    Small Business Administration: Current Structure Presents
    Challenges for Service Delivery (26-OCT-01, GAO-02-17).

    GAO's recent performance and accountability series report on the
    Small Business Administration (SBA) described major management
    challenges and program risks to efficient delivery of services.
    However, GAO's report did not address how well SBA's organization
    was aligned to achieve its mission; that is, the integration of
    organizational components, activities, core processes, and
    research to support efficient and effective achievement of
    outcomes. GAO found that SBA's current structure contributes to
    the challenges SBA faces in delivering services to the small
    business community. In particular, ineffective lines of
    communication; confusion over the mission of district offices;
    complicated; overlapping organizational relationships; and a
    field structure not consistently matched with mission
    requirements combine to impede the effective deliver of services.
    Restructuring efforts of other federal agencies provide a
    framework and a set of steps and considerations that may prove
    useful in addressing the organizational alignment issues present
    in SBA's current structure. Efforts at other agencies also
    demonstrate the need for buy-in from both internal and external
    stakeholders and the importance of agency efforts to consider the
    human impact of restructuring activities, including closure of
    field offices.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-02-17
        ACCNO:   A02378
      TITLE:     Small Business Administration: Current Structure Presents
    Challenges for Service Delivery
         DATE:   10/26/2001
      SUBJECT:   Performance measures
    	     Agency missions
    	     Strategic planning
    	     Federal agency reorganization
    	     Small business
    	     Senior Executive Service
    	     SBA 8(a) Business Development Program

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    GAO-02-17

    Report to Congressional Committees

    United States General Accounting Office

    GAO

    October 2001 SMALL BUSINESS ADMINISTRATION

    Current Structure Presents Challenges for Service Delivery

    GAO- 02- 17

    Page i GAO- 02- 17 Small Business Administration Letter 1

    Results in Brief 2 Background 2 Objectives, Scope, and Methodology 5 SBA
    Staff Identified Organizational Problems 6 Restructuring Efforts of Other
    Federal Agencies Provide a

    Framework for SBA Managers 19 Observations 21 Agency Comments 22

    Appendix I Legislatively Mandated Programs and Offices in SBA 23

    Appendix II Legislatively Mandated Staff Positions at SBA 26

    Appendix III SBA Field Locations Visited 27

    Appendix IV Comments From the U. S. Business Administration 29

    Figures

    Figure 1: SBA Headquarters Organization Chart 4 Figure 2: SBA Workforce
    1992- 2000 5 Figure 3: SBA Former Headquarters- to- Field Communication

    Model With Fully Staffed Regional Offices 7 Figure 4: Current SBA
    Headquarters- to- Field Communication

    Model 9 Figure 5: SBA District Office- to- Small Business Interaction 11
    Figure 6: Organizational Relationships Between SBA Headquarters

    and Field Units 16 Figure 7: SBA Offices and Resource Partners in the United
    States 18 Contents

    Page 1 GAO- 02- 17 Small Business Administration

    October 26, 2001 The Honorable Donald A. Manzullo Chairman Committee on
    Small Business House of Representatives

    The Honorable Christopher S. Bond Ranking Minority Member Committee on Small
    Business and Entrepreneurship United States Senate

    Our recent performance and accountability series report on the Small
    Business Administration (SBA) described major management challenges and
    program risks the agency faces to efficient delivery of services. 1 One
    important management area that our report did not address was how well SBA?s
    organization was aligned to achieve its mission; that is, the integration of
    organizational components, activities, core processes and resources to
    support efficient and effective achievement of outcomes. Believing that
    organizational alignment can be an important factor in determining an
    agency?s efficiency and ability to administer its programs, you requested
    that we identify and describe (1) SBA?s current organizational alignment and
    issues it poses in SBA?s ability to meet its mission and (2) information SBA
    should consider in determining if and how to reorganize. In a briefing with
    your staff on May 4, 2001, we presented preliminary information on
    challenges SBA faces in its current alignment and identified issues to
    consider if its leadership decides to undertake an organizational
    realignment. This report documents our briefing and, as requested, provides
    information on past legislation that mandates certain aspects of SBA?s
    current structure and outlines a proposed framework for SBA to use if it
    considers restructuring the agency.

    1 Major Management Challenges and Program Risks: Small Business
    Administration

    (GAO- 01- 260, Jan. 2001).

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 02- 17 Small Business Administration

    SBA?s current structure contributes to the challenges SBA faces in
    delivering services to the small business community. In particular,
    ineffective lines of communication; confusion over the mission of district
    offices; complicated, overlapping organizational relationships; and a field
    structure not consistently matched with mission requirements combine to
    impede the efforts of SBA staff to effectively deliver services. Among the
    causes of SBA?s structural problems are past realignment efforts during the
    mid- 1990s that changed how SBA performed its functions but left aspects of
    the previous structure intact, congressional influence over the location of
    field offices and centers, and legislative requirements such as specified
    reporting relationships.

    Restructuring efforts of other federal agencies provide a framework and a
    set of steps and considerations that may prove useful to SBA managers if
    they decide to address the organizational alignment issues present in SBA?s
    current structure. The realignment of the Federal Emergency Management
    Agency, for example, demonstrated the importance of tying organizational
    realignment to a clear and comprehensive mission statement and strategic
    plan, while earlier restructuring efforts at the Department of Energy showed
    how progress can be hampered by unclear linkage between an agency?s mission
    and a proposed new structure. Efforts at other agencies also demonstrate the
    need for buy- in from both internal and external stakeholders and the
    importance of agency efforts to consider the human impact of restructuring
    activities, including closure of field offices. Some potential restructuring
    efforts by SBA would require legislation modifying earlier laws mandating
    specific reporting relationships or other aspects of SBA structure. We are
    not making any recommendations in this report.

    SBA?s mission is to maintain and strengthen the nation?s economy by aiding,
    counseling, assisting, and protecting the interests of the nation?s small
    businesses and by helping businesses and families recover from natural
    disasters. SBA has a total portfolio of about $52 billion, including $45
    billion in direct and guaranteed small business loans and other guarantees
    and $7 billion in disaster loans. 2 SBA provides small businesses with
    access to credit, primarily by guaranteeing loans through its 7( a) program.
    SBA provides entrepreneurial assistance through partnerships with private
    entities that offer small business counseling and technical

    2 As of September 30, 2000. Results in Brief

    Background

    Page 3 GAO- 02- 17 Small Business Administration

    assistance. SBA administers the 8( a) business development program, which is
    designed to assist small disadvantaged businesses in obtaining federal
    contracts. SBA also makes loans to businesses and families trying to rebuild
    in the aftermath of a disaster.

    As of May 2001, SBA had 2,859 employees. 3 About three- quarters of SBA?s
    staff are assigned to the agency?s 10 regional offices and over 100 other
    field locations. In addition to its federal workforce, SBA?s infrastructure
    includes over 1,000 resource partners located nationwide who provide
    technical and advisory assistance to small businesses. According to SBA, the
    agency can have up to 60 appointee staff- 4 presidential appointee
    positions, an Office of Personnel Management allowance of 18 noncareer
    Senior Executive Service appointees, and 38 other appointed positions.

    As shown in figure 1, the agency?s management structure is relatively flat
    in headquarters, with 19 offices reporting to the Office of the
    Administrator.

    3 This number excludes 107 employees in the Office of the Inspector General
    and 1,180 in the Office of Disaster Assistance and does not include contract
    personnel.

    Page 4 GAO- 02- 17 Small Business Administration

    Figure 1: SBA Headquarters Organization Chart

    Source: SBA.

    In the past 10 years, SBA has seen changes made in how it delivers services
    and to its organization. The largest change to SBA?s service delivery has
    occurred in its lending programs, where the agency went from making loans
    directly to guaranteeing loans made by commercial lenders. SBA?s loan
    programs have also been the focus of a major organizational change in the
    creation of centers to process and service the majority of these loans- work
    once handled largely by district office staff. Processing and servicing of
    about three- quarters of SBA- guaranteed loans were

    Page 5 GAO- 02- 17 Small Business Administration

    handled in centers instead of district offices in 2000. In response to
    budget reductions, SBA also streamlined its field structure during the
    1990s, downsizing the 10 regional offices, moving the workload to either
    district offices or headquarters offices, and eliminating most of the
    regions? role as an intermediate management layer between headquarters and
    the field. SBA created the Office of Field Operations to take over the role
    of intermediary.

    As shown in figure 2, SBA?s overall workforce has also decreased by more
    than 20 percent since 1992.

    Figure 2: SBA Workforce 1992- 2000

    Note: Employee data were as of September 30 of each year. These numbers
    exclude employees in the Offices of the Inspector General and Disaster
    Assistance and do not include contract personnel.

    Source: GAO analysis of SBA staffing reports.

    To assess issues raised by SBA?s current organizational structure, we
    conducted 58 interviews with 78 senior SBA officials in headquarters and in
    the field. We met with senior officials and obtained documents on both
    current SBA alignment and past reorganization efforts from 15 of the 19
    headquarters offices reporting to the Administrator. At the request of your
    Objectives, Scope,

    and Methodology

    Page 6 GAO- 02- 17 Small Business Administration

    staffs, our scope did not include two of these offices, the Office of
    Advocacy and the Office of the Inspector General. We also selected 17 field
    locations to visit in consultation with SBA headquarters officials, with the
    aim of visiting a mix of geographic areas and office types and sizes. The 17
    field locations were a judgmental but representative sample. As shown in
    appendix III, we visited offices in the eastern, southern, midwestern, and
    western areas of the United States. Among the locations we visited were
    small, medium, and large district offices and a variety of centers across
    the country, including loan processing and servicing centers, a disaster
    area office, and a Business Information Center. At each field location, we
    interviewed and gathered documents from the manager of the location and
    other program managers. We also held discussions with lenders and lender
    associations from the National Association of Government Guaranteed Lenders,
    National Association of Development Companies, and Independent Community
    Bankers of America. The issues raised in this report represent common themes
    we heard from many senior officials in interviews throughout our fieldwork
    at the various locations.

    Additionally, we conducted a literature review of best practices that
    included restructuring experiences of other federal agencies as well as
    issue papers and books published by individuals having practical and
    research experience in organizational structures. We also analyzed laws
    mandating aspects of SBA?s current organization.

    We conducted our work from February through June 2001 in accordance with
    generally accepted government auditing standards.

    Senior SBA officials in headquarters and the field identified aspects of the
    current organizational alignment that contribute to the challenges faced by
    SBA management, including cumbersome communication links between
    headquarters and field units; confusion over the mission of district
    offices; complex, overlapping organizational relationships; and a field
    structure not consistently matched with mission requirements.

    Several SBA district office managers expressed frustration with ineffective
    field and headquarters communications. SBA officials told us that prior to
    the mid- 1990s restructuring of the regional offices, communication between
    headquarters and the field was carried out in a different way from how it is
    now. When the regions played a role as a layer of management between
    headquarters and the field, they served as a filter. Headquarters SBA Staff
    Identified

    Organizational Problems

    Communication Problems Exist Between Headquarters and Field Offices

    Page 7 GAO- 02- 17 Small Business Administration

    program offices only had to communicate with the 10 regions to provide
    direction or make information requests. The regions would then communicate
    to the districts. The regions were also in a position to identify confusing
    or redundant information requests and prioritize new initiatives for the
    districts. While some SBA officials felt that the regions had a positive
    effect on communication between headquarters and the districts, others felt
    that the regions were an unnecessary layer of management and were more
    likely to be a bottleneck, hampering the effective flow of information
    through the agency. SBA?s former headquarters- to- field communication model
    is depicted in figure 3.

    Figure 3: SBA Former Headquarters- to- Field Communication Model With Fully
    Staffed Regional Offices

    Source: GAO analysis.

    Senior SBA officials in headquarters and the field said that the
    realignment- in which the regions were downsized, but not eliminated, and
    the Office of Field Operations was created, but never fully staffed-

    Page 8 GAO- 02- 17 Small Business Administration

    created communication problems. The primary function of the Office of Field
    Operations was to facilitate the flow of information between headquarters
    and district offices. However, the Office of Field Operations has fewer than
    10 staff, and senior SBA officials told us that it would be impossible for
    such a small office to have the same information conduit responsibility once
    held by multiple staff in each of 10 regional offices. As a result,
    headquarters program offices sometimes communicate with the district offices
    through the Office of Field Operations, but they more often communicate
    directly with district office staff working on the SBA programs they manage.
    For example, district officials said that the Office of Capital Access may
    make a request for loan information through the Office of Field Operations
    or may make the request directly to loan program managers in every district
    office. Officials described how these multiple lines of communication with
    the district offices have led to district staff being on the receiving end
    of conflicting or redundant requests. Finally, regional offices were
    downsized but not closed, and they still play a role in monitoring goals and
    coordinating administrative priorities with the districts. For example,
    officials told us that district office goals are disseminated through the
    regions.

    In addition, district managers said that districts are on the receiving end
    of a flood of information but that the information received may not clearly
    indicate priority or may lack practical application. District managers
    described how the possibility that important information might be buried
    among the large number of messages that are of little concern to them meant
    having to spend hours sorting through incoming messages. Furthermore, they
    described how important information may not be disseminated at all. For
    example, district staff were notified of headquarters blood drives or job
    opportunities open only to headquarters staff but said that they were not
    formally notified when the former administrator left the agency. Also, a
    District Counsel told us that she was not notified when a new SBA General
    Counsel was named. Figure 3 depicts current headquarters- to- field
    communication in SBA.

    Page 9 GAO- 02- 17 Small Business Administration

    Figure 4: Current SBA Headquarters- to- Field Communication Model

    Source: GAO analysis.

    The SBA Inspector General found similar problems with communication within
    SBA. In 2000, the Inspector General conducted management challenge
    discussion groups with almost 50 senior officials from SBA headquarters,
    regional, and district offices and found that communication issues were a
    recurring theme in these discussions. Participants in these groups described
    the advantages provided by the former regional office structure in funneling
    and distilling information and policy directives from headquarters to the
    districts and the impossibility of a small Office of Field Operations
    playing the same role. The senior officials noted that communication gaps
    resulted in confusion and lower morale in the field. They suggested that a
    more coordinated approach is needed where issues

    Page 10 GAO- 02- 17 Small Business Administration

    or problems arising in the field can be channeled to headquarters, and vice
    versa. 4

    We found disagreement within SBA over the primary customer of the district
    offices. Headquarters executives said that the main customer of the district
    offices is small businesses, while district office officials told us that
    their primary clients are lenders- encouraging them to make more SBA
    guaranteed loans, providing support, and conducting oversight reviews. SBA
    headquarters executives said that the role of the district office is in
    transition. Under the previous administration, since lending activities were
    being increasingly centralized, the district offices? role was primarily to
    work with small businesses. However, district office managers pointed out
    that they are still responsible for a high level of interaction with
    lenders, especially smaller lenders with infrequent involvement with SBA
    programs. They also noted that they still play a role in servicing problem
    loans and have a major role in liquidating defaulted loans. Furthermore,
    although district office managers are given dozens of goals each year
    related to every SBA program in which they have some involvement, they
    believe that lender- related goals matter most because their performance
    rating is weighted heavily on aspects of loan activity. Associations
    representing lenders that we spoke to also mentioned confusion over whether
    the districts? customers are lenders or small businesses.

    As shown in figure 5, a small business owner seeking information on SBA?s
    main program areas from a district office is likely to be sent to another
    location, reinforcing the perception of district office managers that the
    lender rather than the small business is their primary customer. Of the
    ?answers? shown coming from the district office in figure 5, only signing up
    for and participating in the 8( a) program is likely to involve much in the
    way of district office activity.

    4 Advisory Memorandum: Report on the Results of SBA Management Challenge
    Discussion Groups, Small Business Administration, Office of the Inspector
    General (# 0104- 01, Apr. 4, 2001). Confusion About SBA

    District Offices? Primary Customer

    Page 11 GAO- 02- 17 Small Business Administration

    Figure 5: SBA District Office- to- Small Business Interaction

    Note: This chart refers to the following SBA programs or entities: Business
    Information Center (BIC), Empowerment Zone (EZ), One- Stop Capital Shop (One
    Stop), Women?s Business Center (WBC), Service Corps of Retired Executives
    (SCORE), U. S. Export Assistance Center (USEAC), Small Business Development
    center (SBDC), and 8( a) Business Development Program (8( a)).

    Source: GAO analysis.

    Human capital challenges at SBA make the agency?s district office role more
    complex. SBA continues to deal with the problem of getting properly trained
    people into the right places, especially the districts, to manage the 7( a)
    and 8( a) programs. SBA officials said that 7( a) staff have seen their
    roles change from loan processors to financial institution overseers and
    that 8( a) Business Opportunity Specialists are facing a role change from
    program compliance monitors to business development coaches. A 1999 SBA
    report on agency modernization pointed to the importance of retraining and
    reorienting SBA staff as a part of the agency?s modernization efforts. 5 Our
    July 2000 testimony on SBA?s human capital

    5 SBA Modernization: Roadmap to the 21st Century, Small Business
    Administration, October 1999.

    Page 12 GAO- 02- 17 Small Business Administration

    challenges noted that some district offices are cross- training staff in
    multiple functional areas. 6 Executives told us that training and moving the
    right people into the right places to take on these new roles is an ongoing
    challenge.

    SBA also faces the human capital challenge posed by the agency?s accelerated
    losses of experienced personnel, a problem we have identified across the
    federal government. 7 Senior SBA officials pointed out that the loss of
    experienced personnel is especially troubling at SBA because some of these
    staff are the ?institutional memory? that newer staff seek out when they
    need information but find themselves stymied by the agency?s cumbersome
    organizational and communication lines. The SBA Inspector General?s
    management challenge discussion groups also raised concerns over SBA?s aging
    workforce and the potential loss of institutional memory as people retire. 8

    We found evidence of complex, overlapping organizational relationships,
    particularly between field and headquarters units. Senior SBA officials said
    that district office success depends on their ability to obtain information
    or support from many other offices. For example, the district offices have a
    direct relationship not only with both the Office of Field Operations and a
    regional office but also with the headquarters offices managing their
    programs. Senior officials said that although some of these complex
    organizational relationships stem from legislative requirements such as
    specified reporting relationships, past realignment efforts that changed how
    SBA performed its functions while leaving aspects of the previous structure
    intact (e. g., downsizing and taking away much of the role of regional
    offices but not closing those offices) have also played a part.

    District staff working on SBA loan programs report to their district
    management, while loan processing and servicing center staff report

    6 Small Business Administration: Steps Taken to Better Manage Its Human
    Capital, but More Needs to Be Done (GAO/ T- GGD/ AIMD- 00- 256, July 20,
    2000). 7 High Risk Series: An Update (GAO- 01- 263, Jan. 2001) and Managing
    for Results: Human Capital Management Discussions in Fiscal Year 2001
    Performance Plans (GAO- 01- 236, Apr. 2001).

    8 Advisory Memorandum: Report on the Results of SBA Management Challenge
    Discussion Groups, Small Business Administration, Office of the Inspector
    General (# 0104- 01, Apr. 4, 2001). SBA Organizational

    Relationships Are Complicated

    Page 13 GAO- 02- 17 Small Business Administration

    directly to the Office of Capital Access. Yet, the district office loan
    program staff sometimes need to work with the loan processing and servicing
    centers to get information or to expedite loans for lenders in their
    district. Because loan processing and servicing centers report directly to
    the Office of Capital Access, requests that are directed to the centers
    sometimes must go from the district through the Office of Capital Access
    then back to the centers. District managers and staff said that the effect
    of these relationships is that sometimes they cannot get answers to
    questions when lenders call and that they have trouble expediting loans
    because they lack authority to direct the centers to take any action. The
    Office of Capital Access commented that they rely on the district offices to
    handle the most difficult loans and to work with infrequent lenders, while
    the centers process the more standard loans made by frequent lenders. Lender
    association representatives said that the lines of authority between
    headquarters and the field can be confusing and can mean that practices vary
    from district to district.

    The SBA Inspector General?s management challenge discussion groups also
    described how district staff were concerned that centralization has resulted
    in district offices being increasingly ?out of the loop? on decisions
    affecting their small business customers or potential customers. 9 SBA?s
    1999 report on agency modernization also described the district offices?
    view that centers are not responsive enough to the field, but it pointed out
    that centralization has freed up district staff to do more marketing and
    working with small businesses. 10

    District managers also said that they are tasked with maximizing the number
    of loans generated in their area while, at the same time, the Office of
    Capital Access must make sure that the total number of loans stays below the
    ceiling set by the SBA appropriation. They said that in 1997, they were told
    to stop the lenders in their area from generating more loans because of the
    appropriation ceiling, even though the district?s goal was designed to
    generate more loans.

    The Office of Government Contracting and Business Development oversees
    implementation of the 8( a) program by district office staff (who report to
    district management). It directly manages Government

    9 ibid. 10 SBA Modernization: Roadmap to the 21st Century, Small Business
    Administration, October 1999.

    Page 14 GAO- 02- 17 Small Business Administration

    Contracting field staff in six Area Offices and numerous posts of duty, and
    business development staff in three Division of Program Certification and
    Eligibility Centers. However, Business Opportunity Specialists in district
    offices working on the 8( a) Business Development program compete with
    Procurement Center Representatives working for the Office of Government
    Contracting. Officials said that staff working on both programs are working
    with the same procurement officials in other agencies to encourage more
    contracting activity, respectively, for procurement preference programs and
    small minority- owned businesses enrolled in the 8( a) program. Moreover, we
    reported in 2000 that SBA did not have enough Procurement Center
    Representatives to review contracts at over 2,000 federal procurement
    centers. 11 The SBA Inspector General?s management challenge discussion
    groups also identified the need for greater cooperation and coordination
    among these programs. 12 Also, 8( a) staff in the districts said they work
    with, but have no authority over, the Division of Program Certification and
    Eligibility Centers to facilitate the approval of 8( a) program applications
    from firms the district will work with once the firms are in the program. 13
    Senior district office staff said that firms find it difficult to navigate
    the process and express frustration that they have to deal with more than
    one office.

    The Office of Entrepreneurial Development has primary responsibility for the
    operation of over 1,000 Small Business Development Centers, Women's Business
    Centers, Service Corps of Retired Executives chapters, and One- Stop Capital
    Shops. Business Information Centers are overseen by staff in the district
    offices. One district official said that district offices should be given
    more complete responsibility for entrepreneurial development programs in
    their districts so that they can create more customized programs better
    suited to the unique needs of their area. Also, the SBA staff operating the
    Business Information Centers report directly to their local district
    manager, but also receive direction and resources from the Office of
    Entrepreneurial Development. In addition, as reported by the

    11 Small Businesses: Limited Information Available on Contract Bundling?s
    Extent and Effects (GAO/ GGD- 00- 82, Mar. 2000). 12 Advisory Memorandum:
    Report on the Results of SBA Management Challenge Discussion Groups, Small
    Business Administration, Office of the Inspector General (# 0104- 01, Apr.
    4, 2001).

    13 SBA said that it established the Program Certification and Eligibility
    Central Office Duty stations in response to Congressional direction that it
    establish field offices as may be necessary to efficiently perform its
    functions and responsibilities (P. L. 100- 656, section 101).

    Page 15 GAO- 02- 17 Small Business Administration

    SBA Inspector General, SBA officials identified a disconnect between SBA
    small business financing and technical assistance programs. Officials noted
    that a more holistic approach would be for SBA to track SBA borrowers to
    identify those who may need technical assistance. 14 SBA?s agency
    modernization report also called for the development of crosstrained teams
    of SBA staff in order to link SBA programs and better serve the agency?s
    customers. 15

    We also found a situation where divided responsibility for a program was
    working well. The Office of Disaster Assistance handles the processing of
    loan applications from disaster victims then sends the loans to the Office
    of Capital Access, which services them in four Disaster Home Loan Servicing
    Centers around the country. SBA officials described this as a positive
    relationship, allowing each of the two SBA offices to handle the aspects of
    the disaster loan program they are best suited to manage.

    Figure 6, depicts the variety of organizational relationships we found
    between SBA headquarters and field units.

    14 ibid. 15 SBA Modernization: Roadmap to the 21st Century, Small Business
    Administration, October 1999.

    Page 16 GAO- 02- 17 Small Business Administration

    Figure 6: Organizational Relationships Between SBA Headquarters and Field
    Units

    Note: This chart refers to the following SBA offices: Office of Field
    Operations (OFO), Office of Government Contracting/ Business Development
    (GC/ BD), Office of the General Counsel (OGC), Government Contracting Area
    Offices (GC Areas), 8( a) Division of Program Certification and Eligibility
    Centers. This chart also uses the term ?storefronts? to characterize Small
    Business Development Centers, Business Information Centers, Women?s Business
    Centers, and other such locations where the public accesses SBA programs.

    Source: GAO analysis of SBA organization.

    Senior SBA officials said that some of SBA?s past efforts to change the
    agency?s alignment have led to current problems because too much of the
    prior structure was left intact. For example, the creation of loan
    processing and servicing centers moved some, but not all, loan- related
    workload out of the district offices. District offices retained
    responsibility for the more difficult loans and loans made by infrequent SBA
    lenders. Similarly, regional offices were downsized but not eliminated
    during the 1990s. Although most of the workload of the regions was
    transferred to

    Page 17 GAO- 02- 17 Small Business Administration

    other offices, the regional offices remained open and still retain some
    organizational responsibility for overseeing the districts, along with the
    newly created Office of Field Operations.

    SBA managers also told us that some offices and centers are not located to
    best accomplish the agency?s mission. For example, Iowa has two district
    offices located less than 130 miles apart and neither manages a very large
    share of SBA?s lending program or other workload. SBA has a loanprocessing
    center in Hazard, Kentucky; although, according to SBA officials, the center
    is in an area with a small employment base, relatively high costs, and is
    remote from major transportation hubs, making it difficult to attract and
    retain staff and to oversee loan- processing activities at the site. SBA
    also has another loan- related center located in New York City; a very high-
    cost area where it has trouble attracting and retaining staff. Figure 7
    shows locations of SBA offices around the country.

    Page 18 GAO- 02- 17 Small Business Administration

    Figure 7: SBA Offices and Resource Partners in the United States

    Source: SBA.

    SBA officials stressed that congressional direction has played a part in
    SBA?s current structure. SBA officials pointed out that Congress has

    Page 19 GAO- 02- 17 Small Business Administration

    created many new offices, programs, aspects of existing programs, and pilot
    projects and has prescribed reporting relationship, grade, and/ or type of
    appointment for several senior SBA officials. Appendix I lists 78 offices
    and programs or program changes created by laws. Appendix II lists 11 SBA
    staff positions and specific reporting relationships required by
    legislation. SBA officials also said that congressional influence over the
    agency?s field structure has led to placement of field activities in less
    than optimal locations and prevented the agency from closing or
    consolidating some of its inefficiently located field offices. Our March
    2000 report on the Government Contracting program noted that Congress
    directed the deployment of SBA?s scarce Procurement Center Representatives
    in 17 specific locations. 16 Also, SBA?s current appropriation includes a
    specific provision precluding the agency from shifting funds between
    appropriation accounts to relocate offices or employees, or reorganize
    offices, programs, or activities without notifying the Appropriations
    Committees. 17

    Organizational alignment is crucial if an agency is to maximize its
    performance and ensure its accountability. 18 Although difficult to make,
    the choices that go into aligning an organization to support its strategic
    and programmatic goals have enormous implications for further decisions. As
    we testified in 1995, the key to any reorganization plan- and the key to
    building a consensus behind it- is the creation of specific, identifiable
    goals. 19 In other words, the first thing to do is to understand what goals
    the

    16 According to SBA Procurement Center Representative guidance, Conference
    Reports to the SBA Continuing Appropriations for fiscal years 1988, 1989,
    1991, 1992, and 1993 and P. L. 100- 590, Small Business Reauthorization and
    Amendment Act of 1998 specify that Procurement Center Representative
    coverage is required in the following locations: Connecticut; Iowa;
    Kentucky; Louisiana; Maine; Minnesota; Montana; Omaha, Nebraska; Las Vegas,
    Nevada; New Hampshire; North Carolina; North Dakota; Oregon; Rhode Island;
    Tennessee; West Virginia; and Clarksburg, West Virginia. Small Businesses:
    Limited Information Available on Contract Bundling?s Extent and Effects
    (GAO/ GGD- 00- 82, Mar. 2000).

    17 This restriction applies to all agencies funded by H. R. 5548, which
    makes appropriations for the Departments of Commerce, Justice, and State,
    the Judiciary, and related agencies for the fiscal year ending Sept. 30,
    2001. H. R. 5548 became part of P. L. No. 106- 553.

    18 Human Capital: Taking Steps to Meet Current and Emerging Human Capital
    Challenges (GAO- 01- 965T, July 17, 2001). 19 Government Reorganization:
    Issues and Principles (GAO/ T- GGD/ AIMD- 95- 166, May 17, 1995).
    Restructuring Efforts

    of Other Federal Agencies Provide a Framework for SBA Managers

    Page 20 GAO- 02- 17 Small Business Administration

    agency is trying to achieve and then to build an organization around those
    goals.

    For example, SBA managers would need to begin any restructuring efforts with
    an examination of how current activities, core business processes, and
    resources are aligned to support SBA?s mission and how those efforts help to
    achieve agency goals. A report on the Federal Emergency Management Agency 20
    points to the critical part played by that agency?s development of a clear
    and comprehensive mission statement that it used as a guide to
    reorganization. On the other hand, in 1995 we identified the lack of linkage
    between mission and structure as a missing piece of restructuring efforts at
    the Department of Energy. 21 Our earlier review of SBA?s human capital
    management has shown that SBA has completed the critical first element of
    this process in developing a shared vision of its mission and has
    consistently communicated that vision in its planning documents. 22 SBA?s
    next step would be to build an organization around its shared vision and
    goals.

    SBA managers would need to obtain extensive input from internal and external
    stakeholders first to identify (1) how well the current structure is aligned
    with the agency?s mission and strategic plan and establishes clear lines of
    authority and accountability, (2) how well the current structure facilitates
    communication with both internal and external customers, (3) how well the
    number and location of offices facilitates the agency meeting its mission as
    efficiently and effectively as possible, and (4) the extent of buy- in for
    the current structure from internal and external customers. SBA managers
    would use this information to develop a prototype organization structure.
    Next, SBA would present the proposal to the stakeholders, obtain their input
    on the prototype, and revise it accordingly.

    Use of this step- by- step approach could help increase acceptance of the
    changes- a critical need for any restructuring effort. Without this
    acceptance, restructuring is impeded. For example, we reported in 2000

    20 Learning From the Leaders: Results- based Management at the Federal
    Emergency Management Agency, Jerry Ellig, Ph. D., Senior Research Fellow,
    Mercatus Center at George Mason University, Mar. 29, 2000.

    21 Department of Energy: A Framework for Restructuring DOE and Its Missions

    (GAO/ RCED- 95- 197, Aug. 1995). 22 Small Business Administration: Steps
    Taken to Better Manage Its Human Capital, but More Needs to Be Done (GAO/ T-
    GGD/ AIMD- 00- 256, July 20, 2000).

    Page 21 GAO- 02- 17 Small Business Administration

    that employee resistance to organizational changes was hampering
    restructuring efforts at the Department of Agriculture. 23 In another
    report, we noted that Nuclear Regulatory Commission staff confusion over the
    direction of their agency impaired their ability to focus on results or make
    as full a contribution as they might otherwise make. 24 Our work has shown
    that many agencies continue to struggle with clearly understanding how what
    they do on a day- to- day basis contributes to agency results. Some agencies
    have begun to use performance agreements to strengthen the alignment of
    daily operations with results- oriented performance goals. Emerging benefits
    of results- oriented performance agreements are that they (1) strengthened
    alignment of results- oriented goals with daily operations; (2) fostered
    collaboration across organizational boundaries; (3) enhanced opportunities
    to discuss and routinely use performance information to make program
    improvements; (4) provided results- oriented basis for individual
    accountability; and (5) maintained continuity of program goals during
    leadership transitions. 25

    SBA?s current organizational alignment has some weaknesses that contribute
    to challenges in delivering services to the small business community. When
    budget constraints forced SBA to downsize, it responded by significantly
    reducing but not eliminating the regions, and by creating a headquarters
    office to handle field operations. While there is considerable disagreement
    among senior SBA officials about which structure is preferable, it is clear
    that by leaving remnants of the regions in place and creating only a very
    small Office of Field Operations, SBA has not enhanced communications along
    organizational lines. Instead, organizational relationships, as shown in
    figure 6, are complicated. The centralization of a majority of loan
    processing and the planned transition of district staff from processing
    loans to working with small businesses leaves unanswered questions for
    district managers whose performance is still rated solely on aspects of loan
    activity. In addition, senior officials believe that some SBA offices and
    centers are not located to best accomplish the agency?s mission.

    23 USDA Reorganization: Progress Mixed in Modernizing the Delivery of
    Services

    (GAO/ RCED- 00- 43, Feb. 2000). 24 Management Reform: Elements of Successful
    Improvement Initiatives

    (GAO/ T- GGD- 00- 26, Oct. 15, 1999). 25 Managing for Results: Emerging
    Benefits From Selected Agencies? Use of Performance Agreements (GAO- 01-
    115, Oct. 30, 2000). Observations

    Page 22 GAO- 02- 17 Small Business Administration

    Restructuring is admittedly a difficult endeavor and there is no perfect
    organizational alignment. If SBA leadership decided to restructure the
    agency, any plan would need to begin with examining key questions about the
    organization to establish a framework for restructuring. Such a framework
    would need to support SBA?s mission and strategic plan, establish clear
    lines of accountability, facilitate communication, and offer a rational
    justification for office location. Restructuring efforts would also need to
    include getting buy- in from stakeholders and minimize the impact of changes
    on SBA employees as much as possible. Congressional support for SBA
    restructuring would be a necessary aspect of any changes SBA proposes.
    Moreover, some changes may require legislation modifying mandated structural
    elements specified in earlier laws.

    We received written comments on a draft of this report from SBA. SBA did not
    disagree with our findings and offered technical comments, which we have
    incorporated where appropriate. SBA?s comments appear in appendix IV.

    Unless you publicly announce its contents earlier, we plan no further
    distribution of this report until 15 days after the date of this report. At
    that time, we will send copies of this report to the Chairman of the Senate
    Committee on Small Business and Entrepreneurship, the Ranking Minority
    Member of the House Committee on Small Business, other interested
    congressional committees, and the Administrator of the Small Business
    Administration. We will make copies available to others on request. This
    report will also be available on our homepage at http:// www. gao. gov.

    Please contact me at (202) 512- 8678 if you or your staff have any
    questions. Major contributors to this report were Susan Campbell, David
    Lewis, and Alexandra Martin- Arseneau.

    Davi M. D?Agostino, Director Financial Markets

    and Community Investment Agency Comments

    Appendix I: Legislatively Mandated Programs and Offices in SBA

    Page 23 GAO- 02- 17 Small Business Administration

    Public law Program/ office established

    Small Business Act Amendments of 1961, P. L. No. 87- 305, 75 Stat. 666
    (1961)

     Added 8( d) Subcontracting Program Housing and Urban Development Act of
    1970, P. L. No. 91- 609, 84 Stat. 1770 (1970)

     Surety bond guarantees Small Business Investment Act Amendments of 1972,
    P. L. No. 92- 595, 86 Stat. 1314 (1972)

     Loans to the handicapped Small Business Amendments of 1974, P. L. No. 93-
    386, 88 Stat. 742 (1974)

     Capital ownership development program (7( j)) Small Business Investment
    Act Amendments of 1976, P. L. No. 94- 305, 90 Stat. 663 (1976)

     Pollution control facilities

     Office of Advocacy Small Business Act and Small Business Investment Act of
    1958 Amendments, P. L. No. 95- 89, 91 Stat. 553 (1977)

     Loans to finance residential or commercial construction for sale Small
    Business Energy Loan Act, P. L. No. 95- 315, 92 Stat. 377 (1978)

     Loans to enable small business concerns to design, engineer, manufacture,
    distribute, market, install, or service certain energy measures Small
    Business Act and Small Business Investment Act Amendments of 1978, P. L. No.
    95- 507, 92 Stat. 1757 (1978)

     Governmentwide procurement goals Small Business Act Amendment, P. L. No.
    95- 510, 92 Stat. 1780 (1978)

     Service Corps of Retired Executives transferred to SBA Small Business
    Administration Authorizations, P. L. No. 96- 302, 94 Stat. 833 (1980)

     External economic database

     Preferred Lenders Program

     Loan guarantees for qualified employee trusts

     State of Small Business report

     Small Business Development Centers

     Development company debentures Small Business Export Expansion Act of
    1980, P. L. No. 96- 481, 94 Stat. 2321 (1980)

     Office of International Trade Small Business Innovation Development Act of
    1982, P. L. No. 97- 219, 96 Stat. 217 (1982)

     Small Business Innovation Research program Small Business Secondary Market
    Improvements Act of 1984, P. L. No. 98- 352, 98 Stat. 329 (1984)

     Secondary market for sale of guaranteed loans Small Business Computer
    Security and Education Act of 1984, P. L. No. 98- 362, 98 Stat. 431 (1984)

     Cosponsorship authority Continuing Appropriations, 1985, P. L. No. 98-
    473, 98 Stat. 1837 (1984)

     Disaster loans for small businesses affected by El- Nino- related ocean
    conditions Omnibus Trade and Competitiveness Act of 1988, P. L. No. 100-
    418, 102 Stat. 1107 (1988)

     Guaranteed loans for small business concerns engaged in or adversely
    affected by international trade Women?s Business Ownership Act of 1988, P.
    L. No. 100- 533, 102 Stat. 2689 (1988)

     Certified Lenders Program

     National Women?s Business Council Small Business Administration
    Reauthorization and Amendment Act of 1988, P. L. No. 100- 590, 102 Stat.
    2989 (1988)

     Deferred participation loans for pollution control facilities

     Preferred surety bond guarantee program Business Opportunity Development
    Reform Act of 1988, P. L. No. 100- 656, 102 Stat. 3853 (1988)

     Guaranteed loans to 8( a) participants

     Small Business Competitiveness Demonstration Program Departments of
    Commerce, Justice, State, the Judiciary, and Related Agencies Appropriations
    Act, 1991, P. L. No. 101- 515, 104 Stat. 2101 (1990)

     Tree Planting Program

     Central European Enterprise Development Commission

    Appendix I: Legislatively Mandated Programs and Offices in SBA

    Appendix I: Legislatively Mandated Programs and Offices in SBA

    Page 24 GAO- 02- 17 Small Business Administration

    Public law Program/ office established

    SBA Reauthorization and Amendments Act of 1990, P. L. No. 101- 574, 104
    Stat. 2814 (1990).

     Small Business Technology Transfer demonstration program

     Pilot Technology Access Program

     Office of Rural Affairs

     Pilot Rural Development Loan Program

     Tourism demonstration program

     Expanded duties of SBDCs to include assisting rural small business White
    House Conference on Small Business Authorization Act, P. L. No. 101- 409,
    104 Stat. 885 (1990).

     Planning and administration of conferences at state and local levels
    Appropriations for Departments of Commerce, State and the Judiciary and
    related agencies for 1992, P. L. No. 102- 140, 105 Stat. 782 (1992).

     Pilot technology access program expanded to Small Business Development
    Centers

     Microloan demonstration program Women?s Business Development Act of 1991,
    P. L. No. 102- 191, 105 Stat. 1589 (1991).

     Women?s demonstration projects program Small Business Credit and Business
    Opportunity Enhancement Act of 1992 P. L. No. 102- 366, 106 Stat. 986
    (1992).

     Defense economic transition assistance program under 7( a)

     Transfers examination of Small Business Investment Companies from
    Inspector General to Investment Division

     Extended Small Business Development Center Program to include helping
    small businesses affected by base closings Small Business Research and
    Development Enhancement Act of 1992, P. L. No. 102- 564, 106 Stat. 4249
    (1992).

     Small Business Technology Transfer pilot program

     Small Business Innovation Research program expanded Small Business
    Administration Reauthorization and Amendments Act of 1994, P. L. No. 103-
    403, 108 Stat. 4175 (1994).

     Export working capital financing

     Accredited Lenders Program

     Premier Certified Lenders pilot program

     Pilot program for very small business concerns

     Mobile Resource Center pilot program

     Office of Women?s Business Ownership

     Prepayment of development company debentures

     Deferred participation loan pilot of Microloan program Small Business
    Regulatory Enforcement Fairness Act of 1996, P. L. No. 104- 121, 110 Stat.
    857 (1996).

     Oversight of regulatory enforcement Small Business Programs Improvement
    Act of 1996, P. L. No. 104- 208, 110 Stat. 3009- 725 (1997).

     Risk management database

     Preferred lender standard review program

     Private sector disaster loan servicing demonstration program

     Loan liquidation pilot program for development companies Small Business
    Reauthorization Act of 1997, P. L. No. 105- 135, 111 Stat. 2592 (1997).

     Welfare- to- work microloan initiative

     Criminal background checks on loan applicants

     Women?s Business Centers

     SBA review of bundled contracts

     Small Business Technology Transfer outreach program

     Service disabled veterans program

     Trade assistance for small business concerns adversely affected by NAFTA

     Small business export promotion

     HUBZone program

     Defense Loan and Technical Assistance Program Department of Transportation
    and Related Agencies Appropriations Act, 1999, P. L. No. 105- 277, 112 Stat.
    2681 (1999).

     Drug- free Workplace demonstration program Small Business Year 2000
    Readiness Act, P. L. No. 106- 8, 113 Stat. 13 (1999).

     Year 2000 Computer Problem program

    Appendix I: Legislatively Mandated Programs and Offices in SBA

    Page 25 GAO- 02- 17 Small Business Administration

    Public law Program/ office established

    A bill to authorize the establishment of a disaster mitigation pilot program
    in the Small Business Administration, P. L. No. 106- 24, 113 Stat. 39
    (1999).

     Disaster Mitigation pilot program Veteran?s Entrepreneurship and Small
    Business Development Act of 1999, P. L. No. 106- 50, 113 Stat. 233 (1999).

     Office of Veterans Business Development

     Repayment deferral for active duty reservists

     Disaster assistance for military reservists? small businesses

     Entrepreneurial assistance to veterans and active duty reservists Program
    for Investment in Microenterprises Act of 1999, P. L. No. 106- 102, 113
    Stat. 1471 (1999).

     Program for Investment in Microentrepreneurs Women?s Business Center
    Sustainability Act of 1999, P. L. No. 106- 165, 113 Stat. 1795 (1999).

     Women?s business centers sustainability pilot program Appropriations for
    the Departments of Labor, Health and Human Services, Education and related
    agencies, 2001, P. L. No. 106- 554, 114 Stat. 2763A- 653 (2000).

     New Markets Venture Capital Program

    Appendix II: Legislatively Mandated Staff Positions at SBA

    Page 26 GAO- 02- 17 Small Business Administration

    The following list shows legislatively mandated staff positions at SBA:
    Section 4( b)( 1) of the Small Business Act establishes that the management

    of SBA is vested in an administrator who is appointed by the President and
    confirmed by the Senate. The President also may appoint a deputy
    administrator who is to serve in the event of the administrator?s absence or
    disability.  Section 21( h) of the act provides that the administrator
    shall appoint an

    associate Administrator for Small Business Development Centers who is to
    report to an official who is not more than one level below the Office of the
    Administrator.  Section 26( a) of the act provides for a director of the
    Office of Rural

    Affairs.  Section 29( g) of the act provides for an assistant administrator
    for the

    Office of Women?s Business Ownership to be appointed by the administrator.
    This position is a Senior Executive Service position. The assistant
    administrator for Women?s Business Centers is a noncareer appointee.
    Section 30( b) of the act requires that the administrator appoint a Small

    Business and Agriculture Regulatory Enforcement Ombudsman, who is to report
    directly to the administrator.  Section 32( b) of the act provides for an
    associate administrator for

    Veterans Business Development, who is to be an appointee in the Senior
    Executive Service and is to report to and be directly responsible to the
    administrator.  Section 201 of the Small Business Investment Act provides
    for an associate

    administrator for the Small Business Investment Division. The associate
    administrator is appointed by the administrator and is compensated at the
    rate provided by law for other associate administrators.  Sections 4, 7(
    j)( 10), and 8( a)( 8) of the act provide for the associate

    administrator for Minority Small Business and Capital Ownership Development
    to manage the small business and capital ownership development program. The
    associate administrator is to be responsible to and report to the
    administrator and is to be a career appointee in the Senior Executive
    Service.  Section 7( j)( 11)( E) establishes a Division of Program
    Certification and

    Eligibility as part of the Office of Minority Small Business and Capital
    Ownership Development to be headed by a director who is to report directly
    to the associate administrator for Small Business and Capital Ownership
    Development.  15 U. S. C. 634a provides for a Chief Counsel for Advocacy.
    Appendix II: Legislatively Mandated Staff

    Positions at SBA

    Appendix III: SBA Field Locations Visited Page 27 GAO- 02- 17 Small Business
    Administration

    Washington, D. C. Miami, FL Kansas City, MO Cedar Rapids, IA Minneapolis, MN
    San Francisco, CA Los Angeles, CA Fresno, CA Sacramento, CA

    Kansas City Regional Office Kansas City Preferred Lenders Program Review
    Branch Sacramento Low Doc Processing Center Sacramento Preferred Lenders
    Program Processing Center Fresno Loan Servicing Center Sacramento Disaster
    Area Office Minneapolis United States Export Assistance Center Minneapolis
    Business Information Center Appendix III: SBA Field Locations Visited

    District Offices Regional Offices Other Field Locations

    Page 28 GAO- 02- 17 Small Business Administration

    Appendix IV: Comments From the U. S. Small Business Administration

    (250037)

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