster lomont increased from $1.5 to $2 million. SBA may uarantee any urety aaint loss on a bid, payment, performance, or ancillary bond on any work order or contract that at the time of the bond execution doe not exceed $5 million. If the Preident declre jor disaster, SBA my declre eligiility for dditionl disaster assnce. SBA permitted to mke economic injry disaster lo to eligile ll business concern locted nywhere in the US (inclding oide the disaster re) when the SBA declre eligiility for dditionl disaster assnce. SBA must eablind implement Privte Disaster Assnce Progrm. SBA my guantee timely pyment of principnd interet on privte disaster lossued to eligile ll business nd homeowner within n eligile disaster re. SBA must eablin Immedite Disaster Assnce Progrm to provide immedite ll dollr lo throgh privte lender. SBA must eablin Expedited Disaster Assnce Business Lon Progrm. SBA i llowed to intitte progrm to refinnce Glf Coast disaster lo resulting form Hrricne Ktrin, Rit, or Wilm p to mont no greter thn the originl lon. SBA mussubmit report to Congress on disaster assnce. Addressed (initil or ongoing) or dedline met Prtilly ddressed or ome dedline met Not ddressed or missed dedline Not pplicable ecause no ction i needed to e tken SBA t thi time, de to proviion’ dicretionry nre. The Act requires SBA to issue regulations for these provisions. SBA has not yet issued an updated DRP. While SBA has taken some steps toward implementing the Act, the agency still needs to take additional steps to completely address 8 provisions. According to SBA officials, the agency has not yet completely addressed some provisions that require new regulations because to do so, the agency must make extensive changes to current programs or implement new programs––such as the Immediate and Expedited Disaster Assistance Programs––to satisfy requirements of the Act. These programs, which require participation of private lenders, would be designed to provide businesses with access to short-term loans while they are waiting for long- term assistance. Moreover, as required by the Act, SBA has not issued an update of its comprehensive DRP that reflects recent changes resulting from the Act’s requirements, as well as SBA’s own reform efforts. Delays in updates to the DRP limit the agency’s ability to adequately prepare for and respond to disasters. Also, SBA has not fully addressed the requirement for providing region-specific marketing and outreach and ensuring the information is made available to SBDCs and other local resources. We consistently heard from regional entities, such as SBDCs and emergency management groups, about the need for more up-front information on SBA’s Disaster Loan Program and their expected roles and responsibilities in disaster response efforts. By taking such actions, SBA could leverage the efforts and capacity of SBDCs, as well as state and local emergency management agencies, and ensure that it and they will be better prepared for future events, especially in disaster-prone areas. Furthermore, the Act established multiple new reporting requirements and while SBA has addressed some of these, the agency has failed to comply with the Act and issue a first annual report on disaster assistance––which was due in November 2008. Specifically, the Act requires that SBA report annually on the total number of SBA disaster staff, major changes to the Disaster Loan Program (such as changes to technology or staff responsibilities), a description of the number and dollar amount of disaster loans made during the year, and SBA’s plans for preparing and responding to possible future disasters. Failure to produce annual reports on schedule can lead to a lack of transparency on the agency’s progress in reforming the program. Additionally, 9 provisions set forth in the Act are subject to deadlines, which the agency has had limited success in meeting. The agency also has not developed a plan with expected time frames for addressing the remaining requirements. SBA’s not providing reports to Congress and not having an implementation plan in place for addressing the remaining requirements can lead to a lack of transparency about the agency’s Disaster Loan Program, program improvement, and capacity to reform the program, as well as its ability to adequately prepare for and respond to disasters. SBA’s initial response following the 2008 Midwest floods and Hurricane Ike aligned with major components of its DRP, such as infrastructure, human capital, information technology, and communications. Additionally, individuals to whom we spoke affected by both disasters considered the agency’s overall performance somewhat positive, but believed the disaster loan process could be improved. In May 2008, floods devastated 85 counties in Iowa (one of several states affected) and in September 2008, Hurricane Ike devastated 50 counties in Texas. SBA and SBDC officials, state and local representatives, private- entity officials, and business owners in Iowa and Texas told us that in the days immediately following the disasters, SBA’s Office of Disaster Assistance staff reported to the affected areas and began providing needed disaster assistance. These individuals also said that SBA staff provided outreach and public information about its Disaster Loan Program; distributed application information; assigned knowledgeable customer service representatives to various Disaster and Business Recovery Centers; and assisted in the initial application process by answering questions, providing guidance, and offering one-on-one help––as outlined in SBA’s DRP. In addition, our review of SBA’s 2008 Disaster Loan Program Customer Satisfaction Survey also showed that respondents were somewhat satisfied with the assistance SBA provided during other recent disasters. However, both the individuals we interviewed and survey results indicated areas for improvement and opportunities to increase satisfaction with SBA’s disaster loan process. For example, individuals we interviewed and survey responses pointed to concerns about the amount of paperwork required to complete SBA’s disaster loan application and the timeliness of loan disbursements. Also, some business owners said they had to provide copies of 3 years of federal income tax returns, although they had signed an Internal Revenue Service (IRS) form 8821—Tax Information Authorization—which allows SBA to get tax return information directly from IRS. To address these concerns, the individuals we interviewed suggested several changes to the program, such as eliminating the requirement that business loan applicants provide copies of IRS tax records; providing partial disbursements earlier in the process; using bridge loans to help ensure disaster victims receive timely assistance; and involving SBA, SBDCs, and state and local officials in joint pre-planning and disaster preparedness efforts. Though SBA officials told us they have been taking steps to improve the application process, these steps and improvement efforts were not documented. In addition, we found that while SBA conducts an annual customer satisfaction survey, the agency does not appear to incorporate this feedback mechanism into its formal efforts to continually improve the application process. Furthermore, SBA does not appear to have a formal process for addressing identified problem areas and using this experience to improve the application process for future applicants. By establishing such a process to address identified problem areas, SBA could better demonstrate its commitment to improving the Disaster Loan Program. As discussed in our report, while SBA has made progress, the agency has missed opportunities to further improve its Disaster Loan Program, and in particular improve the application process for future applicants. In our report, we made five recommendations to facilitate SBA’s progress in meeting and complying with requirements of the Act and improve the Disaster Loan Program. Specifically, we recommended that the Administrator of SBA: (1) develop procedures for regional entities that would enable SBA to meet all region-specific requirements of the Act and ensure regional entities, such as SBDCs, have this information and other Disaster Loan Program information readily available prior to the likely occurrence of a disaster; (2) complete the first annual report to Congress on disaster assistance and adhere to the time frame for subsequent reports; (3) expeditiously issue an updated DRP that reflects recent changes resulting from the Act’s requirements, as well as SBA’s own reform efforts; (4) develop an implementation plan and report to Congress on the agency’s progress in addressing the requirements of the Act, including milestone dates for completing implementation; and (5) develop and implement a process to address identified problems in the disaster loan application process for future applicants. SBA generally agreed with our recommendations and stated the agency’s plan to incorporate them into its ongoing efforts to implement the Act and improve the application process. Specifically, SBA plans to expand its outreach efforts to ensure the public in all regions of the country are more aware of SBA disaster assistance programs before a disaster strikes. SBA is also planning to submit both the required annual report, and the 2009 revision to its DRP to Congress by November 15, 2009. Additionally, SBA officials said the agency has plans to develop an implementation plan for completion of the remaining provisions. Finally, in response to our recommendation on the application process, SBA cited ongoing efforts since 2005 to improve its application process, such as the electronic loan application, and said the agency has plans to continue its improvement efforts and make them an ongoing priority. However, SBA did not say how it would implement a formal process to address identified problem areas in the disaster loan application process. Madam Chairwoman, this concludes my prepared statement. I would be pleased to respond to any questions you or other Members of the Committee may have. For further information on this testimony, please contact William B. Shear at (202) 512-8678 or ShearW@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Kay Kuhlman, Assistant Director; Michelle Bowsky, Beth Faraguna, and Alexandra Martin-Arseneau. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: This testimony discusses our work on reforms made to the Small Business Administration's (SBA) Disaster Loan Program and the impact those reforms had following recent disasters. SBA plays a critical role in assisting the victims of natural and other declared disasters. SBA provides financial assistance through its Disaster Loan Program to help homeowners, renters, businesses of all sizes, and nonprofits recover from disasters such as earthquakes, hurricanes, and terrorist attacks. Since the agency's inception in 1953, SBA has approved more than $46 billion in disaster loans for homeowners, businesses, and nonprofit organizations. After the 2005 Gulf Coast hurricanes (Katrina, Rita, and Wilma), SBA faced an unprecedented demand for disaster loans, while also being confronted with a significant backlog of applications; therefore, hundreds of thousands of loans were not disbursed in a timely way. Many criticized SBA for what was perceived to be a slow and confusing response to the disasters and one that exposed many deficiencies in the agency's Disaster Loan Program and demonstrated the need for reform. For example, as we stated in our February 2007 report, SBA did not engage in or complete comprehensive disaster plans before the Gulf Coast hurricanes, and this limited logistical disaster planning likely contributed to the initial challenges the agency faced in responding to the 2005 hurricanes. As a result, Congress and SBA agreed that the program needed significant improvements. Since then, SBA has taken several steps to reform its Disaster Loan Program which include creating an online loan application, increasing the capacity of its Disaster Credit Management System (DCMS), and developing a Disaster Recovery Plan (DRP). In June 2008, Congress enacted the Small Business Disaster Response and Loan Improvements Act (Act) to expand steps taken by SBA and require new measures to ensure that SBA is prepared for future catastrophic disasters. While SBA has taken some steps toward implementing the Act, the agency still needs to take additional steps to completely address 8 provisions. According to SBA officials, the agency has not yet completely addressed some provisions that require new regulations because to do so, the agency must make extensive changes to current programs or implement new programs--such as the Immediate and Expedited Disaster Assistance Programs--to satisfy requirements of the Act. These programs, which require participation of private lenders, would be designed to provide businesses with access to short-term loans while they are waiting for long-term assistance. Moreover, as required by the Act, SBA has not issued an update of its comprehensive DRP that reflects recent changes resulting from the Act's requirements, as well as SBA's own reform efforts. Delays in updates to the DRP limit the agency's ability to adequately prepare for and respond to disasters. Also, SBA has not fully addressed the requirement for providing region-specific marketing and outreach and ensuring the information is made available to Small Business Centers (SBDCs) and other local resources. We consistently heard from regional entities, such as SBDCs and emergency management groups, about the need for more up-front information on SBA's Disaster Loan Program and their expected roles and responsibilities in disaster response efforts. By taking such actions, SBA could leverage the efforts and capacity of SBDCs, as well as state and local emergency management agencies, and ensure that it and they will be better prepared for future events, especially in disaster-prone areas. Furthermore, the Act established multiple new reporting requirements and while SBA has addressed some of these, the agency has failed to comply with the Act and issue a first annual report on disaster assistance--which was due in November 2008. Specifically, the Act requires that SBA report annually on the total number of SBA disaster staff, major changes to the Disaster Loan Program (such as changes to technology or staff responsibilities), a description of the number and dollar amount of disaster loans made during the year, and SBA's plans for preparing and responding to possible future disasters. Failure to produce annual reports on schedule can lead to a lack of transparency on the agency's progress in reforming the program. Additionally, 9 provisions set forth in the Act are subject to deadlines, which the agency has had limited success in meeting. The agency also has not developed a plan with expected time frames for addressing the remaining requirements. SBA's not providing reports to Congress and not having an implementation plan in place for addressing the remaining requirements can lead to a lack of transparencyabout the agency's Disaster Loan Program, program improvement, and capacity to reform the program, as well as its ability to adequately prepare for and respond to disasters. SBA's initial response following the 2008 Midwest floods and Hurricane Ike aligned with major components of its DRP, such as infrastructure, human capital, information technology, and communications. Additionally, individuals to whom we spoke affected by both disasters considered the agency's overall performance somewhat positive, but believed the disaster loan process could be improved.