Small Business Administration: Response to the Gulf Coast
Hurricanes Highlights Need for Enhanced Disaster Preparedness
(14-FEB-07, GAO-07-484T).
The Small Business Administration (SBA) helps individuals and
businesses recover from disasters such as hurricanes through its
Disaster Loan Program. SBA faced an unprecedented demand for
disaster loan assistance following the 2005 Gulf Coast hurricanes
(Katrina, Rita, and Wilma), which resulted in extensive property
damage and loss of life. In the aftermath of these disasters,
concerns were expressed regarding the timeliness of SBA's
disaster assistance. GAO initiated work and completed two reports
under the Comptroller General's authority to conduct evaluations
and determine how well SBA provided victims of the Gulf Coast
hurricanes with timely assistance. This testimony, which is based
on these two reports, discusses (1) challenges SBA experienced in
providing victims of the Gulf Coast hurricanes with timely
assistance, (2) factors that contributed to these challenges, and
(3) steps SBA has taken since the Gulf Coast hurricanes to
enhance its disaster preparedness. GAO visited the Gulf Coast
region, reviewed SBA planning documents, and interviewed SBA
officials.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-484T
ACCNO: A65927
TITLE: Small Business Administration: Response to the Gulf Coast
Hurricanes Highlights Need for Enhanced Disaster Preparedness
DATE: 02/14/2007
SUBJECT: Disaster planning
Disaster relief aid
Emergency preparedness
Federal aid programs
Federal aid to states
Hurricane Katrina
Hurricanes
Lending institutions
Loans
Natural disasters
Performance appraisal
Strategic planning
Hurricane Rita
Small business
Small business assistance
SBA Disaster Loan Program
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GAO-07-484T
* [1]Background
* [2]DCMS's Limited Capacity and Difficulties in Other Logistical
* [3]Unprecedented Loan Application Volume and SBA's Limited Disa
* [4]SBA Has Taken Steps to Better Prepare for Future Disasters,
* [5]GAO Contact and Staff Acknowledgments
* [6]Order by Mail or Phone
Testimony
Before the Committee on Small Business, House of Representatives
United States Government Accountability Office
GAO
For Release on Delivery Expected at 10:00 a.m. EST
Wednesday, February 14, 2007
SMALL BUSINESS ADMINISTRATION
Response to the Gulf Coast Hurricanes Highlights Need for Enhanced
Disaster Preparedness
Statement of William B. Shear, Director
Financial Markets and Community Investment
GAO-07-484T
Madam Chairwoman and Members of the Committee:
I am pleased to have the opportunity to be here today to discuss the Small
Business Administration's (SBA) response to the 2005 Gulf Coast hurricanes
(Katrina, Rita, and Wilma), which caused more than 1,400 deaths and more
than $80 billion of estimated property damages. While SBA is generally
known for the financial support it provides to small businesses, the
agency also plays a critical, if less publicized role, in assisting the
victims of natural and other disasters. Specifically, SBA provides
financial assistance through its Disaster Loan Program to help homeowners,
renters, and businesses of all sizes recover from disasters such as
earthquakes, hurricanes, and terrorist attacks. Due to the damage
associated with the Gulf Coast hurricanes, SBA faced unprecedented demand
for its disaster loan services and, 9 months following the hurricanes, had
approved nearly 150,000 such loans totaling nearly $10 billion. However,
concerns have been expressed that SBA's response to the hurricanes was
slow, leaving many disaster victims without the timely assistance that
they needed.
My statement today is based on two reports that we issued under the
Comptroller General's authority to initiate reviews of federal programs.
The first report, which was released in July 2006, discussed SBA's
planning for and implementation of the Disaster Credit Management System
(DCMS), which the agency uses to process disaster loan applications.1 The
second report, which is being released today, discusses SBA's disaster
planning for other logistical areas, such as hiring and training a capable
workforce and acquiring necessary office space.2 I note that these reports
are part of a larger effort by GAO to assist Congress in assessing the
response of federal, state, and local agencies to the Gulf Coast
hurricanes and to identify steps that such organizations could take to
improve the provision of assistance and services to the victims of future
disasters.3
1GAO, Small Business Administration: Actions Needed to Provide More Timely
Disaster Assistance, [7]GAO-06-860 (Washington, D.C.: July 28, 2006).
2GAO, Small Business Administration: Additional Steps Needed to Enhance
Agency Preparedness for Future Disasters, [8]GAO-07-114 (Washington, D.C.:
Feb. 14, 2007).
3See, for example, GAO, Catastrophic Disasters: Enhanced Leadership,
Capabilities, and Accountability Controls Will Improve the Effectiveness
of the Nation's Preparedness, Response, and Recovery System, [9]GAO-06-618
(Washington, D.C.: Sept. 6, 2006).
In my testimony, I will discuss (1) challenges SBA experienced in
providing victims of the Gulf Coast hurricanes with timely assistance, (2)
factors that contributed to these challenges, and (3) steps SBA has taken
since the Gulf Coast hurricanes to enhance its disaster preparedness.
To address these objectives, we visited the Gulf Coast region, reviewed
documents related to SBA's acquisition and implementation of DCMS,
reviewed reports that discuss disaster planning, analyzed relevant SBA
planning documentation, and interviewed disaster planning experts and SBA
officials in headquarters and field offices. We conducted the work on our
reports from November 2005 through January 2007 and in accordance with
generally accepted government auditing standards.
In summary:
o We identified several significant system and logistical
challenges SBA experienced in responding to victims of the Gulf
Coast hurricanes that compromised the agency's ability to provide
timely disaster assistance. First, due to DCMS's limited capacity,
the number of staff who could concurrently access the system to
process disaster loans was restricted. Further, SBA staff who were
able to access DCMS often encountered system outages and slow
response times. Second, SBA faced challenges in training and
supervising thousands of mostly temporary employees hired to
process loan applications and encountered difficulties in
obtaining suitable office space for the expanded workforce. As a
result of these and other challenges, SBA averaged about 74 days
to process disaster loan applications, as of late May 2006,
compared with the agency's goal of processing applications within
21 days.
o While the unprecedented volume of disaster loan applications
clearly affected SBA's capacity to provide timely assistance to
Gulf Coast hurricane victims, the absence of a comprehensive and
sophisticated planning process beforehand likely limited the
efficiency of the agency's initial response. For example, in
designing the maximum user capacity of DCMS, SBA primarily relied
on historical data such as the number of loan applications that it
received after the 1994 Northridge, California, earthquake--the
most severe disaster that the agency had previously encountered.
SBA did not consider any disaster scenarios that were more severe
or use the information available from disaster simulations or
catastrophe models to help design DCMS's capacity.4 SBA also did
not adequately monitor a DCMS contractor or completely stress test
DCMS prior to its implementation. Moreover, SBA did not engage in
comprehensive disaster planning for other logistical issues, such
as workforce or space acquisition planning, prior to the Gulf
Coast hurricanes at either the headquarters or field office
levels.
o In the aftermath of the Gulf Coast hurricanes, SBA has planned
or initiated several measures that officials said would enhance
the agency's capacity to respond to future disasters. For example,
SBA officials said that the agency has completed an expansion of
DCMS's user capacity to support a minimum of 8,000 concurrent
users as compared with 1,500 concurrent users supported for the
Gulf Coast hurricanes. Additionally, SBA initiated measures or
established plans to address the logistical challenges that it
faced in responding to the disasters, such as taking steps to
increase the availability of trained and experienced disaster
staff. However, we have also identified several apparent
limitations in SBA' disaster planning process, including that the
agency has not established time lines for completing key elements
of the plan, assessed whether the supplemental use of simulations
and models would enhance the planning process, and developed a
long-term strategy to obtain suitable office space in a disaster
situation.
We recommended in our July 2006 report that SBA take several
actions to enhance DCMS, such as reassessing the system's maximum
user capacity in light of information available from catastrophe
risk modeling firms and disaster simulations. As I discussed
earlier, SBA officials said that DCMS's capacity has been
enhanced. We also recommended that SBA strengthen its DCMS
contractor oversight and further stress test the system. In the
report we are releasing today, we recommended, among other things,
that SBA develop time frames for completing key elements of its
disaster management plan. SBA agreed with these recommendations.
However, it remains to be seen how comprehensive the agency's
final disaster management plan will be and how it will help SBA
respond to a future disaster.
Background
SBA was established by the Small Business Act of 1953 to fulfill
the role of several agencies that previously assisted small
businesses affected by the Great Depression and, later, by wartime
competition. SBA's stated purpose is to promote small business
development and entrepreneurship through business financing,
government contracting, and technical assistance programs. In
addition, SBA serves as a small business advocate, working with
other federal agencies to, among other things, reduce regulatory
burdens on small businesses.
SBA also provides low-interest, long-term loans to individuals and
businesses to assist them with disaster recovery through its
Disaster Loan Program--the only form of SBA assistance not limited
to small businesses. Homeowners, renters, businesses of all sizes,
and nonprofit organizations can apply for physical disaster loans
for permanent rebuilding and replacement of uninsured or
underinsured disaster-damaged property. Small businesses can also
apply for economic injury disaster loans to obtain working capital
funds until normal operations resume after a disaster declaration.
SBA's Disaster Loan Program differs from the Federal Emergency
Management Agency's (FEMA) Individuals and Households Program
(IHP). For example, a key element of SBA's Disaster Loan Program
is that the disaster victim must have repayment ability before a
loan can be approved whereas FEMA makes grants under the IHP that
do not have to be repaid.5 Further, FEMA grants are generally for
minimal repairs and, unlike SBA disaster loans, are not designed
to help restore the home to its predisaster condition.
In January 2005, SBA began using DCMS to process all new disaster
loan applications. SBA intended for DCMS to help it move toward a
paperless processing environment by automating many of the
functions staff members had performed manually under its previous
system. These functions include both obtaining referral data from
FEMA and credit bureau reports, as well as completing and
submitting loss verification reports from remote locations.
DCMS�s Limited Capacity and Difficulties in Other Logistical Areas
Impeded SBA�s Response to the Gulf Coast Hurricanes
Our July 2006 report identified several significant limitations in
DCMS's capacity and other system and procurement deficiencies that
likely contributed to the challenges that SBA faced in providing
timely assistance to Gulf Coast hurricane victims as follows:
o First, due to limited capacity, the number of SBA staff who
could access DCMS at any one time to process disaster loans was
restricted. Without access to DCMS, the ability of SBA staff to
process disaster loan applications in an expeditious manner was
diminished.
o Second, SBA experienced instability with DCMS during the initial
months following Hurricane Katrina, as users encountered multiple
outages and slow response times in completing loan processing
tasks. According to SBA officials, the longest period of time DCMS
was unavailable to users due to an unscheduled outage was 1
business day. These unscheduled outages and other system-related
issues slowed productivity and affected SBA's ability to provide
timely disaster assistance.
o Third, ineffective technical support and contractor oversight
contributed to the DCMS instability that SBA staff initially
encountered in using the system. Specifically, a DCMS contractor
did not monitor the system as required or notify the agency of
incidents that could increase system instability. Further, the
contractor delivered computer hardware for DCMS to SBA that did
not meet contract specifications.
In the report that we are releasing today, we identified other
logistical challenges that SBA experienced in providing disaster
assistance to Gulf Coast hurricane victims. For example, SBA moved
urgently to hire more than 2,000 mostly temporary employees at its
Ft. Worth, Texas disaster loan processing center through newspaper
and other advertisements (the facility increased from about 325
staff in August 2005 to 2,500 in January 2006). SBA officials said
that ensuring the appropriate training and supervision of this
large influx of inexperienced staff proved very difficult. Prior
to Hurricane Katrina, SBA had not maintained the status of its
disaster reserve corps, which was a group of potential voluntary
employees trained in the agency's disaster programs. According to
SBA, the reserve corps, which had been instrumental in allowing
the agency to provide timely disaster assistance to victims of the
September 11, 2001 terrorist attacks, shrank from about 600 in
2001 to less than 100 in August 2005.6
Moreover, SBA faced challenges in obtaining suitable office space
to house its expanded workforce. For example, SBA's facility in
Ft. Worth only had the capacity to house about 500 staff whereas
the agency hired more than 2,000 mostly temporary staff to process
disaster loan applications. While SBA was able to identify another
facility in Ft. Worth to house the remaining staff, it had not
been configured to serve as a loan processing center. SBA had to
upgrade the facility to meet its requirements. Fortunately, in
2005, SBA was also able to quickly reestablish a loan processing
facility in Sacramento, California, that had been previously
slated for closure under an agency reorganization plan. The
facility in Sacramento was available because its lease had not yet
expired, and its staff was responsible for processing a
significant number of Gulf Coast hurricane related disaster loan
applications.
As a result of these and other challenges, SBA developed a large
backlog of applications during the initial months following
Hurricane Katrina. This backlog peaked at more than 204,000
applications 4 months after Hurricane Katrina. By late May 2006,
SBA took about 74 days on average to process disaster loan
applications, compared with the agency's goal of within 21 days.
Unprecedented Loan Application Volume and SBA�s Limited Disaster
Planning Contributed to Challenges in Providing Timely Assistance
to Hurricane Victims
As we stated in our July 2006 report, the sheer volume of disaster
loan applications that SBA received was clearly a major factor
contributing to the agency's challenges in providing timely
assistance to Gulf Coast hurricane. As of late May 2006, SBA had
issued 2.1 million loan applications to hurricane victims, which
was four times the number of applications issued to victims of the
1994 Northridge, California, earthquake, the previous single
largest disaster that the agency had faced. Within 3 months of
Hurricane Katrina making landfall, SBA had received 280,000
disaster loan applications or about 30,000 more applications than
the agency received over a period of about 1 year after the
Northridge earthquake.
However, our two reports on SBA's response to the Gulf Coast
hurricanes also found that the absence of a comprehensive and
sophisticated planning process contributed to the challenges that
the agency faced.7 For example, in designing DCMS, SBA used the
volume of applications received during the Northridge, California,
earthquake and other historical data as the basis for planning the
maximum number of concurrent agency users that the system could
accommodate. SBA did not consider the likelihood of more severe
disaster scenarios and, in contrast to insurance companies and
some government agencies, use the information available from
catastrophe models or disaster simulations to enhance its planning
process. Since the number of disaster loan applications associated
with the Gulf Coast hurricanes greatly exceeded that of the
Northridge earthquake, DCMS's user capacity was not sufficient to
process the surge in disaster loan applications in a timely
manner.
Additionally, SBA did not adequately monitor the performance of a
DCMS contractor or stress test the system prior to its
implementation. In particular, SBA did not verify that the
contractor provided the agency with the correct computer hardware
specified in its contract. SBA also did not completely stress test
DCMS prior to implementation to ensure that the system could
operate effectively at maximum capacity. If SBA had verified the
equipment as required or conducted complete stress testing of DCMS
prior to implementation, its capacity to process Gulf Coast
related disaster loan applications may have been enhanced.
In the report we are releasing today, we found that SBA did not
engage in comprehensive disaster planning for other logistical
areas--such as workforce or space acquisition planning--prior to
the Gulf Coast hurricanes at either the headquarters or field
office levels. For example, SBA had not taken steps to help ensure
the availability of additional trained and experienced staff such
as (1) cross-training agency staff not normally involved in
disaster assistance to provide backup support or (2) maintaining
the status of the disaster reserve corps as I previously
discussed. In addition, SBA had not thoroughly planned for the
office space requirements that would be necessary in a disaster
the size of the Gulf Coast hurricanes. While SBA had developed
some estimates of staffing and other logistical requirements, it
largely relied on the expertise of agency staff and previous
disaster experiences--none of which reached the magnitude of the
Gulf Coast hurricanes--and, as was the case with DCMS planning,
did not leverage other planning resources, including information
available from disaster simulations or catastrophe models.
SBA Has Taken Steps to Better Prepare for Future Disasters, but
Their Effectiveness Remains to Be Seen
In our July 2006 report, we recommended that SBA take several
steps to enhance DCMS, such as reassessing the system's capacity
in light of the Gulf Coast hurricane experience and reviewing
information from disaster simulations and catastrophe models. We
also recommended that SBA strengthen its DCMS contractor oversight
and further stress test the system. SBA agreed with these
recommendations. I note that SBA has completed an effort to expand
DCMS's capacity. SBA officials said that DCMS can now support a
minimum of 8,000 concurrent agency users as compared with only
1,500 concurrent users for the Gulf Coast hurricanes.
Additionally, SBA has awarded a new contract for the project
management and information technology support for DCMS. The
contractor is responsible for a variety of DCMS tasks on SBA's
behalf including technical support, software changes and hardware
upgrades, and supporting all information technology operations
associated with the system.
In the report we are releasing today, we identified other measures
that SBA has planned or implemented to better prepare for and
respond to future disasters. These steps include appointing a
single individual to coordinate the agency's disaster preparedness
planning and coordination efforts, enhancing systems to forecast
the resource requirements to respond to disasters of varying
scenarios, and redesigning the process for reviewing applications
and disbursing loan proceeds.8 Additionally, SBA has planned or
initiated steps to help ensure the availability of additional
trained and experienced staff in the event of a future disaster.
According to SBA officials, these steps include cross-training
staff not normally involved in disaster assistance to provide back
up support, reaching agreements with private lenders to help
process a surge in disaster loan applications, and reestablishing
the disaster reserve corps with 750 individuals as of January
2007.
However, the report also discusses apparent limitations we found
in SBA's disaster planning processes. For example, SBA has not
established a time line for completing the key elements of its
disaster management plan, such as cross-training nondisaster staff
to provide back up support. In addition, SBA has not assessed
whether the agency could leverage outside resources to enhance its
disaster planning and preparation efforts, such as information
available from disaster simulations and catastrophe models.9
Finally, SBA had not established a long-term process to help
ensure that it could acquire suitable office space to house an
expanded workforce to respond to a future disaster.
To strengthen SBA capacity to respond to a future disaster, the
report recommends that SBA
o develop time frames for completing key elements of the disaster
management plan (and a long-term strategy for acquiring adequate
office space); and
o direct staff involved in developing the disaster plan to
continue assessing whether the use of disaster simulations or
catastrophe models would enhance the agency's overall disaster
planning process.
4Federal agencies and other organizations have developed assessments of
the potential destructive consequences of varying disaster scenarios,
which are intended to help federal, state, and local agencies enhance
their disaster planning. Moreover, many insurance companies and state
entities that provide catastrophe insurance coverage currently use
computer programs offered by several modeling firms to estimate the
financial consequences of various natural catastrophe scenarios.
5FEMA grants are also not available to businesses.
6SBA's disaster reserve corps consists of individuals, including retirees
and students, who have backgrounds in the agency's disaster assistance
programs (e.g., finance and customer support) and who are willing to work
on a temporary basis for the agency in an emergency situation. Such
individuals must agree to relocate within 40 hours of notification of a
disaster situation where their services are required by SBA.
7The report we are issuing today ( [16]GAO-07-114 ) discusses the need for
federal agencies and other organizations to engage in comprehensive
disaster planning based on previous GAO work, reports by other
investigative organizations, and the views of disaster planning experts.
8As described in the report we are issuing today ( [17]GAO-07-114 ), SBA
faced a significant backlog in disbursing the funds associated with
approved disaster loans in July 2006. SBA has redesigned the loan review
and disbursement process in such a way that agency officials believe
disbursement performance has been improved significantly.
9SBA has contacted FEMA for more information about a catastrophe model
that FEMA has developed.
SBA agreed to implement each of these recommendations. However, it
remains to be seen how comprehensive SBA's final disaster
management plan will be and how effectively the agency will
respond to a future disaster.
Madam Chairwoman, this concludes my prepared statement. I would be
happy to answer any questions at this time.
GAO Contact and Staff Acknowledgments
For further information on this testimony, please contact William
B. Shear at (202) 512- 8678 or [email protected]. Contact points for
our Offices of Congressional Affairs and Public Affairs may be
found on the last page of this statement. Individuals making key
contributions to this testimony included Wesley Phillips,
Assistant Director; Marshall Hamlett; Barbara S. Oliver; and Cheri
Truett.
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Highlights of [19]GAO-07-484T , a testimony before the Committee on Small
Business, House of Representatives
February 14, 2007
SMALL BUSINESS ADMINISTRATION
Response to the Gulf Coast Hurricanes Highlights Need for Enhanced
Disaster Preparedness
The Small Business Administration (SBA) helps individuals and businesses
recover from disasters such as hurricanes through its Disaster Loan
Program. SBA faced an unprecedented demand for disaster loan assistance
following the 2005 Gulf Coast hurricanes (Katrina, Rita, and Wilma), which
resulted in extensive property damage and loss of life. In the aftermath
of these disasters, concerns were expressed regarding the timeliness of
SBA's disaster assistance.
GAO initiated work and completed two reports under the Comptroller
General's authority to conduct evaluations and determine how well SBA
provided victims of the Gulf Coast hurricanes with timely assistance. This
testimony, which is based on these two reports, discusses (1) challenges
SBA experienced in providing victims of the Gulf Coast hurricanes with
timely assistance, (2) factors that contributed to these challenges, and
(3) steps SBA has taken since the Gulf Coast hurricanes to enhance its
disaster preparedness.
GAO visited the Gulf Coast region, reviewed SBA planning documents, and
interviewed SBA officials.
[20]What GAO Recommends
GAO recommends that SBA take several steps to improve its disaster
preparedness, and SBA agreed with these recommendations.
GAO identified several significant system and logistical challenges that
SBA experienced in responding to the Gulf Coast hurricanes that undermined
the agency's ability to provide timely disaster assistance to victims. For
example, the limited capacity of SBA's automated loan processing
system--the Disaster Credit Management System (DCMS)--restricted the
number of staff who could access the system at any one time to process
disaster loan applications. In addition, SBA staff who could access DCMS
initially encountered multiple system outages and slow response times in
completing loan processing tasks. SBA also faced challenges training and
supervising the thousands of mostly temporary employees the agency hired
to process loan applications and obtaining suitable office space for its
expanded workforce. As of late May 2006, SBA processed disaster loan
applications, on average, in about 74 days compared with its goal of
within 21 days.
While the large volume of disaster loan applications that SBA received
clearly affected its capacity to provide timely disaster assistance to
Gulf Coast hurricane victims, GAO's two reports found that the absence of
a comprehensive and sophisticated planning process beforehand likely
limited the efficiency of the agency's initial response. For example, in
designing the capacity of DCMS, SBA primarily relied on historical data
such as the number of loan applications that the agency received after the
1994 Northridge, California, earthquake--the most severe disaster that the
agency had previously encountered. SBA did not consider disaster scenarios
that were more severe or use the information available from disaster
simulations (developed by federal agencies) or catastrophe models (used by
insurance companies to estimate disaster losses). SBA also did not
adequately monitor the performance of a DCMS contractor or completely
stress test the system prior to its implementation. Moreover, SBA did not
engage in comprehensive disaster planning prior to the Gulf Coast
hurricanes for other logistical areas, such as workforce planning or space
acquisition, at either the headquarters or field office levels.
In the aftermath of the Gulf Coast hurricanes, SBA has planned or
initiated several measures that officials said would enhance the agency's
capacity to respond to future disasters. For example, SBA has completed an
expansion of DCMS's user capacity to support a minimum of 8,000 concurrent
users as compared with just 1,500 for the Gulf Coast hurricanes.
Additionally, SBA initiated steps to increase the availability of trained
and experienced disaster staff and redesigned its process for reviewing
loan applications and disbursing funds. However, SBA has not established a
time line for completing key elements of its disaster management plan,
such as cross-training agency staff not typically involved in disaster
assistance to provide back up support in an emergency. SBA also has not
(1) assessed whether its disaster planning process could benefit from the
supplemental use of disaster simulations or catastrophe models and (2)
developed a long-term strategy to obtain suitable office space for its
disaster staff. While SBA agreed with GAO's report recommendations to
address these concerns, it remains to be seen how comprehensive the
agency's final disaster plan will be and how the agency will respond to a
future disaster.
References
Visible links
7. ://www.gao.gov/cgi-bin/getrpt?GAO-06-860
8. ://www.gao.gov/cgi-bin/getrpt?GAO-07-114
9. ://www.gao.gov/cgi-bin/getrpt?GAO-06-618
19. ://www.gao.gov/cgi-bin/getrpt?GAO-07-484T
*** End of document. ***