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entitled 'Small Business Administration: Additional Steps Needed to 
Enhance Agency Preparedness for Future Disasters' which was released on 
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Report to Congressional Addressees: 

United States Government Accountability Office: 

GAO: 

February 2007: 

Small Business Administration: 

Additional Steps Needed to Enhance Agency Preparedness for Future 
Disasters: 

GAO-07-114: 

GAO Highlights: 

Highlights of GAO-07-114, a report to congressional addressees 

Why GAO Did This Study: 

The Small Business Administration (SBA) is the federal government’s 
primary provider of disaster loans to businesses, homeowners, and 
renters. In a previous report (GAO-06-860), GAO found that SBA’s 
limited information systems planning contributed to delays in 
processing disaster loans for the victims of the 2005 Gulf Coast 
Hurricanes (Katrina, Rita, and Wilma). To provide further insight into 
how SBA’s disaster preparedness could be enhanced, this second report, 
initiated under the Comptroller General’s authority, assesses other 
logistical issues (e.g., staffing and space acquisition) that may have 
affected the efficiency of the agency’s response to the hurricanes. 
Specifically, this report (1) assesses SBA’s logistical planning 
efforts prior to the Gulf Coast hurricanes and current planning efforts 
and (2) discusses SBA’s outreach services to hurricane victims. 

GAO reviewed disaster planning reports, interviewed SBA officials, and 
visited the Gulf Coast region. 

What GAO Found: 

SBA engaged in limited logistical disaster planning prior to the Gulf 
Coast hurricanes, which, in retrospect, likely contributed to the 
initial challenges that the agency faced in processing the related 
surge in disaster loan applications on a timely basis. GAO reports, 
reports by other investigative agencies, and disaster management 
experts have stated that comprehensive planning and the supplementary 
use of sophisticated techniques (e.g., simulations of varying disaster 
scenarios) can help organizations prepare for potential disasters and 
mitigate their effects. However, SBA did not engage in or complete 
comprehensive disaster plans prior to the Gulf Coast hurricanes, in 
part, due to the view by headquarters agency officials that such 
planning yielded limited benefits and that local agency officials were 
in the best position to estimate logistical requirements. With better 
planning, available evidence suggests the agency could have been better 
positioned to provide initial disaster assistance to hurricane victims 
in an organized and efficient manner. In particular, SBA faced 
challenges in training and supervising thousands of temporary employees 
hired to process loan applications, had not taken steps to help ensure 
additional trained staff would be available, and encountered 
difficulties in obtaining suitable office space for the expanded 
workforce. 

In the wake of the Gulf Coast hurricanes, SBA officials said that they 
recognized the importance of disaster planning and have initiated a 
planning process designed to address key areas, which includes cross-
training other agency staff to provide disaster assistance and 
recruiting and training a reserve of potential temporary employees. SBA 
has also taken steps to expedite the process for disbursing approved 
disaster loans. However, GAO continues to have concerns about several 
limitations in SBA’s current planning process, including the lack of a 
timetable for competing key elements of its disaster management plan 
and the fact that the agency has not assessed whether its disaster plan 
would benefit from the supplemental use of disaster simulations or 
catastrophe models. 

SBA took a variety of steps under trying conditions to inform victims 
of the Gulf Coast hurricanes about its assistance programs, but several 
factors may have limited the effectiveness of these outreach efforts. 
SBA staff members reached out to disaster victims by speaking at about 
600 organized events and advertising. However, the effectiveness of 
SBA’s outreach efforts may have been reduced by, among other things, 
both the extensive damage and victim relocations associated with the 
hurricanes. According to SBA officials, the agency has initiated an 
internal review of the outreach that it provided to victims of the Gulf 
Coast hurricanes and is developing a plan to better provide such 
outreach in future disasters. 

What GAO Recommends: 

To help ensure that SBA is better prepared to provide disaster 
assistance, GAO recommends that the agency (1) establish time frames 
for completing key elements of its disaster management plan and (2) 
assess whether use of disaster simulations and models could enhance 
disaster planning efforts. SBA agreed with these recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-114]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact William B. Shear at (202) 
512-8678 or shearw@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

SBA's Limited Planning Likely Contributed to Initial Delays in 
Processing Gulf Coast Hurricane Disaster Loan Applications, and 
Announced Disaster Planning Improvements Also Have Potential 
Limitations: 

SBA Utilized a Variety of Outreach Approaches during the Gulf Coast 
Hurricanes, but Several Factors May Have Limited Their Effectiveness: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Small Business Administration: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: SBA's Realigned Disaster Loan Operation as of June 1, 2006: 

Figure 2: SBA Ft. Worth Loan Processing Staffing Levels: 

Figure 3: Example of an SBA Print Ad for Hurricane Katrina Victims: 

Abbreviations: 

ACP: Association of Contingency Planners: 

AIR: Applied Insurance Research: 

DCMS: Disaster Credit Management System: 

DHS: Department of Homeland Security: 

FEMA: Federal Emergency Management Agency: 

GSA: General Services Administration: 

IHP: Individuals and Households Program: 

SBA: Small Business Administration: 

USGS: U.S. Geological Survey: 

United States Government Accountability Office: 
Washington, DC 20548: 

February 14, 2007: 

Congressional Addressees: 

While the Small Business Administration (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. In 2005 and 2006, SBA 
faced unprecedented demand for its disaster loan assistance services in 
the wake of Hurricanes Katrina (which made landfall in late August 
2005), Rita, and Wilma, which battered the U.S. Gulf Coast region. The 
Gulf Coast hurricanes caused more than $80 billion in estimated insured 
and uninsured property damages and over 1,400 deaths.[Footnote 1] Nine 
months following Hurricane Katrina, SBA had approved more than 148,700 
disaster assistance loans totaling $9.7 billion to individuals and 
businesses that suffered losses from the Gulf Coast hurricanes. 
However, Congress and press reports expressed concerns that SBA's 
response to the hurricanes was slow, leaving many disaster victims 
without the timely assistance that they needed. In fact, as we 
previously reported, as of late May 2006, SBA took, on average, about 
74 days to process disaster loan applications as compared with the 
agency's goal of processing all disaster loan applications within 21 
days.[Footnote 2] 

In July 2006, we reported, that while the unprecedented volume of 
disaster loan applications contributed substantially to the challenges 
that the agency faced in providing disaster relief on a timely basis, 
limited information technology planning also played a significant 
role.[Footnote 3] In particular, we concluded that SBA had not fully 
planned for the implementation of its new disaster loan processing 
system--the Disaster Credit Management System (DCMS), which the agency 
implemented in January 2005. For example, SBA planning was limited for 
the maximum number of staff that would need to concurrently use DCMS 
during a disaster situation. In planning for the maximum user capacity 
of DCMS, we found that SBA relied on data on the volume of disaster 
loan applications it had received from victims of the most severe 
disaster in the agency's experience--the Northridge, California, 
earthquake of 1994--and other agency historical data. If SBA had 
considered information available from disaster simulations and risk 
modeling firms (particularly potentially more severe disaster scenarios 
than the Northridge earthquake), we concluded that the agency may have 
acquired additional capacity for DMCS that would have allowed it to 
process Gulf Coast hurricane-related applications on a timelier 
basis.[Footnote 4] We recommended, among other things, that SBA 
reassess DCMS's maximum user capacity based on lessons learned from the 
Gulf Coast hurricanes and information from catastrophe risk modeling 
firms, among other sources. Although SBA took issue with some of our 
analysis that supported this recommendation, the agency generally 
agreed to implement it. 

We have prepared this second report under the Comptroller General's 
authority to conduct evaluations on his own initiative as part of a 
continuing effort to assist Congress in reviewing how SBA's 
preparedness for future disasters can be enhanced. This report 
generally focuses on SBA's disaster planning and preparations prior to 
the Gulf Coast hurricanes for logistical areas other than DCMS, such as 
hiring of additional staff necessary to process applications in large 
disaster situations, space acquisition, obtaining telecommunication and 
other necessary technologies, and efforts to inform disaster victims of 
the agency's relevant loan programs. Specifically, our objectives were 
to (1) assess SBA's logistical planning efforts prior to the Gulf Coast 
hurricanes and current disaster planning efforts and (2) discuss 
outreach efforts that SBA provided to Gulf Coast hurricane victims. 

To address the first objective, we reviewed our previous reports and 
reports from other organizations that have investigated the federal 
response to the Gulf Coast hurricanes, including the Association of 
Contingency Planners and the Office of Inspector General of the 
Department of Homeland Security.[Footnote 5] We also interviewed 
disaster management experts, SBA officials in headquarters and agency 
field offices, and state officials in Mississippi and Louisiana. 
Further, we reviewed SBA documents that pertain to the agency's 
disaster planning process. For the second objective, we reviewed SBA 
documentation that describes the agency's outreach efforts during the 
Gulf Coast hurricanes and discussed these outreach efforts with SBA 
officials. Further, we discussed SBA's current plans to evaluate its 
disaster outreach program with agency officials. Appendix I explains 
our objectives, scope and methodology in greater detail. 

We conducted our work in Washington, D.C., at SBA's headquarters and at 
agency field offices that played a role in the agency's response to the 
Gulf Coast hurricanes, including the disaster loan processing center in 
Ft. Worth, Texas, the satellite loan processing facility in Sacramento, 
California, the disaster loan customer service call center in Buffalo, 
N.Y., and the Atlanta field office, which along with the Sacramento 
office, is responsible for disaster services outreach, among other 
duties. Additionally, we visited the DCMS operations center in 
Virginia, and SBA's Georgia District Office. We also visited state and 
local disaster response offices in Louisiana and Mississippi. Our work 
was conducted from November 2005 to January 2007 in accordance with 
generally accepted government auditing standards. 

Results in Brief: 

SBA engaged in limited logistical disaster planning prior to the Gulf 
Coast hurricanes, which, in retrospect, likely contributed to the 
initial challenges that the agency faced in processing the related 
surge in disaster loan applications on a timely basis. Our reports, 
including the report on SBA's limited planning for the implementation 
of DCMS, other investigative reports, and disaster management experts 
have stated that comprehensive planning, to include detailed staffing 
plans, and the supplementary use of sophisticated techniques as 
appropriate (e.g., using the results of disaster simulations and 
catastrophe models), can help organizations better prepare for 
potential disasters and thereby mitigate their effects. However, SBA 
did not engage in or complete comprehensive disaster plans prior to the 
Gulf Coast hurricanes, in part due to the view by headquarters 
officials that such centralized planning yielded limited benefits and 
that local agency officials were in the best position to estimate 
logistical requirements. 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) in doing so 
and had not leveraged other resources, including the results of 
disaster simulations or catastrophe models. As a result, available 
evidence suggests that SBA could have been better positioned to provide 
initial disaster assistance to Gulf Coast hurricane victims in an 
organized and efficient manner as described below: 

* SBA faced challenges in establishing a workforce to process the surge 
in disaster loan applications, which could potentially have been 
mitigated through better planning. For example, during the immediate 
aftermath of Hurricane Katrina, SBA had to move urgently to hire more 
than 2,000 temporary staff, largely through newspaper and other 
advertisements, at its Ft. Worth disaster loan processing center, which 
previously had a permanent and temporary staff of about 325 on board 
including 40 supervisors. SBA officials said that ensuring the training 
and supervision of this large influx of temporary staff proved very 
difficult. Prior to the Gulf Coast hurricanes, 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 a reserve of potential temporary employees trained in the 
agency's disaster policies and systems (SBA officials said that the 
disaster reserve corps had shrunk from about 600 individuals in 2001 to 
less than 100 in August 2005).[Footnote 6] 

* SBA had not thoroughly planned for the office space requirements that 
would be necessary in a disaster the size of the Gulf Coast hurricanes. 
For example, SBA only had the capacity to house about 500 employees at 
its facility in Ft. Worth, so it had to identify another facility in 
the city after Hurricane Katrina made landfall (which had not been 
configured with technology to meet the agency's needs) with the 
assistance of the General Services Administration (GSA) to house the 
remaining approximately 2,000 employees.[Footnote 7] Fortunately, SBA 
was also able to quickly reestablish its satellite loan processing 
facility in Sacramento, which was in the process of being closed under 
an agency reorganization initiative, to help to reduce the application 
backlog.[Footnote 8] 

In the wake of the Gulf Coast hurricanes, SBA officials said that they 
recognized the importance of enhanced disaster planning and have 
planned or implemented several measures to better prepare for and 
respond to potential disasters. For example, SBA officials said the 
agency is developing enhanced systems, largely based on previous agency 
experiences including the Gulf Coast hurricanes, to estimate staffing 
and other logistical requirements when particular disasters occur. SBA 
is also developing procedures to help ensure additional experienced and 
trained staff are available to respond to a disaster, which include 
cross-training other agency staff, reestablishing the disaster reserve 
corps, and reaching agreements with private lenders to provide disaster 
loan processing capacity. Additionally, SBA has significantly revised 
its approach for disbursing approved disaster loans, which agency 
officials said substantially reduced the disbursement backlog 
associated with Gulf Coast hurricane-related applications and should be 
similarly effective in future catastrophes.[Footnote 9] However, we 
have also identified several apparent limitations in SBA' disaster 
planning process, including that the agency has not: (1) established a 
time frame for implementing key elements of its disaster management 
plan such as cross-training other SBA staff to provide backup support, 
(2) assessed whether the agency's disaster planning process could 
benefit from the supplemental use of available resources--such as the 
results of disaster simulations or catastrophe models--to help develop 
estimates of its logistical requirements under varying disaster 
scenarios (particularly worse case scenarios), and (3) developed a long-
term strategy to help ensure its capacity to obtain suitable office 
space in a disaster situation.[Footnote 10] 

SBA took a variety of steps under trying conditions to inform victims 
of the Gulf Coast hurricanes of the agency's assistance programs, but 
several factors may have limited their effectiveness. SBA staff members 
reached out to disaster victims (many of whom had relocated to other 
parts of the country) by speaking at about 600 organized events, 
advertising through the media, staffing disaster recovery centers, and 
making follow-up phone calls. However, SBA officials said that 
informing and educating the public about the agency's disaster services 
can be challenging because (1) it is not normally associated with 
providing such services and (2) the federal government's disaster 
relief programs are complex (e.g., both SBA and the Federal Emergency 
Management Agency [FEMA] provide financial assistance to disaster 
victims). Further, due to the extent of the disasters, SBA lacked the 
resources necessary to comply with an informal agency policy of 
conducting follow-up phone calls with all disaster victims to whom they 
mailed loan applications and, therefore, could not reach approximately 
800,000 individuals.[Footnote 11] According to SBA officials, the 
agency has initiated an internal review of the outreach that it 
provided to victims of the Gulf Coast hurricanes and is developing a 
plan to better provide such outreach in future disasters. 

To help ensure that SBA is better prepared to provide critical 
assistance to victims of future disasters, this report recommends, 
among other steps, that the agency (1) establish a time frame for 
completing key elements of its disaster management plan and a long-term 
strategy to help ensure its capacity to obtain suitable office space 
and (2) assess whether available resources--such as the results of 
disaster simulations or catastrophe models--could enhance its disaster 
planning efforts. 

We provided a draft of this report to SBA for its review and comment. 
In its written responses, SBA described a number of measures that the 
agency has initiated to better respond to a future disaster. SBA also 
agreed to implement the recommendations in the report, including (1) 
establishing time frames for completing key disaster planning 
initiatives and (2) assessing whether available disaster simulations 
and external catastrophe models could enhance the agency's disaster 
planning process. Additionally, SBA officials said the agency has taken 
steps to help ensure the availability of additional office space 
configured to meet its requirements in a future disaster. 

Background: 

The Gulf Coast hurricanes formed a catastrophe that was one of the most 
devastating natural disasters in U.S. history. In August 2005, 
Hurricane Katrina struck first on the East Coast of Florida before 
hitting the northern Gulf Coast region, including Louisiana and Texas, 
resulting in a substantial loss of life and widespread devastation. The 
storm also caused substantial damage in the Florida panhandle, Georgia, 
and Alabama. In September 2005, Hurricane Rita caused substantial 
devastation and deaths near the Texas and Louisiana border. In October 
2005, Hurricane Wilma made landfall in Florida, and also caused 
fatalities and created a significant amount of damage and destruction 
there. 

The federal government provides funding and assistance to individuals 
and businesses after disasters, primarily through FEMA and SBA. FEMA is 
responsible for coordinating response and recovery efforts under 
presidential disaster declarations. FEMA works with other federal, 
state, and local agencies to assist victims after major disasters, and 
volunteer organizations such as the American Red Cross also participate 
in these efforts. Following a presidential disaster declaration, FEMA 
will open Disaster Recovery Centers where disaster victims can meet 
with representatives, obtain information about the recovery process, 
and register for federal disaster assistance. Victims may also register 
with FEMA by telephone or via FEMA's Internet site. FEMA provides 
housing assistance to disaster victims through the Individuals and 
Households Program (IHP).[Footnote 12] Under the IHP, FEMA can make 
grants available to repair or replace housing damaged in a disaster 
that is not covered by insurance. However, the IHP is a minimal repair 
program that is designed to make the victim's home habitable and 
functional, not to restore the home to its predisaster condition. When 
disaster victims register for FEMA assistance, they are asked to 
provide their approximate household income. If the applicant's income 
exceeds certain thresholds, FEMA automatically refers them to SBA's 
Disaster Loan Program.[Footnote 13] 

SBA's Disaster Loan Program is the primary federal program for funding 
long-range recovery for private sector, nonfarm disaster victims and 
the only form of SBA assistance not limited to small businesses. The 
Small Business Act authorizes SBA to make available the following two 
types of disaster loans: 

* Physical disaster loans--These loans are for permanent rebuilding and 
replacement of uninsured or underinsured disaster-damaged property. 
They are available to homeowners, renters, businesses of all sizes, and 
nonprofit organizations. These loans are intended to repair or replace 
the disaster victims' damaged property to its predisaster condition. 

* Economic injury disaster loans--These loans provide small businesses 
with necessary working capital until normal operations resume after a 
disaster declaration. They cover operating expenses the business could 
have paid had the disaster not occurred. The act restricts economic 
injury disaster loans to small businesses only. 

A key element of SBA's loan program is that the disaster victim must 
have repayment ability before a loan can be approved. If SBA determines 
that a victim cannot afford a loan, SBA will automatically refer the 
individual back to FEMA where they may be eligible for other grant 
assistance. FEMA may be able to provide funds for "other than housing" 
needs, however, this additional help is not available to 
businesses.[Footnote 14] FEMA's additional help is intended to meet 
necessary expenses and serious needs not met by any other form of help, 
including insurance and SBA disaster loans. 

In 2004, SBA began a process to realign its Office of Disaster 
Assistance's organizational structure (referred to as "workforce 
transformation") that was designed to allow the agency to better 
provide disaster assistance, leverage technology such as DCMS, and 
reduce operating costs. Previously, SBA maintained four area offices 
nationwide that generally operated independently of one another. For 
example, each area office had its own customer service duties and loan 
processing functions, and provided administrative support within a 
geographic area. As a result of its transformation effort, SBA 
centralized its Disaster Loan Program's customer service function in 
its Buffalo office and its loan processing function in its Ft. Worth 
office. Additionally, SBA established two field operations centers in 
both Sacramento and Atlanta that are responsible for all disaster field 
operations, public information, and congressional relations functions. 
The centers also provide space for SBA's Field Inspection Team, which 
conducts property inspections in order to verify loan applicants' 
losses. SBA collocated its administrative and personnel support center 
in Herndon, Va., with the DCMS operations center. Figure 1 shows SBA's 
revised structure as of June 2006. 

Figure 1: SBA's Realigned Disaster Loan Operation as of June 1, 2006: 

[See PDF for image] 

Sources: GAO, based on SBA's Workforce Transformation Blueprint (data); 
MapArt (map). 

[End of figure] 

Prior to Hurricane Katrina, SBA's Office of Disaster Assistance had a 
staff of approximately 800 individuals, including about 350 to 400 
permanent staff and about 400 temporary staff (who had generally been 
hired to process disaster loan applications associated with the four 
hurricanes that struck Florida in 2004). However, due to the volume of 
disaster loan applications associated with the Gulf Coast hurricanes, 
SBA had increased the size of its disaster loan staff to more than 
4,300 employees by January 2006, primarily through hiring temporary 
employees. SBA largely hired these temporary employees through 
advertisements in newspapers and on local radio stations. 

SBA's Limited Planning Likely Contributed to Initial Delays in 
Processing Gulf Coast Hurricane Disaster Loan Applications, and 
Announced Disaster Planning Improvements Also Have Potential 
Limitations: 

Our previous reports and reports of others as well as disaster experts 
have stated that advance contingency planning is a crucial element in 
helping organizations function and respond to large-scale disasters. 
However, we found that prior to the Gulf Coast hurricanes, SBA had 
generally not engaged in such comprehensive planning efforts in either 
headquarters or in field offices. SBA had not (1) taken practical steps 
to help ensure that there would be additional trained and experienced 
staff available to process applications, (2) established plans to 
secure additional office space configured to meet the needs of the 
agency, and (3) established adequate telecommunications support for the 
customer call center in Buffalo. While SBA partnered with GSA on an ad 
hoc basis to help address these challenges, in some cases it was 
fortunate to obtain the necessary logistical capacity. In the wake of 
the Gulf Coast hurricanes, SBA officials said that they had initiated 
steps to better plan and prepare for potential disasters, including 
developing more advanced disaster forecasting techniques and 
establishing measures to help ensure the availability of additional 
trained and experienced staff. SBA has also taken steps to expedite the 
process for disbursing approved disaster loans. However, SBA's planning 
approach appears to be limited in that the agency has not established a 
time frame for completing key aspects of its comprehensive disaster 
management plan, such as cross-training other agency staff to provide 
backup support in a disaster and has not assessed whether it could 
leverage outside resources--such as the results of disaster simulations 
or catastrophe models--to enhance its disaster planning processes. 
Further, SBA has not developed a strategy to help strengthen its long- 
term ability to obtain suitable office space in the event of a major 
disaster. 

Various Sources Cite Planning as a Critical Element in Helping 
Organizations Prepare for Potential Large-Scale Disasters: 

As we have stated in a previous report and in testimony, the ability of 
the United States to prepare for, respond to, and recover from 
catastrophic disasters can be enhanced through strong advance 
contingency planning, both within and among organizations responsible 
for responding to such disasters.[Footnote 15] Our work has also 
identified instances where advance planning allowed federal agencies to 
respond effectively to the Gulf Coast hurricanes.[Footnote 16] For 
example, we found that the Coast Guard, Social Security Administration, 
and the National Finance Center were able to continue their services to 
Gulf Coast disaster victims with minimal interruptions because of their 
disaster planning initiatives.[Footnote 17] In contrast, our work 
identified other federal agencies, which did not engage in 
comprehensive planning prior to the Gulf Coast hurricanes, and thereby 
faced significant challenges in fulfilling their disaster response and 
recovery obligations.[Footnote 18] For example, as discussed 
previously, our July 2006 report found that SBA's limited information 
technology planning prior to the Gulf Coast hurricanes negatively 
affected the agency's capacity to process disaster loan 
applications.[Footnote 19] SBA based its information technology 
processing requirements primarily on the Northridge earthquake 
experience of 1994, which was the largest disaster that the agency had 
previously experienced, and did not evaluate the consequences of other 
potentially more severe disaster scenarios that were available from 
existing disaster simulations or catastrophe risk model 
results.[Footnote 20] For example, SBA did not take part in the 
Hurricane Pam disaster simulation, which FEMA organized in 2004 to help 
prepare for a hurricane striking New Orleans.[Footnote 21] In an 
earlier report, we found that a lack of advance planning at all levels 
of government hindered response and recovery efforts to Hurricane 
Andrew, which struck South Florida in 1992.[Footnote 22] 

In addition to findings from our previous studies, other studies have 
concluded that a lack of contingency planning can affect an 
organization's ability to carry out its mission and meet program goals 
at the time of a major disaster, and that there is no substitute for 
thorough preparation.[Footnote 23] Thus, these reports, such as 
Department of Homeland Security studies, congressional and White House 
reports, as well as private studies all identified the necessity for 
conducting rigorous planning. For example, a study by the Association 
of Contingency Planners (ACP) emphasized the need for organizations to 
formally train their staff in disaster planning and engage in thorough 
disaster simulations, particularly worst case scenarios, to help ensure 
adequate preparation. In addition, the Department of Homeland Security 
Inspector General reported, in March 2006, that FEMA lacked final plans 
that specifically addressed the types of challenges the agency could be 
expected to face in catastrophic circumstances. The Inspector General 
recommended that FEMA develop a comprehensive plan to aid in responding 
to potential disasters. 

Disaster experts we interviewed agreed that sound planning can help 
organizations--such as federal agencies--prepare for potential 
disasters. The experts said that the failure to have an established 
plan can negatively affect an agency's response and recovery efforts. 
Additionally, the experts said that the failure to establish a plan 
requires agencies to relearn experiences from one disaster to the next, 
thereby further slowing agency recovery efforts. One expert stated 
that, to provide for an effective agency response to a disaster, a 
comprehensive plan should address, to a certain extent, components of 
command, operations, logistics, finance, and administrative needs. For 
example, the expert said that the logistical component should entail a 
detailed staffing plan to help ensure an organization's ability to 
fulfill its mission at the time of a major catastrophe. The individual 
noted that most organizations, including federal agencies, did not have 
staffing plans in place at the time of the Gulf Coast hurricanes. 
However, the experts cautioned that an agency's disaster contingency 
plan must be a flexible blueprint that can respond to changing 
circumstances and disaster scenarios. In estimating the potential 
consequences of varying disaster scenarios, another expert advised that 
organizations could benefit from the further use catastrophe models, 
given that such technology has been available for about 20 years. 

SBA Did Not Engage in Comprehensive Disaster Planning Prior to Gulf 
Coast Hurricanes: 

As was the case with SBA's limited planning efforts for the 
implementation of DCMS, the agency also did not engage in comprehensive 
disaster planning for other logistical areas prior to the Gulf Coast 
hurricanes. For example, SBA had not completed a formal, centralized 
staffing plan to help manage the surge in disaster loan applications 
that could be anticipated under various disaster scenarios. SBA 
headquarters officials said that they had not developed agency wide 
disaster planning guidance due to their view that field office staff 
were in a better position to plan their response in the event of a 
crisis. That is, the SBA headquarters staff said that agency field 
office staff had a vast level of knowledge and experience that allowed 
them to establish plans for a range of potential disaster scenarios and 
that, given the uncertainty of disaster scenarios, centralized advance 
planning would likely yield limited benefits. SBA management said they 
considered this decentralized approach as appropriate and viewed 
headquarters' role as being more of a resource that the field offices 
could rely on for policy and high-level strategic guidance. However, at 
the time of the Gulf Coast hurricanes, SBA field offices had not 
completed written plans to guide their efforts in the event of a 
disaster. One field office official said, while SBA headquarters 
encouraged field offices to establish written disaster plans, field 
offices were not required to do so. While SBA had not engaged in 
comprehensive contingency planning, the agency had projected various 
logistical requirements during a disaster largely based on the 
expertise of its staff and experiences in responding to previous 
disasters (none of which reached the magnitude of destruction of the 
Gulf Coast hurricanes, as discussed earlier). SBA officials said that 
they did not use other information--such as the results of disaster 
simulations or catastrophe models--in developing their logistical 
projections. 

SBA Faced Logistical Challenges during its Initial Response to Gulf 
Coast Hurricanes: 

We recognize that even if SBA had engaged in comprehensive planning 
prior to the Gulf Coast hurricanes, it likely would have encountered 
logistical challenges (staffing, space acquisition, and technological 
support) in providing timely disaster assistance due to the volume of 
loan applications, including erroneous applications.[Footnote 24] 
However, information obtained during the course of our review indicates 
that SBA's limited disaster planning process, including the lack of a 
written plan for staffing requirements associated with surges in loan 
applications under varying disaster scenarios, further impeded the 
efficiency of the agency's response. For example, officials at SBA's 
Ft. Worth disaster loan processing center said that they developed 
staffing requirements as Hurricane Katrina struck the Gulf Coast and in 
its immediate aftermath. The officials said they initially estimated 
that the hurricane would require enough staff to process 150,000 to 
200,000 loan applications, but they doubled the staffing estimate after 
the levees in New Orleans failed, based on reports from the media, 
FEMA, and SBA loss verification teams.[Footnote 25] During the 
immediate aftermath of Hurricane Katrina, SBA had to move urgently to 
hire more than 2,000 staff by January 2006 at the Ft. Worth center, 
which previously had a permanent and temporary staff of about 325 on 
board including 40 supervisors (see fig. 2).[Footnote 26] SBA officials 
said that most of the individuals hired to work in the Ft. Worth center 
were temporary employees who received notice of the job opportunities 
through SBA advertisements in newspapers and other media 
outlets.[Footnote 27] Additionally, the SBA officials said that 
ensuring the appropriate training and supervision in hiring such a 
large number of inexperienced staff proved challenging. 

Figure 2: SBA Ft. Worth Loan Processing Staffing Levels: 

[See PDF for image] 

Sources: GAO, based on information provided by SBA. The figure 
represents approximate SBA staffing levels at particular points in time 
rather than hiring data by month. 

[End of figure] 

Moreover, in preparing for potential disasters, SBA did not take 
practical steps to help ensure the availability of additional trained 
and experienced staff as described below: 

* SBA did not have a system for "cross-training" its staff so that 
individuals not normally associated with disaster assistance could help 
out in the case of an emergency. With such cross-training, SBA could 
have potentially quickly leveraged the expertise of loan officers who 
are normally involved in the agency's other small business lending 
programs to help process disaster loan applications. We note that, 
subsequent to Hurricane Katrina's landfall, SBA's former Administrator 
directed some of the agency's district offices to request that staff 
not normally involved in disaster assistance volunteer to process 
disaster loans. However, SBA officials at one district office we 
visited said that staff who volunteered to processes disaster loans 
lacked access to the agency's loan processing system--DCMS--and, 
consequently, this presented further challenges in their ability to 
process disaster loan applications in a timely manner. For example, 
without access to DCMS, the district staff needed to take additional 
time to contact SBA's Ft. Worth disaster loan processing center to 
verify data and other information contained in disaster applications. 
Moreover, the Ft. Worth staff, as mentioned in our previous report, had 
to engage in a labor-intensive process of shipping files to the 
district office and manually inputting information into DCMS because 
the district office staff lacked access to the system. 

* SBA did not maintain the status of a reserve group of potential 
voluntary employees with expertise in the agency's disaster assistance 
programs. According to an SBA official, in approximately 2001, the 
agency had in place a disaster reserve corps of about 600 individuals, 
who had a background in areas such as finance, accounting, property 
inspections, and customer service who could be asked to volunteer as 
temporary employees in the event of a crisis. SBA officials said that 
the agency's disaster reserve corps includes retirees and students who 
must be willing to locate within 48 hours of notification that their 
services are required to assist in an emergency. As discussed in our 
2003 report, SBA officials believed that the disaster reserve corps 
facilitated the agency's capacity to process the surge in disaster loan 
applications associated with the September 11, 2001, terrorist 
attacks.[Footnote 28] However, SBA officials said that the agency did 
not subsequently maintain the status of the disaster reserve corps 
afterwards, and after the terrorist attacks, it largely dissolved. 
While an official said that SBA was in the process of rebuilding the 
corps when Hurricane Katrina struck, a senior agency official said the 
corps had fewer than 100 individuals at that time. 

Moreover, SBA did not have adequate plans in place to help ensure that 
it had adequate office space to house its expanded workforce-- 
particularly in the Ft. Worth and Buffalo offices--or 
telecommunications support in Buffalo. While SBA partnered with GSA on 
an ad hoc basis to address its logistical challenges after Hurricane 
Katrina made landfall, in some cases, the agency was fortunate to 
quickly obtain the needed capacity. The following provides specific 
information regarding SBA's Ft. Worth and Buffalo offices at the time 
of and after the Gulf Coast hurricanes: 

* At the Ft. Worth office, SBA did not initially have adequate space to 
accommodate the more than 2,000 employees that were hired to process 
disaster loans or an established plan to acquire such space (e.g., the 
Ft. Worth center could only accommodate 500 out of the 2,700 staff that 
were ultimately employed, by September 2006, to process Gulf Coast 
hurricane-related disaster loan applications). In September 2005, SBA 
worked with GSA on an ad hoc basis in an effort to locate additional 
space for the newly hired staff and was able to identify available 
offices near its existing facility. However, SBA officials said that 
the newly acquired space was not configured to serve as a disaster loan 
processing center, so the agency had to upgrade the space to 
accommodate its needs. Even so, we note that SBA still lacked 
sufficient capacity in Ft. Worth to process the growing backlog of 
disaster loan applications. To address this challenge, SBA was also 
able to reestablish the loan processing function at its Sacramento 
office, which had previously been discontinued as a result of its 
workforce transformation initiative. The Sacramento office space was 
available shortly after Hurricane Katrina struck because the lease had 
not yet expired. SBA established a workforce of approximately 250 
individuals at the Sacramento office, and the office played a 
significant role in reducing the backlog of Gulf Coast hurricane 
disaster loan applications.[Footnote 29] In June 2006, SBA also leased 
a 60,000 square foot facility in Ft. Worth, which, upon acquisition, 
was configured to meet the agency's needs to house the staff that are 
processing disaster loans associated with the Gulf Coast hurricanes, 
according to officials. 

* SBA's Buffalo office did not initially have sufficient space to serve 
as a customer call center in a catastrophic disaster situation. In June 
2005, SBA closed a loan processing facility in Niagara Falls, New York, 
and opened a facility in Buffalo, with the intention of it becoming the 
agency's customer service center (i.e., call center) at a later date. 
While SBA provided us with planning documents that recognized that the 
Buffalo office lacked sufficient space in order to expand during an 
emergency, the agency did not develop a contingency plan to guide its 
efforts in identifying suitable space to accommodate an expanded 
workforce if a major disaster occurred. As was the case in Ft. Worth, 
SBA collaborated with GSA on an ad hoc basis after Hurricane Katrina 
and was able to locate nearby available space in a federal office 
building.[Footnote 30] 

* Further, SBA faced challenges due to limited support for the 
telecommunications system at its disaster loan customer service call 
center in Buffalo. According to SBA field managers, while the customer 
service call center's telephone system processed calls as required, 
vendor service and support for the system were inadequate. An SBA 
official said that there was only one vendor in the Buffalo region that 
services the type of phone system that the agency uses. The SBA 
official said that limited support and maintenance for the agency's 
phone system impacted the agency's ability to be able to efficiently 
respond to inquiries from disaster loan applicants. Further, an SBA 
official said that the phone system was not designed to interface with 
other key agency systems, which also affected the center's operations. 
For example, due to limitations in the phone system's design, SBA 
customer service managers were forced to manually track and tally 
critical information necessary to effectively manage the center, such 
as the number of inbound/outbound calls received in a given time 
period. According to an SBA field official, this information is 
necessary in order for the office's workforce manager to accurately 
forecast staffing needs, but tracking this data manually is time 
consuming and inefficient. SBA officials said that they have initiated 
a review of the Buffalo phone system and are considering options to 
upgrade it. 

SBA Has Initiated Measures to Better Prepare for Potential Disasters 
but Has Not Established Time Frames for Plan Completion or Leveraged 
Available Disaster Planning Resources: 

In the wake of the Gulf Coast hurricanes, SBA officials said that they 
recognized the importance of further enhancing their disaster planning 
and have developed a master plan and initiated measures based on 
"lessons learned" from the experience. In particular, SBA convened a 
Disaster Oversight Council composed of senior agency leadership, to 
better leverage the resources of the agency as a whole, and incorporate 
new ideas and best practices into the agency's preparedness capability. 
In September 2006, SBA also appointed a single individual to coordinate 
the agency's disaster preparedness planning and coordination efforts. 
Further, SBA officials said that the agency is taking steps to address 
limitations that existed in its disaster planning prior to the Gulf 
Coast hurricanes and weaknesses in disbursing approved disaster loan 
applications as follows: 

* Developing enhanced disaster forecasting and response capabilities. 
SBA officials said that the agency is developing automated models to 
better estimate loan application volumes when disasters strike. The 
officials said that these models are based on data from the agency's 
experiences in responding to previous disasters, including the Gulf 
Coast hurricanes. The officials said that the models allow the agency, 
for example, to estimate the number of loan applications that can be 
expected under varying disaster scenarios. Officials said that the 
models' estimates can be refined, after disasters occur, based on 
information provided by FEMA and SBA loss verification teams. SBA 
officials also said that they are developing the capacity to better 
estimate resource requirements---such as staffing requirements---to 
better respond to potential disaster scenarios. Additionally, SBA 
stated that DMCS has been tested and verified to support a minimum of 
8,000 concurrent users (the agency maintained a workforce of about 
4,300 at its peak in January 2006 to respond to the Gulf Coast 
hurricanes). SBA stated that it continues to explore the best means of 
upgrading DCMS' capacity. 

* Ensuring additional trained and experienced staff in the event of a 
disaster. SBA officials said that the agency is developing a plan to 
cross-train staff agencywide to provide disaster loan assistance. They 
also said SBA is planning to develop partnerships with private sector 
lenders who could assist SBA with loan processing and loan closing 
activities in the event of a major disaster. Additionally, SBA 
officials said that the agency has reestablished a disaster reserve 
corps of about 750 individuals, the majority of whom have been trained 
in the agency's policies and systems. An SBA official added that the 
agency plans to ensure that corps members will be able to quickly 
obtain government identification and credit cards to help ensure their 
immediate availability in the event of a disaster. However, SBA 
officials said that maintaining the status of the corps may prove 
challenging over the longer term if their services are not required for 
long periods. The officials said it can be difficult to ensure the 
training of potential volunteers or their continued availability. 

* Acquiring office space to provide additional capacity. SBA officials 
said that the agency has acquired additional facilities to house its 
disaster assistance staff. As described previously, for example, SBA 
officials said that, in June 2006, they leased a third facility in Ft. 
Worth with 60,000 square feet of space that has been configured to 
serve as a disaster loan processing center (this facility has a 2-year 
lease). However, SBA officials said that there are trade-offs 
associated with maintaining such space over the longer term. A senior 
SBA official also said that, if the space is ultimately no longer 
required to process Gulf Coast hurricane-related loan applications, SBA 
would be required to incur lease costs at a time when funding for 
federal agency operations is limited. 

* Revising the existing approach to processing disaster loan 
applications to help ensure expedited fund disbursements. According to 
senior SBA officials, in July 2006, they reviewed the agency's approach 
to disbursing approved Gulf Coast hurricane disaster loan applications 
and found that inefficiencies in the process were contributing to 
substantial disbursement delays.[Footnote 31] Senior SBA officials said 
that the previous loan disbursement approach was an "assembly-line" 
type process wherein loan applications moved from one stage to another 
(e.g., from loss verification to the legal department) and that 
mistakes or delays in any one stage could result in significant 
disbursement backlogs. Further, SBA officials said that the previous 
approach lacked accountability and made it difficult for applicants to 
find the status of their application or to obtain consistent 
information from the agency. Subsequently, SBA officials said that they 
have instituted a "case-manager" model in which each loan application 
is assigned to a case manager to ensure accountability, and the loan 
review units use in a team-oriented approach. According to SBA 
officials, the revised approach reduced the backlog of disbursed loans 
associated with the Gulf Coast hurricanes from about 93,000 in August 
2006 to approximately 35,000 in November 2006.[Footnote 32] SBA 
officials also said that the revised approach should allow the agency 
to more efficiently disburse approved disaster loans in a future 
catastrophe. 

While SBA's announced changes address key limitations in its disaster 
planning process and preparedness efforts prior to the Gulf Coast 
hurricanes, agency officials have not established a time line for 
completing key elements of the disaster management plan. SBA officials 
explained that the planning process is ongoing and that they intend to 
review and implement a variety of changes in the agency's Office of 
Disaster Assistance in coming years. However, we note that several 
elements of SBA's planning and preparedness process are discrete tasks 
that lend themselves to the establishment of a time line for 
completion. These elements include cross-training agency staff to 
provide backup support for disaster assistance services and reaching 
agreements with private sector lenders to process a surge in loan 
applications associated with disasters. Without the establishment of 
reasonable time frames for completing such planning and preparedness 
elements, it is difficult for SBA management, Congress, the public, and 
others to assess the progress of the agency's efforts to better prepare 
for future disasters. 

Moreover, until recently, SBA had not taken steps to assess whether it 
could leverage outside resources to enhance its disaster planning and 
preparation efforts. SBA officials said that they had contacted other 
organizations, including FEMA, the National Weather Service, and the 
U.S. Geological Survey, in developing the agency's enhanced model for 
forecasting loan application volumes when disasters strike. However, as 
discussed previously, SBA officials said that they were largely relying 
on the agency's previous disaster experiences in enhancing their 
forecasting capacity, which is similar to the agency's disaster 
planning approach prior to the Gulf Coast hurricanes. SBA officials 
said that they had not used other outside resources, such as the 
results of disaster simulations or catastrophe models, in the disaster 
planning process. A senior SBA official said that the agency has not 
determined how catastrophe models could be incorporated into its 
planning process, given the differences that exist between the 
insurance sector and SBA's Disaster Loan Program. For example, the 
official noted that insurers use the models to limit their financial 
losses, due to hurricanes or earthquakes of varying severity, in 
specific areas where they insure properties, whereas SBA covers 
uninsured homes and businesses on a nationwide basis. While we 
recognize these differences, as discussed in our report on SBA's 
implementation of DCMS, the results of disaster simulations or 
catastrophe models could provide SBA with additional insight into 
potential disaster loan application volumes, and related agency 
logistical resource requirements, for particularly severe events that 
potentially rival or surpass the scope of disasters that the agency has 
previously encountered, including the Gulf Coast hurricanes.[Footnote 
33] 

In December 2006, SBA took initial steps to assess whether an available 
catastrophe model could help enhance its disaster planning efforts. SBA 
contacted FEMA regarding a catastrophe model that the agency has 
developed, referred to as HAZUS, that is designed to help estimate the 
damages associated with potential hurricanes, earthquakes, and floods, 
as well as the potential financial losses associated with varying 
disaster scenarios.[Footnote 34] SBA informed FEMA that the agency was 
interested in exploring the use of HAZUS as part of its disaster 
planning program. SBA requested that FEMA brief the agency's senior 
managers on HAZUS, as well as the types of training on the system that 
is available. It remains to be seen the extent to which SBA will decide 
to incorporate the HAZUS system into its disaster planning efforts. 

Finally, while we acknowledge that SBA would incur lease and other 
costs associated with maintaining facilities in anticipation of 
disasters, developing pragmatic strategies to help ensure the timely 
acquisition of suitable space over the long-term should be a key 
component of the agency's disaster contingency planning. Currently, SBA 
has a substantial amount of office space leased in Ft. Worth, for 
example, to complete the processing of Gulf Coast hurricane-related 
disaster applications, and which agency officials said could be used if 
another disaster occurs in the near term. However, if no such disaster 
occurs, and SBA reduces its office space inventory in Ft. Worth over 
the next several years to save costs, and the agency closes its 
Sacramento satellite loan processing facility in fiscal year 2007 as 
planned, the agency would lack adequate loan processing space to 
respond to a future disaster the size of the Gulf Coast hurricanes or 
larger. Under such a scenario, a repeat of the steps SBA took during 
the Gulf Coast hurricanes (i.e., contacting GSA after Hurricane Katrina 
made landfall) could similarly compromise the agency's capacity to 
provide efficient and timely disaster services. Analyzing the cost- 
effectiveness of obtaining and retaining certain office facilities over 
the long-term could improve SBA's preparedness for future disasters. 

SBA Utilized a Variety of Outreach Approaches during the Gulf Coast 
Hurricanes, but Several Factors May Have Limited Their Effectiveness: 

SBA took a number of steps, under trying conditions, to reach out to 
Gulf Coast hurricane victims to provide information and assistance 
regarding disaster recovery loan assistance services. For example, the 
agency mobilized its staff members to reach out to victims by speaking 
at organized events and by advertising in a variety of media including 
the Internet. However, various factors (including the fact that many 
people do not equate SBA with disaster assistance) may have limited the 
effectiveness of the agency's efforts. For example, due to the number 
and dislocation of the hurricane victims, the catastrophic damage 
caused by the storms, and limited agency resources, SBA was not able to 
comply with an informal policy of conducting follow-up calls with all 
individuals who were mailed disaster assistance loan applications. 
According to SBA officials, the agency has initiated a review of its 
outreach to Gulf Coast hurricane victims and is developing a plan to 
better provide such outreach in future disasters. 

SBA's Outreach to Gulf Coast Hurricane Victims May Have Been Reduced by 
the Complexity of Federal Disaster Assistance Programs and the Damage 
Associated with the Hurricanes: 

SBA officials told us that they took a variety of steps to explain the 
agency's disaster assistance programs to the victims of the Gulf Coast 
hurricanes. After Hurricane Katrina made landfall, officials from SBA's 
field operations centers said they acted quickly to mobilize their 
staff and sent them to the Gulf Coast region to begin assisting the 
victims by providing information about their Disaster Loan Program. 
These officials told us that staff members shared information about 
SBA's Disaster Loan Program at meetings with various groups including 
congressional offices, chambers of commerce, community-based 
organizations, and local businesses. According to an SBA official, 
staff members from one field operations center attended more than 600 
of these meetings between October 1, 2005, and May 15, 2006. This 
official said that the number of meetings they participated in was more 
than were typically held, due to the increased needs of the hurricane 
victims. SBA also provided information about its Disaster Loan Program 
to Small Business Development Centers, as well as state and local 
disaster management agencies.[Footnote 35] Further, SBA staff members 
provided outreach at FEMA-established Disaster Recovery Centers where 
they conducted initial interviews with disaster victims to determine 
whether the victim and the damaged property were generally eligible for 
the loan program and to explain the application forms and process. SBA 
also established Business Recovery Centers to provide business owners 
with information on how disaster loans could help them in financing 
recovery from the hurricanes. 

In addition, SBA advertised through various forms of media such as the 
SBA Internet site, radio, television, and newspapers. Figure 3 shows an 
example of a newspaper advertisement SBA placed following Hurricane 
Katrina. SBA advertisements about its Disaster Loan Program are 
intended to inform potential loan applicants where to obtain loan 
applications and otherwise to assist victims in applying for disaster 
loans. Following the Gulf Coast hurricanes, field operations center 
staff members also posted informational flyers throughout the declared 
disaster areas, according to SBA officials. An SBA official also told 
us that many of these outreach activities were not just localized to 
the declared disaster areas, but staff members also conducted these 
activities in the cities where victims had relocated. 

Figure 3: Example of an SBA Print Ad for Hurricane Katrina Victims: 

[See PDF for image] 

Source: SBA. 

[End of figure] 

However, SBA officials said that the agency's outreach efforts face 
challenges even under normal (nondisaster) circumstances, which can 
limit their effectiveness. For example, agency officials said that most 
people tend to equate SBA with small business lending activities rather 
than its disaster assistance programs. In a limited survey of 62 Gulf 
Coast hurricane victims who filed SBA disaster loan applications, we 
found that more than half reported not being aware of the agency's 
disaster assistance program prior to August 2005.[Footnote 36] 
Additionally, an SBA official said that the public tends to confuse 
SBA's disaster assistance programs with those of FEMA. As noted 
previously, this potential for confusion was heightened when, in the 
wake of the Gulf Coast hurricanes, FEMA referred many disaster loan 
applications to SBA even though such applications did not meet SBA's 
creditworthiness standards. Furthermore, SBA's outreach efforts may 
face substantial challenges when disasters of the magnitude of the Gulf 
Coast hurricanes or greater strike. In such cases, millions of people 
may be relocated throughout the United States, and widespread telephone 
and electrical service disruptions may take place. 

To illustrate the potential impact that a large-scale disaster can have 
on SBA's outreach efforts, we note that the agency was not able to 
comply with an informal policy requiring follow-up phone calls to all 
individuals who did return disaster assistance loan applications after 
the Gulf Coast hurricanes. While such phone calls are not mandatory, 
SBA officials said that in previous disasters they had attempted to 
contact 100 percent of all individuals who did not return applications 
that had been mailed to them. The officials said that such follow-up 
phone calls provided the agency with another opportunity to explain the 
Disaster Assistance Loan Program and potentially assist victims. While 
SBA mailed about 2 million disaster loan applications to victims of the 
Gulf Coast hurricanes, it only received about 400,000 completed 
applications in return.[Footnote 37] SBA officials said that the agency 
made follow up phone calls to 800,000 individuals who did not return 
the applications but was unable to contact the remaining 
800,000.[Footnote 38] Although SBA officials said the agency makes it a 
practice to make such follow up phone calls, it lacked the necessary 
staff resources to do so and that contacting people who may be 
relocated in such circumstances is highly challenging. 

SBA Has Initiated an Internal Review of Outreach Provided to Victims of 
the Gulf Coast Hurricanes: 

According to SBA officials, the agency has initiated a follow-up 
internal review of its outreach to victims of the Gulf Coast 
hurricanes. An SBA official said that the agency is developing a plan 
to strengthen its outreach communication and coordination and that this 
plan will be submitted to the SBA Administrator in early 2007. 
According to this official, SBA has consulted internal outreach staff 
as well as federal disaster relief agencies, including FEMA, and local 
agencies to conduct the evaluation of its outreach efforts. 
Additionally, the SBA official said that the agency has created a 
revised brochure to explain its disaster outreach services to the 
public and that the SBA Administrator has held forums with the public 
in the Gulf Coast region to explain the agency's assistance services. 

Conclusions: 

While the unprecedented volume of disaster loan applications clearly 
affected SBA's capability to provide timely assistance to Gulf Coast 
hurricane victims, the absence of a comprehensive and sophisticated 
planning process beforehand also likely limited the efficiency of the 
agency's initial response. SBA officials said that they recognize the 
importance of better disaster planning and are in the process of 
developing a disaster plan that is designed to addresses key 
limitations in the agency's previous planning approach (e.g, 
strengthening loan surge capacity through potential agreements with 
private sector lenders and reestablishing the disaster reserve corps). 
Additionally, according to SBA officials, the agency has significantly 
revised its loan processing approach to reduce the backlog of approved, 
but not disbursed, disaster loan applications associated with the Gulf 
Coast hurricanes. SBA officials said that the revised approach should 
allow the agency to more efficiently disburse approved disaster loans 
in a future catastrophe. However, SBA has not established a time frame 
for competing key elements of the disaster management plan such as 
cross-training other agency staff to provide backup support, and has 
not assessed whether the plan would benefit from the supplemental use 
of available resources, such as the results of disaster simulations or 
catastrophe models (although SBA did recently contact FEMA about using 
its catastrophe model). Further, while we recognize that maintaining 
unused office space would not be cost-effective, SBA has not developed 
a long-term strategy to help ensure that it could acquire necessary and 
suitable office space in an emergency. Consequently, SBA should take 
additional steps to help ensure that it would be better prepared to 
provide timely and effective assistance to the victims of a future 
disaster. 

Recommendations for Executive Action: 

To better position SBA to prepare for and respond to potential 
disasters, we recommend that the Administrator of SBA direct the Office 
of Disaster Assistance to take the following two actions: 

* develop time frames for completing key elements of the disaster 
management plan and a long-term strategy for acquiring adequate office 
space; and: 

* direct staff involved in developing the disaster management plan to 
further assess whether the use of disaster simulations or catastrophe 
models would enhance the agency's disaster planning process. 

Agency Comments and Our Evaluation: 

We provided SBA with a draft of this report for review and comment. The 
Associate Administrator for Disaster Assistance provided written 
comments that are presented in appendix II. The agency also provided 
technical comments, which we have incorporated as appropriate. In its 
comments, SBA stated that the agency is better prepared to respond to 
potential disasters as a result of the measures that have been 
initiated since the Gulf Coast hurricanes. Additionally, SBA stated 
that it agreed with the report's recommendations. Specifically, SBA 
stated that the agency will (1) establish clear time-lines for 
completing key disaster planning initiatives discussed in the report 
and (2) assess the more extensive use of disaster simulations and 
external catastrophe models to enhance its disaster planning process. 

SBA also said that it had taken steps to help strengthen its capacity 
to ensure the availability of adequate office space in the event of a 
future disaster. In particular, SBA stated that it will retain 100,000 
square feet of additional office space that it obtained in Ft. Worth 
after Hurricane Katrina to process disaster loans. SBA said that the 
additional space should allow the agency to respond to the initial 
surge in loan applications of a future disaster while allowing time for 
it to work with GSA to obtain additional space as needed. We contacted 
SBA to obtain additional information about its space acquisition plans. 
SBA officials said that the agency will retain a 60,000 square foot 
facility in Ft. Worth that has been specifically configured to process 
disaster loans and plan to expand it by another 40,000 square feet. 
Further, the officials said that SBA will retain the facility for at 
least 5 years (the facility originally had a 2-year lease) and may 
retain it longer. We acknowledge that such an approach, if implemented, 
is a step that is consistent with the development of a comprehensive 
disaster management plan. 

We are sending copies of this report to appropriate congressional 
committees, the Administrator of the SBA, and other interested parties, 
and we will also make copies available to others upon request. In 
addition, the report will be available at no charge on the GAO Web site 
at [Hyperlink, http://www.gao.gov]. 

If you are your staff have questions regarding this report, please 
contact me at (202)512-8678 or shearw@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix III. 

Signed by: 

William B. Shear: 
Director, Financial Markets and Community Investment: 

List of Congressional Addressees: 

The Honorable Joseph I. Lieberman: 
Chair: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable John F. Kerry: 
Chair: 
The Honorable Olympia J. Snowe: 
Ranking Member: 
Committee on Small Business and Entrepreneurship: 
United States Senate: 

The Honorable Richard J. Durbin: 
Chair: 
The Honorable Sam Brownback: 
Ranking Minority Member: 
Subcommittee on Financial Services and General Government: 
Committee on Appropriations: 
United States Senate: 

The Honorable Barbara A. Mikulski: 
Chair: 
The Honorable Richard C. Shelby: 
Ranking Member: 
Subcommittee on Commerce, Justice and Science: 
Committee on Appropriations: 
United States Senate: 

The Honorable Henry A. Waxman: 
Chair: 
The Honorable Tom Davis: 
Ranking Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

The Honorable Nydia M. Velazquez: 
Chair: 
The Honorable Steven J. Chabot: 
Ranking Member: 
Committee on Small Business: 
House of Representatives: 

The Honorable Jose E. Serrano: 
Chair: 
The Honorable Ralph Regula: 
Ranking Minority Member: 
Subcommittee on Financial Services: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Donald Manzullo: 
House of Representatives: 

The Honorable Dianne Feinstein: 
United States Senate: 

The Honorable Mary L. Landrieu: 
United States Senate: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this report were to (1) assess the Small Business 
Administration's (SBA) logistical planning efforts prior to the Gulf 
Coast hurricanes and current disaster planning efforts and (2) discuss 
SBA's outreach efforts to Gulf Coast hurricane victims. 

To address the first objective, we reviewed our previous studies 
related to disaster planning as well as similar studies by other 
organizations and available disaster simulation reports.[Footnote 39] 
We also interviewed disaster experts to obtain their insight and views 
on appropriate planning efforts and the aspects that a comprehensive 
disaster plan should entail.[Footnote 40] Further, we reviewed relevant 
SBA planning and other documentation including the agency's standard 
operating procedures, internal policy memos, and the Office of Disaster 
Assistance's 2003-2008 strategic plan. Moreover, we reviewed SBA 
documentation regarding the agency's workforce transformation 
initiative, which aided our assessment of the logistical challenges 
that SBA encountered in its response to the Gulf Coast hurricanes. 
These documents included an organizational impact study and a cost- 
benefit analysis. We also interviewed officials from SBA's Office of 
Disaster Assistance (ODA) in headquarters regarding the agency's 
disaster planning initiatives both before and after the Gulf Coast 
hurricanes. Additionally, we conducted site visits to each of SBA's 
four disaster loan field offices to discuss the agency's disaster 
planning initiatives.[Footnote 41] Finally, we visited the Gulf Coast 
region and met with federal, state and local officials, as well as 
disaster victims. 

To address the second objective, we reviewed SBA's various methods and 
techniques for informing and educating disaster victims about the 
disaster loan program. Further, we reviewed the section of SBA's 2003- 
2008 strategic plan that described the agency's goals and objectives 
for promoting public awareness, which includes outreach. We also 
interviewed officials in SBA's headquarters and the public information 
officers in the Atlanta and Sacramento field offices to discuss the 
agency's outreach efforts during the Gulf Coast hurricanes, as well as 
current plans to evaluate such outreach efforts. 

To obtain further insight into SBA's outreach efforts, we conducted a 
limited structured telephone survey of 62 Gulf Coast hurricane victims 
who had applied for an SBA disaster assistance loan. Using data from 
its Disaster Credit Management System (DCMS), SBA provided us with a 
list of the 414,289 loan applications, for either a home or business 
physical disaster loan, or an economic injury disaster loan in response 
to losses due to the Gulf Coast hurricanes. We selected a stratified 
random sample of 400 loan applications based on the type of loan-- 
business and economic injury, home, and economic injury only--and loan 
decision--approved, withdrawn, declined, or pending--in order to get 
coverage across loan type and decision outcomes. We attempted to reach 
168 loan applicants by phone and were able to contact and complete 
telephone interviews with a total of 62 applicants. Of the 62 
respondents to our survey, 46 were affected by Hurricane Katrina, 9 by 
Hurricane Wilma, and 7 by Hurricane Rita. Of those, 28 had applied for 
home loans, 22 had applied for economic injury and business loans, and 
12 had applied for economic injury loans. At the time we surveyed the 
applicants, SBA had approved loans for 24 of the applicants, declined 
loans for 26 of the applicants, and had decisions pending for 6 of the 
applicants. The other 6 applicants had either withdrawn their 
applications or had their applications withdrawn by SBA. 

From the survey, among other things, we obtained the loan applicants' 
views on how and when they learned of the disaster loan program. In 
developing the survey questions, we relied on SBA's 2003-2008 strategic 
plan, strategic operation plans, SBA 2003-2005 customer satisfaction 
surveys, and other information that SBA officials provided to us 
through interviews as it related to our request. We pretested our 
survey with five loan applicants who represented a mix of home, 
business, and economic injury loans, as well as decisions that were 
approved and withdrawn. We conducted analysis using the Statistical 
Analysis System (SAS) version 9 with appropriate checks for missing 
data and incorrect responses and deemed it to be sufficiently reliable 
for the purpose of this report. Because of the small sample size, the 
survey results are limited to those we spoke with but may also be 
considered as indicative of how Gulf Coast victims might have 
responded; however, results could not be projected to the entire 
population. 

We conducted our work in Washington, D.C; Sacramento, Calif; Atlanta, 
Ga; Ft. Worth, Texas; Buffalo, N.Y; and in state and local offices in 
Louisiana and Mississippi from November 2005 to January 2007, and in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Comments from the Small Business Administration: 

U.S. Small Business Administration: 
Washington, D.C. 20416: 

January 18, 2007: 

William B. Shear: 
Director: 
Financial Markets and Community Investment: 
United States Government Accountability Office: 
441 G Street, N. W. 
Washington, DC 20548: 

Dear Mr. Shear: 

We appreciate the opportunity to provide comments on the U.S. Small 
Business Administration's (SBA) response to the catastrophic Hurricanes 
Katrina, Rita, and Wilma in 2005 as articulated in the Government 
Accountability Office's (GAO) draft report entitled Small Business 
Administration, Agency's Response to Gulf Coast Hurricanes Highlights 
Need to Enhance Preparedness for Future Disasters. 

SBA agrees with the recommendations of the report and continues to make 
important progress in addressing them, i.e. establishing clearer 
timeframes and assessing the more extensive use of simulations. We 
would like to emphasize the Agency's increased preparedness to provide 
timely and effective assistance as a result of measures the Agency has 
taken. This increased preparedness is enabled by improvements made to 
our systems and processes, many of which were in direct response to 
challenges in the Katrina, Rita, and Wilma Hurricanes. These measures 
have already been tested through the SBA's accelerated processing of 
outstanding loans as well as through its response to more recent 
disasters. 

SBA has completed a series of process improvements through 
reengineering and technology initiatives that have improved service 
delivery. Based on an aggressive use of management techniques in 
executing the following improvements and-initiatives, we believe the 
Agency is poised at a high level of preparedness: 

* Upgraded System Capacity. To accommodate a larger workforce to 
process loans, SBA has expanded the capacity of the Disaster Credit 
Management System (DCMS) to support a minimum of 8,000 concurrent 
users. This expansion represents a four-fold increase in capacity over 
peak usage during the 2005 Gulf Coast Hurricanes. The system also 
enables users to work remotely, thus expanding the geographic 
alternatives for recruiting the workforce. 

* Expedited Referrals to Grant Providers. Focusing on the need to 
render more decisions in a timely and efficient manner, SBA is using 
tools to enable it to refer applicants to grant providers much more 
quickly, with less work for the applicant and a significantly reduced 
processing burden for SBA. As a result, SBA not only processed a larger 
amount of loans in a shorter period of time, but referred those 
applicants determined ineligible for SBA disaster loans for possible 
grant assistance much sooner. This improvement reduced the volume of 
files pending a decision, minimized the aging of such files, and eased 
the processing burden on DCMS. 

* Operational Reengineering and Oversight. Based on a review of 
customer feedback and internal performance indicators, SBA identified 
multiple inefficiencies and quality issues in its processes. This 
review led to a full redesign of its internal production and support 
services operations by establishing integrated teams with case 
managers, attorneys, loan experts, and other support staff working 
together in a collaborative unit on cases assigned to each team. This 
new process has yielded improved coordination and communication not 
only with the disaster victims but also between employees. Integrated 
teams accounted for faster response times, decreased error rates, and 
improved customer service and support. Each applicant is assigned a 
case manager who provides a personal one-on-one approach, assisting the 
disaster victim in explaining the process, answering questions, and 
clarifying outstanding issues which has resulted in less confusion, a 
reduction in errors, and a minimization of duplicative or additional 
work. 

* Business Intelligence Tools. The expanded use of performance metrics 
and reengineering tools significantly improves the ability of 
management to establish clear timelines for initiatives, clarify 
performance goals, recognize individual accountability, and provide 
greater insight into the issues that we must address as they arise. 

* Enhanced Disaster Workforce. SBA's Disaster Assistance capability 
expands and contracts in size based on the level of disaster activity. 
Prior to the Gulf Coast Hurricanes making landfall, SBA had about 800 
employees on the payroll but quickly surged to over 4,300 employees in 
response to these unprecedented storms. Today, SBA's Disaster Loan 
Program has roughly 2,700 employees across all key functions. 
Recognizing the benefits and effectiveness of the ability to 
immediately supplement its workforce, the Agency expanded its Disaster 
Reserve Corps. Currently, SBA has selected approximately 750 employees 
in this expansion and continues to add personnel to the Reserve Corps. 
This capability allows the Agency to activate this specialized group of 
trained personnel to report for duty within 48 hours. The number of 
trained employees on board and in the Reserve Corps increases the 
Agency's capacity to quickly respond to disasters, including 
catastrophic events in 2007 and beyond. 

* Partnered with Private Sector. As a result of the unprecedented 
application volume received, SBA created the Disaster Loan Partners 
Initiative and awarded three private sector contracts to assist with 
SBA's loan processing and loan closing activities. This unique 
partnership with the private sector provides the Agency with additional 
experienced personnel to enhance program delivery to disaster victims. 
This model can be expanded to include additional service providers 
which can support various aspects of the lending operations. SBA is 
actively evaluating the alternatives for expanding private sector 
support in serving the needs of disaster victims. 

* Leveraged SBA's Nationwide Infrastructure. During the Gulf Coast 
Hurricanes response, the Agency utilized SBA's nationwide District 
Office infrastructure to handle increased disaster activity. 
Additionally, the Agency has implemented an initiative to utilize 
District employees in future disasters in such activities as processing 
support and coordinating local resources through SBDCs, Chambers of 
Commerce, and other local professional and charitable organizations to 
improve outreach and accelerate response in the field. 

* Expanded Agency Footprint. The Agency has secured over 400,000 sq. 
ft. of space in multiple locations across the country with 285,000 sq. 
ft. specifically allocated for the Processing and Disbursement Center 
in Fort Worth, TX. Of that amount, the Agency will retain 100,000 sq. 
ft. as permanent space. This will provide space to handle any initial 
surge requirements while allowing time for the Agency to work with GSA 
in obtaining any necessary additional space. 

* Bolstered Forecasting Ability and Risk Monitoring Procedures. The 
Agency has enhanced its capability to immediately forecast application 
volumes when disasters strike. This new model - which includes a 
flexible tool for forecasting purposes - provides a more robust 
methodology for predicting application volume based on assets at risk 
and disaster characteristics thus allowing SBA to gauge its response to 
a catastrophe. Based on the current capacity status of systems, 
facilities, and trained personnel at the time of the disaster, the 
models permit SBA to determine the level and method of escalation 
necessary to respond in a timely and effective manner. Recognizing the 
benefits of forecasting, SBA is reviewing external disaster models to 
determine the value of linking the expected scope of potential 
disasters with our preparedness estimates. 

* Developed Disaster Scalability Preparedness Tool. The Agency now 
possesses the capability to determine resource needs - financial, human 
capital (by function), and logistics - required to maximize SBA's 
response against a number of different application volume scenarios. 
The Agency is refining detailed action plans to determine the 
appropriate resource needs outlined in each scenario and to establish 
protocols for action to respond accordingly. 

We note that the comments in the recommendations section in the draft 
report suggest several. ways to better improve our program performance. 
We generally agree with the recommendations and intend to improve the 
delivery of our program for disaster events of all sizes. Our response 
to the recommendations is as follows: 

Recommendation 1-Develop timeframes for completing key elements of the 
disaster management plan and long-term strategy for acquiring adequate 
office space. SBA has incorporated the aggressive use of program 
management techniques in the management of all of our initiatives to 
improve the Agency's disaster preparedness. The value of these tools 
has been clear in the Accelerated Disaster Response Initiative, which 
dramatically reduced borrower backlogs in a short period of time. These 
tools have put in place clear timelines for initiatives, clarified 
performance goals, established clear accountabilities for individuals, 
and provided greater insight into the issues that we must address. 
While other initiatives that address issues in the report are ongoing 
and are being actively managed, the Agency is putting in place clear 
timelines with accountabilities to support all of them, which will 
allow SBA to communicate them more effectively externally. 

Recommendation 2 - Direct staff involved in developing the disaster 
plan to further assess whether the use of disaster simulations or 
catastrophic models would enhance the agency's disaster planning 
process. 

Modeling is a critical management tool that can drive the Agency to 
escalate its disaster response in a catastrophe in terms of capacity. 
As previously mentioned, the Agency is currently at a capacity with 
respect to systems, facilities, and trained personnel which will allow 
SBA to respond to a very large disaster in the short term. As such, our 
models will support the need to escalate at a time when our staffing is 
reduced to a more normalized level. SBA currently uses two models for 
forecasting ability and risk monitoring that provide an understanding 
of agency requirements at various levels of volume, and is putting in 
place a clear playbook to document the response process. Additionally, 
the Agency is reviewing external disaster models to determine the value 
of linking the expected scope of potential disasters with our 
preparedness estimates. The most critical element in preparedness will 
be the Agency's ability to increase its capacity, supported by the 
Agency's improved processes, to meet the projected need. The models are 
a tool that helps manage that expansion. 

We appreciate the opportunity to provide clarifying comments and have 
included our specific requests for clarifications and/or changes within 
the attachment to this letter. 

Sincerely, 

Signed by: 

Herbert L. Mitchell: 
Associate Administrator for Disaster Assistance: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

William B. Shear, (202) 512-8678, shearw@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Wesley Phillips, Assistant 
Director; Daniel Blair; Tania Calhoun; William Chatlos; Landis Lindsey; 
Marc Molino; David Pittman; Cheri Truett; and Michelle Zapata made key 
contributions to this report. 

FOOTNOTES 

[1] In this report, we refer to Katrina, Rita, and Wilma collectively 
as the Gulf Coast hurricanes. 

[2] See GAO, Small Business Administration: Actions Needed to Provide 
More Timely Disaster Assistance, GAO-06-860 (Washington, D.C.: July 28, 
2006). 

[3] GAO-06-860. 

[4] Federal 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. As described in this report, estimates from 
disaster simulations and catastrophe models completed prior to August 
2005, when Hurricane Katrina made landfall, indicated that there were 
potentially more destructive disaster scenarios than SBA had 
contemplated through its disaster planning process. 

[5] The Association of Contingency Planners is a nonprofit trade 
organization that is dedicated to fostering continued professional 
growth and development in effective business continuity and continuity 
of operations planning. 

[6] SBA's disaster reserve corps consists of volunteers, including 
retirees and students, who have backgrounds in the agency's disaster 
programs (e.g., loan officers 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 48 hours of notification 
of a disaster situation where their services are required by SBA. 

[7] GSA, among other responsibilities, provides office space and other 
logistical support services to federal agencies. 

[8] As described in this report, SBA's Office of Disaster Assistance 
initiated a consolidation initiative (referred to as "workforce 
transformation") in 2004 to better structure its operations. SBA's 
Sacramento field office disaster loan processing center had been slated 
for closure in October 2005, but the facility was still available at 
the time Hurricane Katrina made landfall because its lease had not yet 
expired. 

[9] According to SBA, as of August 2006, the agency had approved 
approximately 93,000 loans in which funds had not been disbursed to 
loan applicants. SBA officials said that figure had been reduced to 
about 35,000 as of November 2006 as a result of changes made to the 
loan review process. 

[10] As described in this report, in December 2006, SBA contacted FEMA 
regarding a model that agency has developed to estimate the financial 
and other consequences of earthquakes, floods, and hurricanes. SBA 
officials contacted FEMA to help determine whether the model would 
enhance SBA's disaster planning process. 

[11] SBA's field management officials told us they had established an 
informal policy of contacting disaster victims to whom the agency had 
sent loan applications, but had not returned completed applications 
within a specified time frame. This practice was established and 
implemented before the occurrence of the Gulf Coast hurricanes. 

[12] FEMA also refers to the IHP program as Individual Assistance. 

[13] SBA provides the income thresholds to FEMA, which vary based on 
the applicant's household size and are adjusted annually for inflation. 
For example, SBA's minimum income threshold for fiscal year 2005 was 
$13,965 for a household size of one; the threshold increased to $14,355 
for fiscal year 2006. If the applicant's household income falls below 
the income thresholds, FEMA will automatically refer them to its Other 
Needs Assistance Program. This program provides financial assistance to 
individuals and households who have other disaster-related necessary 
expenses or serious needs, such as medical expenses. 

[14] Funds are available for necessary expenses and serious needs 
caused by the disaster. This includes medical, dental, funeral, 
personal property, transportation, moving and storage, and other 
expenses that are authorized by law. 

[15] GAO, Catastrophic Disasters: Enhanced Leadership, Capabilities, 
and Accountability Controls Will Improve the Effectiveness of Nation's 
Preparedness, Response, and Recovery System, GAO-06-618 (Washington, 
D.C.: Sept. 6, 2006); GAO, Hurricane Katrina: GAO's Preliminary 
Observations Regarding Preparedness, Response and Recovery, GAO-06-442T 
(Washington, D.C.: Mar. 8, 2006). 

[16] GAO-06-618. 

[17] The National Finance Center, based in New Orleans, designs, 
develops and operates financial, administrative and management 
information systems and services, which includes integrated payroll/ 
personnel systems for the Department of Agriculture, and other 
government customers. 

[18] GAO, Hurricane Katrina: Better Plans and Exercises Needed to Guide 
the Military's Response to Catastrophic Natural Disasters, GAO-06-643 
(Washington, D.C.: May 15, 2006); GAO, Hurricanes Katrina and Rita: 
Unprecedented Challenges Exposed the Individuals and Households 
Programs to Fraud and Abuse; Actions Needed to Reduce Such Problems in 
Future, GAO-06-1013 (Washington, D.C: Sept. 27, 2006); GAO, Disaster 
Management: Improving the Nation's Response to Catastrophic Disasters, 
GAO/RCED-93-186 (Washington, D.C.: July 1993). 

[19] GAO-06-860. 

[20] Hurricane Pam was a simulated exercise that FEMA conducted in 
conjunction with the National Weather Service and various federal, 
state, and local organizations in June 2004. The simulation 
demonstrated the impact of a hurricane that would force the evacuation 
of more than 1 million residents in the New Orleans area, and the 
destruction of 500,000-600,000 buildings. See [Hyperlink, 
http://www.globalsecurity.org/security/ops/hurricane-pam.htm] for 
additional details. In contrast, the Northridge earthquake damaged or 
destroyed about 60,000 buildings, according to a study by a structural 
engineering firm. In 2004, a risk modeling firm--Equecat--publicly 
estimated that a recurrence of the 1935 Labor Day hurricane that struck 
the New York region would result in insured losses alone of $60 billion 
or more. In 2002, we estimated that the insured losses associated with 
the Northridge earthquake would be about $12.5 billion with total 
estimated losses of $30 billion. See GAO, Catastrophe Insurance Risks: 
The Role of Risk-Linked Securities and Factors Affecting Their Use, GAO-
02-941 (Washington, D.C.: Sept. 24, 2002). 

[21] However, previous studies indicate that FEMA did not adequately 
leverage the Hurricane Pam simulation. For example, according to a 2006 
report by the Department of Homeland Security's Office of Inspector 
General, FEMA did not execute catastrophic planning based on the 
Hurricane Pam simulation results. In the report, FEMA officials cited 
the lack of funding as the reason for not following through on the 
lessons from the exercise. (A Performance Review of FEMA's Disaster 
Management Activities in Response to Hurricane Katrina, OIG-06-32, 
March 2006.) Also, a 2006 Senate report concluded that many of the 
lessons from Hurricane Pam were either ignored or inadequately applied. 
(Hurricane Katrina: A Nation Still Unprepared, Report of the Committee 
on Homeland Security and Governmental Affairs, U.S. Senate (Washington, 
D.C.: May 2006). 

[22] GAO/RCED-93-186. 

[23] The White House: The Federal Response to Hurricane Katrina-- 
Lessons Learned (February 2006); Department of Homeland Security: The 
National Response Plan (December 2004 and updated May 2006); Department 
of Homeland Security: Office of Inspector General, A Performance Review 
of FEMA's Disaster Management Activities in Response to Hurricane 
Katrina, OIG-06-32, March 2006; Association of Contingency Planners 
(ACP)-Hurricane Katrina Observations-Lessons Learned (Jan. 31, 2006); 
Hurricane Katrina-A Nation Still Unprepared-United States Senate: 
Washington, D.C. (May 2006). 

[24] According to SBA officials, the large volume of applications that 
SBA distributed and received resulted in part from a large number of 
referrals FEMA made to SBA's Disaster Loan Program without first 
applying SBA's income thresholds. This was done for disaster victims 
who registered for disaster assistance via FEMA's Internet site and did 
not report any income. SBA's Inspector General indicated that this 
resulted in the following: (1) increased costs incurred by SBA in 
mailing loan applications to disaster victims that normally would not 
be referred to SBA's Disaster Loan Program; (2) delayed response times 
for those applicants who did qualify for SBA's Disaster Loan Program; 
(3) lower SBA disaster loan approval rates; and (4) increased 
transaction flow through DCMS, which was near maximum capacity. For 
more information, see GAO-06-860 and SBA Office of Inspector General, 
"Disaster Application Referrals with $0 Income from FEMA Online 
Registration Have Increased Cost and the Demand for SBA Resources," 
Advisory Memorandum 06-12 (Feb. 17, 2006). 

[25] SBA staff responsible for loss verification conduct on-site damage 
inspections for physical disaster loan applications to estimate the 
cost of restoring damaged property to predisaster condition. 

[26] Many of the temporary staff at the Ft. Worth center prior to 
Hurricane Katrina had been hired to process disaster loan applications 
associated with four hurricanes that made landfall in Florida in 2004. 

[27] SBA also transferred several staff members who work in other 
Office of Disaster Assistance locations to Ft. Worth, and the agency 
recalled some staff that had been laid off under the workforce 
transformation initiative. 

[28] GAO, Small Business Administration: Response to September 11 
Victims and Performance Measures for Disaster Lending, GAO-03-385 
(Washington, D.C.: Jan. 29, 2003). 

[29] In our July 2006 report (GAO-06-860), we reported that, according 
to SBA, 8 months after Hurricane Katrina, the Sacramento satellite 
office had processed about 95,500 home and 4,800 business applications 
through DCMS for the Gulf Coast hurricane victims. SBA also used the 
Sacramento satellite office to process about 10,700 home loan 
applications for smaller disaster declarations. 

[30] According to an SBA official, the agency had to seek space outside 
of the existing call center building because leasing additional space 
within the facility was considered cost prohibitive. 

[31] The officials said that as of July 2006, approximately 93,000 
loans had only been partially disbursed. The officials also said that 
many of the loans had not been totally disbursed due to loan 
modifications (e.g., borrowers sought changes in the loans' terms and 
conditions). 

[32] In August 2006, SBA initiated the "90/45" initiative to reduce the 
backlog of loan disbursements associated with the Gulf Coast 
hurricanes. That is, SBA planned to finalize about 93,000 loan files, 
which were partially disbursed or pending modification, over a 45-day 
period. 

[33] In April 2006, USGS, Stanford University, Lawrence Livermore 
National Laboratory, URS Corp., and the University of California, 
Berkeley, released the results of a disaster simulation involving a 
repeat of the 1906 San Francisco earthquake in the San Francisco Bay 
Area. The simulation involved the use of computer models developed by 
USGS to predict the consequences of an earthquake striking the Bay Area 
with a magnitude of 7.9 on the Richter scale. This simulated exercise 
estimated that the consequences of such an earthquake on the Bay Area 
today would damage or destroy 90,000 buildings with an estimated repair 
and replacement cost of $90 billion. Additionally, the simulation 
estimated that up to 250,000 households would be displaced from damaged 
residences. See [Hyperlink, http://quake.usgs.gov] for additional 
details. Moreover, in 2006, a risk modeling firm, Applied Insurance 
Research (AIR), estimated the insured losses that would occur if past 
disasters were to recur today. For example, AIR estimated that a repeat 
of the 1906 earthquake would result in insured losses of about $108 
billion, whereas a repeat of Hurricane Katrina would result in insured 
losses of about $41 billion. See [Hyperlink, http://www.air-
worldwide.com/_public/html/air_currentsitem.asp?ID=1031]. 

[34] We have not reviewed HAZUS or its use in previous disasters. 

[35] The SBA administers the Small Business Development Center Program 
to provide management assistance to current and prospective small 
business owners. The centers offer one-stop assistance to small 
businesses by providing a wide variety of information and guidance in 
branch locations. The program is a cooperative effort of the private 
sector, the educational community, and federal, state, and local 
governments. 

[36] We provide more details on our survey in appendix I. 

[37] Statistics are compiled for the Gulf Coast hurricanes and are as 
of May 1, 2006. 

[38] SBA provided the data regarding these figures, based on their 
estimates. However, the agency does not have a formal procedure for 
verifying the number of follow-up calls the staff made. 

[39] GAO/RCED-93-186; The National Response Plan, December 2004 and 
updated May 2006; Department of Homeland Security; The Robert T. 
Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 
5121-5206. Department of Homeland Security: Office of Inspector 
General, A Performance Review of FEMA's Disaster Management Activities 
in Response to Hurricane Katrina, OIG-06-32, March 2006; The White 
House: The Federal Response to Hurricane Katrina - Lessons Learned, 
February 2006; A Failure of Initiative: Final Report of the Select 
Bipartisan Committee to Investigate the Preparation for and Response to 
Hurricane Katrina, U.S. House of Representatives, February 16, 2006; 
Hurricane Katrina: A Nation Still Unprepared, Report of the Committee 
on Homeland Security and Governmental Affairs, U.S. Senate, May 2006; 
Hurricane Pam Exercise [Hyperlink, 
(http://www.ohsep.lousiana.gov/newsrelated/hurripamends.htm)], 
Louisiana Homeland Security & Emergency Preparedness, July 26, 2004; 
Managing Risk in Earthquake County: Estimated Losses for a Repeat of 
the 1906 San Francisco Earthquake and Earthquake Professional's Action 
Agenda for Northern California, April 17, 2006. 

[40] We defined "expert" as someone having extensive knowledge in 
disaster planning and management. The expert's knowledge was derived 
from his or her formal education and experience. For example, some of 
the experts we contacted have served in consulting roles for state and 
local agencies with disaster planning responsibilities. 

[41] The field offices are the field operations centers East and West 
in Atlanta, Ga., and Sacramento, Calif., respectively, the disaster 
loan processing center in Ft. Worth Texas, and the disaster loan 
customer service call center in Buffalo, N.Y. We also visited the 
Disaster Credit Management System Operations Center in Virginia and 
SBA's Georgia district office. 

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