This is the accessible text file for GAO report number GAO-09-900T 
entitled 'Small Business Administration: Additional Steps Should Be 
Taken to Address Reforms to the Disaster Loan Program and Improve the 
Application Process for Future Disasters' which was released on July 
29, 2009. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Testimony: 

Before the Committee on Small Business, House of Representatives: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 1:00 p.m. EDT:
Wednesday, July 29, 2009: 

Small Business Administration: 

Additional Steps Should Be Taken to Address Reforms to the Disaster 
Loan Program and Improve the Application Process for Future Disasters: 

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

GAO-09-900T: 

[End of section] 

Madam Chairwoman and Members of the Committee: 

I am pleased to be here today to discuss our work on reforms made to 
the Small Business Administration's (SBA) Disaster Loan Program and the 
impact those reforms had following recent disasters. As you know, SBA 
plays a critical role in assisting the victims of natural and other 
declared disasters. SBA provides financial assistance through its 
Disaster Loan Program to help homeowners, renters, businesses of all 
sizes, and nonprofits recover from disasters such as earthquakes, 
hurricanes, and terrorist attacks. Since the agency's inception in 
1953, SBA has approved more than $46 billion in disaster loans for 
homeowners, businesses, and nonprofit organizations. After the 2005 
Gulf Coast hurricanes (Katrina, Rita, and Wilma), SBA faced an 
unprecedented demand for disaster loans, while also being confronted 
with a significant backlog of applications; therefore, hundreds of 
thousands of loans were not disbursed in a timely way. Many criticized 
SBA for what was perceived to be a slow and confusing response to the 
disasters and one that exposed many deficiencies in the agency's 
Disaster Loan Program and demonstrated the need for reform. For 
example, as we stated in our February 2007 report, SBA did not engage 
in or complete comprehensive disaster plans before the Gulf Coast 
hurricanes, and this limited logistical disaster planning likely 
contributed to the initial challenges the agency faced in responding to 
the 2005 hurricanes.[Footnote 1] As a result, Congress and SBA agreed 
that the program needed significant improvements. Since then, SBA has 
taken several steps to reform its Disaster Loan Program which include 
creating an online loan application, increasing the capacity of its 
Disaster Credit Management System (DCMS), and developing a Disaster 
Recovery Plan (DRP).[Footnote 2] In June 2008, Congress enacted the 
Small Business Disaster Response and Loan Improvements Act (Act) to 
expand steps taken by SBA and require new measures to ensure that SBA 
is prepared for future catastrophic disasters.[Footnote 3] 

My statement today summarizes our report released at this hearing. 
[Footnote 4] This report focuses on (1) the extent to which SBA 
addressed the requirements of the Act, and (2) how SBA's response, 
following the major disasters of 2008, aligned with key components of 
its June 2007 DRP. To do this work, we identified and analyzed the 
requirements of the Act and related statutory deadlines; obtained 
information about SBA's completed, current, and planned reform efforts; 
reviewed documents and progress reports to determine if requirements 
had been addressed and deadlines were met; interviewed officials and 
obtained information on what, if any, challenges exist that may affect 
SBA's ability to implement certain requirements; and interviewed 
officials to obtain information about next steps and resources that the 
agency identified as needed to address any remaining requirements. We 
also conducted site visits in Iowa and Texas, and obtained information 
on SBA's performance in the aftermath of the 2008 Midwest floods and 
Hurricane Ike. We interviewed SBA and Small Business Development Center 
(SBDC) officials, state and local officials, and representatives of 
local Chambers of Commerce, economic development organizations, and 
affected small business owners about what worked well and suggested 
improvements to SBA's disaster loan processes. Finally, we reviewed 
results from a survey of SBA loan applicants on their satisfaction with 
SBA's Disaster Loan Program in 2008. Our work was performed between 
October 2008 and July 2009 in accordance with generally accepted 
government auditing standards. 

SBA Fully Addressed Half of the Act's Provisions, but Has Not Yet 
Established Milestones for Implementation of Remaining Requirements: 

As of June 2009, SBA fully addressed requirements for 13 of 26 
provisions of the Act; partially addressed 8; and took no action on 5 
that are not applicable at this time (see table 1). For the 13 
provisions SBA fully addressed, the agency's actions included putting 
in place a secondary facility in Sacramento, California to process 
loans during times when the main facility in Fort Worth, Texas is 
unavailable, making improvements to DCMS to track and follow up with 
applicants, and expanding its disaster reserve staff from about 300 to 
more than 2,000 individuals. Furthermore, according to SBA and our 
review, 5 provisions require no action by SBA at this time because they 
are discretionary or additional appropriations are needed before SBA 
can satisfy the Act's requirements. 

Table 1. SBA's Status in Addressing Requirements and Deadlines of the 
2008 Small Business Disaster Response and Loan Improvements Act: 

Section: 12061; 
Description of requirement: SBA permitted to make economic injury 
disaster loans to nonprofits. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12062[A]; 
Description of requirement: SBA must ensure its disaster assistance 
programs are coordinated to the maximum extent practicable with FEMA 
programs. 
Status: Partially addressed or some deadlines met; 
Deadline: Not addressed or missed deadline. 

Section: 12063; 
Description of requirement: Better public awareness of disaster 
declaration, application periods, and creation of a marketing and 
outreach plan. 
Status: Partially addressed or some deadlines met; 
Deadline: Not addressed or missed deadline. 

Section: 12064; 
Description of requirement: SBA must conduct a study looking at the 
consistency between standard operating procedures and regulations of 
the Disaster Loan Program. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline:Not addressed or missed deadline. 

Section: 12065; 
Description of requirement: SBA increased loan amounts from $10,000 to 
$14,000 without requiring collateral. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12066; 
Description of requirement: SBA authorizes private contractors to 
process disaster loans and coordinate efforts with IRS to expedite loan 
processing. 
Status: Partially addressed or some deadlines met; 
Deadline: [Empty]. 

Section: 12067; 
Description of requirement: SBA must develop, implement, or maintain a 
centralized information system to track and follow up with disaster 
loan applicants. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12068; 
Description of requirement: SBA is authorized to increase the deferment 
period of loans, but the deferment may not exceed 4 years. 
Status: N/A; 
Deadline: [Empty]. 

Section: 12069; 
Description of requirement: SBA must put in a place a secondary 
facility for processing disaster loans in case the primary facility is 
unavailable. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12070; 
Description of requirement: SBA can not require the borrower to pay any 
non-amortized amount for the first 5 years after repayment begins. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12071; 
Description of requirement: SBA is authorized to make economic injury 
disaster loans in cases of ice storms and blizzards. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12072; 
Description of requirement: SBA must develop and implement a major 
disaster response plan and conduct a disaster simulation exercise at 
least once every 2 years. 
Status: Addressed (initial or ongoing) or deadline met; 
Deadline: Addressed (initial or ongoing) or deadline met. 

Section: 12073; 
Description of requirement: SBA must assign an individual the disaster 
planning responsibilities and report to Congress. 
Status: Addressed (initial or ongoing) or deadline met; 
Deadline: Addressed (initial or ongoing) or deadline met. 

Section: 12074; 
Description of requirement: SBA should ensure that the number of full-
time equivalent ODA employees is not fewer than 800 and in the disaster 
cadre not fewer than 1,000. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12075; 
Description of requirement: SBA must develop, implement, or maintain a 
comprehensive written disaster response plan and update the plan 
annually. 
Status: Partially addressed or some deadlines met; 
Deadline: Partially addressed or some deadlines met[B]. 

Section: 12076; 
Description of requirement: SBA must develop long-term plans to secure 
sufficient office space to accommodate an increased workforce in times 
of disaster. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12077; 
Description of requirement: SBA may not rely solely on the loan 
applicant’s status as a major source of employment prior to the 
disaster to qualify for disaster loans beyond the current statutory 
limit. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12078; 
Description of requirement: Maximum disaster loan amount increased from 
$1.5 to $2 million. 
Status: Addressed (initial or ongoing) or deadline met. 
Deadline: [Empty]. 

Section: 12079; 
Description of requirement: SBA may guarantee any surety against loss 
on a bid, payment, performance, or ancillary bond on any work order or 
contract that at the time of the bond execution does not exceed $5 
million. 
Status: N/A; 
Deadline: [Empty]. 

Section: 12081; 
Description of requirement: If the President declares a major disaster, 
SBA may declare eligibility for additional disaster assistance. 
Status: N/A; 
Deadline: [Empty]. 

Section: 12082; 
Description of requirement: SBA permitted to make economic injury 
disaster loans to eligible small business concerns located anywhere in 
the US (including outside the disaster area) when the SBA declares 
eligibility for additional disaster assistance. 
Status: N/A; 
Deadline: [Empty]. 

Section: 12083[A]; 
Description of requirement: SBA must establish and implement a Private 
Disaster Assistance Program. SBA may guarantee timely payment of 
principal and interest on private disaster loans issued to eligible 
small businesses and homeowners within an eligible disaster area. 
Status: Partially addressed or some deadlines met; 
Deadline: Not addressed or missed deadline. 

Section: 12084; 
Description of requirement: SBA must establish an Immediate Disaster 
Assistance Program to provide immediate small dollar loans through 
private lenders. 
Status: Partially addressed or some deadlines met; 
Deadline: [Empty]. 

Section: 12085[A]; 
Description of requirement: SBA must establish an Expedited Disaster 
Assistance Business Loan Program. 
Status: Partially addressed or some deadlines met; 
Deadline: Not addressed or missed deadline. 

Section: 12086; 
Description of requirement: SBA is allowed to institute a program to 
refinance Gulf Coast disaster loans resulting form Hurricanes Katrina, 
Rita, or Wilma up to an amount no greater than the original loan. 
Status: N/A; 
Deadline: [Empty]. 

Section: 12091; 
Description of requirement: SBA must submit reports to Congress on 
disaster assistance. 
Status: Partially addressed or some deadlines met; 
Deadline: Partially addressed or some deadlines met. 

Source: GAO analysis of the Act and SBA documents. 

Note: The Act explicitly establishes appropriation requirements for 
procurements related to a major disaster for the provision in bold. 

N/A: Not applicable because no action is needed to be taken by SBA at 
this time, due to provisions’ discretionary nature. 

[A] The Act requires SBA to issue regulations for these provisions. 

[B] SBA has not yet issued an updated DRP. 

[End of table] 

While SBA has taken some steps toward implementing the Act, the agency 
still needs to take additional steps to completely address 8 
provisions. According to SBA officials, the agency has not yet 
completely addressed some provisions that require new regulations 
because to do so, the agency must make extensive changes to current 
programs or implement new programs--such as the Immediate and Expedited 
Disaster Assistance Programs--to satisfy requirements of the Act. These 
programs, which require participation of private lenders, would be 
designed to provide businesses with access to short-term loans while 
they are waiting for long-term assistance. Moreover, as required by the 
Act, SBA has not issued an update of its comprehensive DRP that 
reflects recent changes resulting from the Act's requirements, as well 
as SBA's own reform efforts.[Footnote 5] Delays in updates to the DRP 
limit the agency's ability to adequately prepare for and respond to 
disasters. Also, SBA has not fully addressed the requirement for 
providing region-specific marketing and outreach and ensuring the 
information is made available to SBDCs and other local resources. We 
consistently heard from regional entities, such as SBDCs and emergency 
management groups, about the need for more up-front information on 
SBA's Disaster Loan Program and their expected roles and 
responsibilities in disaster response efforts. By taking such actions, 
SBA could leverage the efforts and capacity of SBDCs, as well as state 
and local emergency management agencies, and ensure that it and they 
will be better prepared for future events, especially in disaster-prone 
areas. 

Furthermore, the Act established multiple new reporting requirements 
and while SBA has addressed some of these, the agency has failed to 
comply with the Act and issue a first annual report on disaster 
assistance--which was due in November 2008. Specifically, the Act 
requires that SBA report annually on the total number of SBA disaster 
staff, major changes to the Disaster Loan Program (such as changes to 
technology or staff responsibilities), a description of the number and 
dollar amount of disaster loans made during the year, and SBA's plans 
for preparing and responding to possible future disasters.[Footnote 6] 
Failure to produce annual reports on schedule can lead to a lack of 
transparency on the agency's progress in reforming the program. 
Additionally, 9 provisions set forth in the Act are subject to 
deadlines, which the agency has had limited success in meeting. 
[Footnote 7] The agency also has not developed a plan with expected 
time frames for addressing the remaining requirements. SBA's not 
providing reports to Congress and not having an implementation plan in 
place for addressing the remaining requirements can lead to a lack of 
transparency about the agency's Disaster Loan Program, program 
improvement, and capacity to reform the program, as well as its ability 
to adequately prepare for and respond to disasters. 

SBA's Response Following 2008 Disasters Aligned with Certain Components 
of its DRP, but SBA's Response to Disaster Victims' Feedback on the 
Application Process Could Be Improved: 

SBA's initial response following the 2008 Midwest floods and Hurricane 
Ike aligned with major components of its DRP, such as infrastructure, 
human capital, information technology, and communications. 
Additionally, individuals to whom we spoke affected by both disasters 
considered the agency's overall performance somewhat positive, but 
believed the disaster loan process could be improved. 

In May 2008, floods devastated 85 counties in Iowa (one of several 
states affected) and in September 2008, Hurricane Ike devastated 50 
counties in Texas. SBA and SBDC officials, state and local 
representatives, private-entity officials, and business owners in Iowa 
and Texas told us that in the days immediately following the disasters, 
SBA's Office of Disaster Assistance staff reported to the affected 
areas and began providing needed disaster assistance. These individuals 
also said that SBA staff provided outreach and public information about 
its Disaster Loan Program; distributed application information; 
assigned knowledgeable customer service representatives to various 
Disaster and Business Recovery Centers; and assisted in the initial 
application process by answering questions, providing guidance, and 
offering one-on-one help--as outlined in SBA's DRP. In addition, our 
review of SBA's 2008 Disaster Loan Program Customer Satisfaction Survey 
also showed that respondents were somewhat satisfied with the 
assistance SBA provided during other recent disasters. 

However, both the individuals we interviewed and survey results 
indicated areas for improvement and opportunities to increase 
satisfaction with SBA's disaster loan process. For example, individuals 
we interviewed and survey responses pointed to concerns about the 
amount of paperwork required to complete SBA's disaster loan 
application and the timeliness of loan disbursements. Also, some 
business owners said they had to provide copies of 3 years of federal 
income tax returns, although they had signed an Internal Revenue 
Service (IRS) form 8821--Tax Information Authorization--which allows 
SBA to get tax return information directly from IRS. To address these 
concerns, the individuals we interviewed suggested several changes to 
the program, such as eliminating the requirement that business loan 
applicants provide copies of IRS tax records; providing partial 
disbursements earlier in the process; using bridge loans to help ensure 
disaster victims receive timely assistance; and involving SBA, SBDCs, 
and state and local officials in joint pre-planning and disaster 
preparedness efforts. 

Though SBA officials told us they have been taking steps to improve the 
application process, these steps and improvement efforts were not 
documented. In addition, we found that while SBA conducts an annual 
customer satisfaction survey, the agency does not appear to incorporate 
this feedback mechanism into its formal efforts to continually improve 
the application process. Furthermore, SBA does not appear to have a 
formal process for addressing identified problem areas and using this 
experience to improve the application process for future applicants. By 
establishing such a process to address identified problem areas, SBA 
could better demonstrate its commitment to improving the Disaster Loan 
Program. As discussed in our report, while SBA has made progress, the 
agency has missed opportunities to further improve its Disaster Loan 
Program, and in particular improve the application process for future 
applicants. 

Actions Needed To Ensure That SBA Addresses Remaining Requirements and 
Improves the Application Process: 

In our report, we made five recommendations to facilitate SBA's 
progress in meeting and complying with requirements of the Act and 
improve the Disaster Loan Program. Specifically, we recommended that 
the Administrator of SBA: 

(1) develop procedures for regional entities that would enable SBA to 
meet all region-specific requirements of the Act and ensure regional 
entities, such as SBDCs, have this information and other Disaster Loan 
Program information readily available prior to the likely occurrence of 
a disaster; 

(2) complete the first annual report to Congress on disaster assistance 
and adhere to the time frame for subsequent reports; 

(3) expeditiously issue an updated DRP that reflects recent changes 
resulting from the Act's requirements, as well as SBA's own reform 
efforts; 

(4) develop an implementation plan and report to Congress on the 
agency's progress in addressing the requirements of the Act, including 
milestone dates for completing implementation; and: 

(5) develop and implement a process to address identified problems in 
the disaster loan application process for future applicants. 

SBA generally agreed with our recommendations and stated the agency's 
plan to incorporate them into its ongoing efforts to implement the Act 
and improve the application process. Specifically, SBA plans to expand 
its outreach efforts to ensure the public in all regions of the country 
are more aware of SBA disaster assistance programs before a disaster 
strikes. SBA is also planning to submit both the required annual 
report, and the 2009 revision to its DRP to Congress by November 15, 
2009. Additionally, SBA officials said the agency has plans to develop 
an implementation plan for completion of the remaining provisions. 
Finally, in response to our recommendation on the application process, 
SBA cited ongoing efforts since 2005 to improve its application 
process, such as the electronic loan application, and said the agency 
has plans to continue its improvement efforts and make them an ongoing 
priority. However, SBA did not say how it would implement a formal 
process to address identified problem areas in the disaster loan 
application process. 

Madam Chairwoman, this concludes my prepared statement. I would be 
pleased to respond to any questions you or other Members of the 
Committee may have. 

Contacts and Acknowledgments: 

For further information on this testimony, please contact William B. 
Shear 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 statement. Individuals making key contributions 
to this testimony include Kay Kuhlman, Assistant Director; Michelle 
Bowsky, Beth Faraguna, and Alexandra Martin-Arseneau. 

[End of section] 

Footnotes: 

[1] GAO, Small Business Administration: Additional Steps Needed to 
Enhance Agency Preparedness for Future Disasters, [hyperlink, 
http://www.gao.gov/products/GAO-07-114] (Washington, D.C.: Feb. 14, 
2007). 

[2] SBA's use of the term "disaster recovery plan" differs from how it 
is generally used in referring to an information technology-focused 
plan designed to restore operability of a system, application, or 
computer facility following an emergency. 

[3] Pub. L. No. 110-246, subtitle B, 122 Stat. 2168 (2008). 

[4] GAO, Small Business Administration: Additional Steps Should Be 
Taken to Address Reforms to the Disaster Loan Program and Improve the 
Application Process for Future Disasters, [hyperlink, 
http://www.gao.gov/products/GAO-09-755] (Washington, D.C.: July 29, 
2009). 

[5] Congress acted to signify the importance of an agency-wide plan by 
including a section of the Act that requires SBA to develop, implement, 
or maintain a comprehensive written disaster response plan and update 
the plan annually and following any major disaster when SBA declares 
eligibility for additional disaster assistance. According to section 
12075, the plan must include a description of the disasters most likely 
to occur regionally, including (1) an assessment of the disaster; (2) 
an assessment of the likely demand for SBA assistance; (3) an 
assessment of SBA's resource needs related to information technology, 
telecommunications, human resources, and office space; and (4) 
guidelines on SBA's use of resources and how it intends to coordinate 
with other agencies. SBA refers to its comprehensive disaster response 
plan (as required by section 12075) as its DRP. 

[6] The Act also states the annual report must include information on 
some requirements under certain provisions, such as (a) the regulations 
on coordination with FEMA to assure that applications for disaster 
assistance are submitted as quickly as practicable as required under 
section 12062; (b) disaster simulation exercises conducted by the 
agency under section 12072; (c) updates to the comprehensive DRP 
required under section 12075; and (d) updates to SBA's plans for 
securing office space to accommodate an expanded workforce required 
under section 12076. 

[7] As of June 2009, SBA had met some deadlines for four provisions, 
missed one deadline by 27 days, and missed deadlines for four remaining 
provisions by many months. 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO’s Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: