In response to budget reductions in the 1990s, SBA streamlined its field structure by downsizing the 10 regional offices, shifting its workload to district or headquarters offices, eliminated most of the region’s role as intermediate management layer between headquarters and the field (district offices), and created the Office of Field Operations to assume the intermediary role. Prior to this restructuring, SBA had changed its service delivery model—moving from making loans directly to small businesses to guaranteeing loans made by commercial lenders. SBA previously had provided loans directly to small businesses largely through its district offices. SBA’s 7(a) loan guaranty program exemplifies how the service delivery model changed. The program has several delivery methods—such as the certified and preferred lender programs—in which SBA has delegated different functions to lenders. For instance, certified lenders must perform a thorough credit analysis on the loan application packages they submit to SBA so that SBA can heavily rely on that analysis in making SBA’s credit and eligibility decisions, thereby shortening the time for SBA loan processing. Preferred lenders have delegated authority to make SBA- guaranteed loans, subject only to a brief eligibility review and assignment of a loan number by SBA. SBA provides final approval for loans made under the regular 7(a) program for loans made by lenders who have not been approved as certified or preferred lenders. SBA has 68 district offices that operate as the frontline provider or conduit of SBA services and programs. Specifically, district offices provide counseling and training services to individuals or businesses that aid in the formation, management, financing, or operation of a small business enterprise. District offices provide information on and promote SBA products to lending partners, the small business community, and groups such as chambers of commerce and trade associations. Finally, district offices are charged with completing statutorily mandated reviews, such as section 8(a) program participant reviews that ensure participants continue to qualify for the program and are meeting program requirements. When we reported on SBA in 2003, the agency had started or was planning transformation efforts to better align resources and functions with the changed organizational structure. The transformation effort was to be done in three phases that included two key initiatives. We reported on the first phase of these efforts. The first initiative focused on changing the role of district offices (through a pilot in three district offices) to emphasize outreach to small businesses about SBA’s products and services and linking these businesses to the appropriate resources, including lenders. For instance, SBA provided training to employees on marketing and outreach, developed new job descriptions for its marketing and outreach specialist positions, and reorganized staff in the offices. However, we found that budget constraints impeded work on this initiative and could continue to do so. We also found that the agency’s budget requests for transformation were inconsistent and lacked a detailed plan that showed priorities and linked resources to desired results. The second initiative focused on centralizing loan functions to improve efficiency and consistency of the loan approval, guaranty purchase, and liquidation processes for SBA’s 7(a) loan program. In March 2003, the liquidation center in Santa Ana, California, that typically worked on disaster loans began a pilot program to process new 7(a) liquidations and guaranty purchase cases from the three pilot district offices. According to SBA, the centralization achieved processing efficiencies. In phases two and three of its transformation, SBA had planned to establish a new 7(a) liquidation and guaranty purchase center near Washington, D.C., and expand the centralization initiative until all of the loan functions performed by its 68 district offices were centralized. However, we found that SBA’s centralization efforts also could be impeded by the challenge of trying to ensure that job realignments and relocations from multiple field offices would result in having experienced staff at the centralized locations. We also noted that relocations could prove disruptive for employees by decreasing morale and productivity and, thus, could negatively affect SBA’s operations. Between 2004 and 2006, SBA created two centers to conduct work that had been previously performed in the district offices. As part of their respective missions, these centers provide assistance and oversight, as necessary, to lenders. Specifically, the NGPC in Herndon, Virginia, processes guaranty purchase requests and assists lenders during loan liquidation and the Standard 7(a) Loan Guaranty Processing Center (operating out of two locations in Citrus Heights, California, and Hazard, Kentucky) has responsibility for processing 7(a) loan guaranty applications for lenders who have not been approved as preferred lenders. SBA’s workforce has declined significantly since the 1990s. During the restructuring in the 1990s, SBA’s workforce decreased from over 3,800 employees to about 3,100 employees—a decrease of about 19 percent. Between 2000 and 2007, when additional restructuring occurred, SBA’s workforce decreased further by about 26 percent. As of September 2007, SBA had 2,166 employees. Our 2003 report noted that transforming an organization is challenging. We further concluded that while SBA had made progress with its endeavors, weaknesses we identified in SBA’s approach could be mitigated by using the key practices discussed in the report. Moreover, comprehensive and strategic planning would minimize challenges, including problems with employee morale and productivity. In particular, we said that more two- way communication, transparency, and employee involvement would improve the effort as the agency moved forward with transformation. Accordingly, we made recommendations related to how SBA could use the key practices to increase the potential for a successful transformation. We discuss our recommendations related to best practices, including actions taken by SBA, in this report. SBA has made progress in applying key practices to implement change and has begun addressing remaining employee concerns about involvement and continued leadership commitment. SBA’s current leadership has emphasized transparency and communication. Additionally, it refocused agency priorities with a new performance management system, which prioritizes agency goals and links them to operating plans for offices, performance scorecards, and employee performance plans. SBA also has made efforts to solicit employees’ ideas and feedback and has begun to examine employees’ continued concerns about their involvement in decisions that affect their work. Finally, some SBA employees expressed concerns about the commitment of future leadership to the current initiatives, but senior career officials said that they planned to continue positive efforts. SBA’s current leadership has emphasized transparency and communication, addressing our prior recommendation that the agency improve its communication strategy. In 2003, during the early stages of its transformation, we made this and five other recommendations to SBA because we found the agency’s transformation plans were not transparent enough to allow related progress to be tracked and frequent two-way communication was lacking within SBA (see table 1). In July 2006, 3 years after transformation began and following the unsuccessful outcome of some transformation initiatives and other agency challenges that we discuss elsewhere in this report, SBA underwent a change in leadership with the appointment of a new Administrator. Under its new Administrator, SBA’s leadership took steps to increase transparency in the agency’s actions and improve its communication efforts. For fiscal year 2008, SBA developed a comprehensive communications plan that addressed challenges from the previous year with regard to negative reports about its disaster program, primary loan program, and other aspects of the agency. The plan included strategies for improving internal and external communications and detailed steps for making these improvements. It also assigned responsibility for each communication area such as SBA’s Web site, marketing, and internal communications to specific individuals within SBA’s communications office. Senior leaders at SBA acknowledged that effective communication had become a key area of focus when the Administrator began his term, and identified communication deficiencies. When we met with managers and staff in SBA’s district offices, many told us that under new leadership, agencywide communication had improved significantly and that employees were more informed about ongoing agency initiatives. Both managers and staff attributed these improvements to the Administrator’s commitment to transparency and communication, noting that he had personally taken steps to directly communicate agency plans and updates to all employees. In previous work reviewing practices that empowered and involved federal employees, we noted that top leadership commitment is crucial to instilling a common vision across the organization and creating an environment that is receptive to innovation. SBA officials told us that, early in his term, the Administrator had visited the district offices and informed employees that they could contact him directly by e-mail, and in two of the locations that we visited, district directors told us that employees had communicated with the Administrator. The Administrator also continued town hall meetings, as the previous Administrator had done, and implemented video broadcast meetings and messages that were accessible to all employees, including those in the field. In addition to the Administrator’s individual efforts, SBA has used e-mail and conference calls to improve its internal communications. For example, employees said that SBA distributes agencywide e-mails on procedural notices. Regular conference calls also provide headquarters and field employees with opportunities to share information. For example, the Office of Field Operations—which acts as a liaison between headquarters and the field—participates in a weekly conference call with the district offices that various program offices in headquarters also sometimes participate in, and the program offices hold conference calls with field employees who work in those areas. On the local level, the district offices also participate in weekly regional conference calls with their respective regional Administrators. As part of its efforts to improve communications specifically between headquarters and the field, SBA also developed a 10-member field advisory council (FAC), comprising one district director from each region, which gives district office management an opportunity to communicate field issues and concerns directly to headquarters. The FAC’s purpose is to provide input and feedback directly to the Administrator and senior management regarding the implementation of agency policy and programs on operations in the field level and on SBA’s customers.