SBA also provides low-interest, long-term loans to individuals and  businesses to assist them with disaster recovery through its Disaster Loan  Program—the only form of SBA assistance not limited to small businesses. DCMS’s Limited Capacity and Difficulties in Other Logistical Areas Impeded SBA’s Response to the Gulf Coast Hurricanes

Our July 2006 report identified several significant limitations in DCMS’s  capacity and other system and procurement deficiencies that likely  contributed to the challenges that SBA faced in providing timely  assistance to Gulf Coast hurricane victims as follows:    First, due to limited capacity, the number of SBA staff who could access  DCMS at any one time to process disaster loans was restricted. Second, SBA experienced instability with DCMS during the initial months  following Hurricane Katrina, as users encountered multiple outages and  slow response times in completing loan processing tasks. Moreover, SBA faced challenges in obtaining suitable office space to  house its expanded workforce. By late May 2006, SBA took about 74 days on average  to process disaster loan applications, compared with the agency’s goal of  within 21 days. Unprecedented Loan Application Volume and SBA’s Limited Disaster Planning Contributed to Challenges in Providing Timely Assistance to Hurricane Victims

As we stated in our July 2006 report, the sheer volume of disaster loan  applications that SBA received was clearly a major factor contributing to  the agency’s challenges in providing timely assistance to Gulf Coast  hurricane. As of late May 2006, SBA had issued 2.1 million loan  applications to hurricane victims, which was four times the number of  applications issued to victims of the 1994 Northridge, California,  earthquake, the previous single largest disaster that the agency had faced. However, our two reports on SBA’s response to the Gulf Coast hurricanes  also found that the absence of a comprehensive and sophisticated  planning process contributed to the challenges that the agency faced. For  example, in designing DCMS, SBA used the volume of applications  received during the Northridge, California, earthquake and other historical  data as the basis for planning the maximum number of concurrent agency  users that the system could accommodate. SBA did not consider the  likelihood of more severe disaster scenarios and, in contrast to insurance  companies and some government agencies, use the information available  from catastrophe models or disaster simulations to enhance its planning  process. Additionally, SBA did not adequately monitor the performance of a DCMS  contractor or stress test the system prior to its implementation. In the report we issued in February, we found that SBA did not engage in  comprehensive disaster planning for other logistical areas—such as  workforce or space acquisition planning—prior to the Gulf Coast  hurricanes at either the headquarters or field office levels. SBA Has Taken Steps to Better Prepare for Disasters, but Continued Commitment and Actions Are Necessary

In our July 2006 report, we recommended that SBA take several steps to  enhance DCMS, such as reassessing the system’s capacity in light of the  Gulf Coast hurricane experience and reviewing information from disaster  simulations and catastrophe models. SBA officials said that  DCMS can now support a minimum of 8,000 concurrent agency users as  compared with only 1,500 concurrent users for the Gulf Coast hurricanes. While SBA has taken a variety of steps to enhance its capacity to respond  to disasters, I note that these efforts are ongoing and continued  commitment and actions by agency managers are necessary. In June 2007,  SBA released a plan for responding to disasters. While we have not  evaluated the process SBA followed in developing its plan, according to  the SBA plan, the agency is incorporating catastrophe models into its  disaster planning processes as we recommended in both reports. Further,  based on information provided by SBA, the agency is also exploring the  use of models developed by private companies to assist in its disaster  planning efforts. These efforts to incorporate catastrophe models into the  disaster planning process appear to be at an early stage. We encourage SBA to actively pursue initiatives that  may further enhance its capacity to better respond to future disasters, and  we will monitor SBA’s efforts to implement our recommendations.
Why GAO Did This Study

The Small Business Administration (SBA) helps individuals and businesses recover from disasters such as hurricanes through its Disaster Loan Program. SBA faced an unprecedented demand for disaster loan assistance following the 2005 Gulf Coast hurricanes (Katrina, Rita, and Wilma), which resulted in extensive property damage and loss of life. In the aftermath of these disasters, concerns were expressed regarding the timeliness of SBA's disaster assistance. GAO initiated work and completed two reports under the Comptroller General's authority to conduct evaluations and determine how well SBA provided victims of the Gulf Coast hurricanes with timely assistance. This testimony, which is based on these two reports, discusses (1) challenges SBA experienced in providing victims of the Gulf Coast hurricanes with timely assistance, (2) factors that contributed to these challenges, and (3) steps SBA has taken since the Gulf Coast hurricanes to enhance its disaster preparedness. GAO visited the Gulf Coast region, reviewed SBA planning documents, and interviewed SBA officials.

What GAO Found

GAO identified several significant system and logistical challenges that SBA experienced in responding to the Gulf Coast hurricanes that undermined the agency's ability to provide timely disaster assistance to victims. For example, the limited capacity of SBA's automated loan processing system--the Disaster Credit Management System (DCMS)--restricted the number of staff who could access the system at any one time to process disaster loan applications. In addition, SBA staff who could access DCMS initially encountered multiple system outages and slow response times in completing loan processing tasks. SBA also faced challenges training and supervising the thousands of mostly temporary employees the agency hired to process loan applications and obtaining suitable office space for its expanded workforce. As of late May 2006, SBA processed disaster loan applications, on average, in about 74 days compared with its goal of within 21 days. While the large volume of disaster loan applications that SBA received clearly affected its capacity to provide timely disaster assistance to Gulf Coast hurricane victims, GAO's two reports found that the absence of a comprehensive and sophisticated planning process beforehand likely limited the efficiency of the agency's initial response. For example, in designing the capacity of DCMS, SBA primarily relied on historical data such as the number of loan applications that the agency received after the 1994 Northridge, California, earthquake--the most severe disaster that the agency had previously encountered. SBA did not consider disaster scenarios that were more severe or use the information available from disaster simulations (developed by federal agencies) or catastrophe models (used by insurance companies to estimate disaster losses). SBA also did not adequately monitor the performance of a DCMS contractor or completely stress test the system prior to its implementation. Moreover, SBA did not engage in comprehensive disaster planning prior to the Gulf Coast hurricanes for other logistical areas, such as workforce planning or space acquisition, at either the headquarters or field office levels. While SBA has taken steps to enhance its capacity to respond to potential disasters, the process is ongoing and continued commitment and actions by agency managers are necessary. As of July 2006, SBA officials said that the agency had completed an expansion of DCMS's user capacity to support a minimum of 8,000 concurrent users as compared with 1,500 concurrent users supported for the Gulf Coast hurricanes. Further, in June 2007, SBA released a disaster plan. While GAO has not evaluated the process SBA followed in developing its plan, consistent with recommendations in GAO reports, the plan states that SBA is incorporating catastrophe models into its planning process, an effort which appears to be at an early stage. GAO encourages SBA to actively pursue the use of catastrophe models and other initiatives that may further enhance its capacity to better respond to future disasters.