The Gulf Coast hurricanes collectively represented the most costly natural disaster in recent U.S. history. As table 1 shows, the estimated property damage from these hurricanes exceeded $118 billion, nearly five times greater than the damage from the 1994 Northridge earthquake and more than two and one-half times greater than the damage from the 2004 Florida hurricanes. Hurricane Katrina was the first of these disasters, causing fatalities and damage in southern Florida in late August 2005 before striking the northern Gulf Coast region. This region received the brunt of the storm, including extensive damage and significant loss of life in Louisiana and Mississippi. Damage from Hurricane Katrina also extended into the Florida panhandle, Georgia, and Alabama and covered approximately 90,000 square miles—an area larger than the size of Great Britain. Hurricane Rita was the next disaster to strike the Gulf Coast region, making landfall near the Texas and Louisiana border on September 24, 2005, and causing a wide swath of damage from eastern Texas to Alabama, flooding some areas in Louisiana that had already been impacted by Hurricane Katrina about 1 month earlier. Hurricane Wilma was the last of these disasters to strike the region, making landfall in southern Florida on October 24, 2005, and inflicting widespread damage across the state. The federal government provides funding and assistance after disasters through a variety of agencies and programs. Congress created FEMA to coordinate 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 victim’s 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. Under a presidential disaster declaration, SBA disaster assistance staff members secure space within FEMA—established Disaster Recovery Centers and begin meeting with victims to explain the agency’s disaster loan process, issue loan applications and, if requested, assist victims in completing applications. Figure 1 illustrates SBA’s disaster loan process. During the application entry stage, SBA screens all incoming applications to determine if they are acceptable. In addition, SBA conducts a preliminary financial analysis of home loan applications to determine whether the applicant’s income falls below the agency’s minimum income thresholds or if repayment ability is evident based on a review of the applicant’s gross income and fixed debts. SBA declines home loan applicants that do not meet its minimum income requirements or demonstrate repayment ability. SBA also obtains a credit bureau report for business and home loan applicants, and SBA may decline an applicant based on information contained in the report. SBA refers to denials made during the application entry stage as preprocessing declines. SBA intended for these declines to eliminate delays in notifying applicants about loan denials. SBA will refer most home loan applicants denied a loan to FEMA for possible grant assistance under a presidential disaster declaration. After the application entry stage, applications move to the loss verification stage, and SBA staff members scan application documents into DCMS. During the loss verification stage, loss verifiers conduct on-site damage inspections for physical disaster loan applications to estimate the cost of restoring damaged property to predisaster condition. Loss verifiers use tablet personal computers with software tailored to complete and submit reports electronically into DCMS. The verified loss becomes the basis for the loan amount. Once the loss verification is complete, an application moves to the application processing stage, where loan officers check for duplication of benefits and assess the applicant’s credit history and ability to obtain credit elsewhere. Loan officers also examine other applicant eligibility criteria, including compliance with child support obligations and history on other federal debt, such as student loans. Loan officers use a financial analysis tool within DCMS to determine if the applicant has the ability to repay the loan. As with preprocessing declines, SBA generally refers home loan applicants denied a loan in application processing to FEMA for possible grant assistance under presidential disaster declarations. For secured loans, legal staff members review the draft loan authorization and agreement for sufficiency of collateral instruments and other legal concerns. They also create a loan closing checklist—a list of the requirements necessary to generate the loan closing and other legal documents. Attorneys enter a legal concurrence into DCMS, which obligates the loan funds through an interface with SBA’s accounting system. Legal support staff members prepare closing documents and mail them to the applicant or nearest Disaster Recovery Center. SBA can make a maximum initial disbursement, without collateral, of up to $10,000 for physical disaster loans and $5,000 for economic injury disaster loans, once the agency receives signed closing documents from the applicant. SBA can make a maximum initial disbursement of up to $25,000 for physical disaster loans with collateral—preferably real estate. SBA generally makes subsequent disbursements on physical disaster loans based on the applicant’s needs and how they spent prior disbursements. DCMS replaced SBA’s largely manual, paper-based loan process and its Automated Loan Control System (ALCS), which it had used since the early 1990s. ALCS enabled SBA to track the movement of paper loan application files from one stage of the process to another, but the manual loan process required the movement and storage of large volumes of paper. In December 1998, SBA began planning for a replacement disaster loan system. SBA purchased a commercial-off-the-shelf package as the foundation for DCMS in 2003 and had the package customized. SBA intended for DCMS to help it move toward a paperless processing environment by automating many of the functions staff members had performed manually, such as obtaining FEMA referral data and credit bureau reports, as well as completing and submitting loss verification reports from remote locations. SBA began a phased implementation of DCMS in November 2004 at its former Niagara Falls Disaster Area Office (DAO). In January 2005, SBA began using DCMS to process loan applications for all new disaster declarations and by March 2006, SBA completed the migration of all data for disaster loan applications processed since 2000 from ALCS to DCMS. According to SBA, the cost for planning, acquiring, implementing, and operating DCMS totaled about $32 million through April 2006. See appendix II for a more detailed discussion of SBA’s acquisition and implementation of DCMS. We identified several factors that affected SBA’s ability to provide timely disaster assistance, including a large volume of applications that exceeded any previous disaster. In addition, although DCMS allowed SBA to streamline the disaster loan process, SBA focused only on its historical experience and did not consider the possibility of a single or series of disasters of the magnitude of the Gulf Coast hurricanes when planning the system’s maximum user requirements. SBA’s limited planning contributed to insufficient DCMS user capacity, which restricted the number of staff that could access the system and process the large volume of applications in a timely manner. Further, SBA did not completely stress test DCMS before implementation to help ensure that it could function at its maximum user capacity and thus did not detect that the wrong processors had been installed by its hosting contractor and that the system could not support planned capacity. As a result of these and other processing-related factors, SBA experienced significant backlogs and delays in processing applications. Overall, SBA processed disaster loan applications in 74 days, on average, as of May 27, 2006, compared with its goal of within 21 days. According to SBA officials, the large volume of disaster loan applications it processed for victims of the Gulf Coast hurricanes was a significant challenge. The volume of applications associated with these hurricanes greatly exceeded any disaster in SBA’s history. As table 2 shows, as of May 27, 2006, SBA had issued more than 2.1 million applications to victims affected by the Gulf Coast hurricanes. This represented almost four times as many applications as SBA issued to victims of the Northridge earthquake—the single largest disaster SBA had previously faced. In addition, our analysis showed that SBA received a large influx of applications during the initial months following Hurricane Katrina—at the same time that SBA hired and trained a large number of temporary staff to process applications received from victims of the disasters.