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. 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 are releasing today, we found that SBA did not engage in  comprehensive disaster planning for other logistical areas—such as  workforce or space acquisition planning—prior to the Gulf Coast  hurricanes at either the headquarters or field office levels. For example,  SBA had not taken steps to help ensure the availability of additional  trained and experienced staff such as (1) cross-training agency staff not  normally involved in disaster assistance to provide backup support or (2)  maintaining the status of the disaster reserve corps as I previously  discussed. SBA Has Taken Steps to Better Prepare for Future Disasters, but Their Effectiveness Remains to Be Seen

In our July 2006 report, we recommended that SBA take several steps to  enhance DCMS, such as reassessing the system’s capacity in light of the  Gulf Coast hurricane experience and reviewing information from disaster  simulations and catastrophe models. SBA agreed with these recommendations. 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. These steps include appointing a single individual to  coordinate the agency’s disaster preparedness planning and coordination  efforts, enhancing systems to forecast the resource requirements to  respond to disasters of varying scenarios, and redesigning the process for  reviewing applications and disbursing loan proceeds. Additionally, SBA  has planned or initiated steps to help ensure the availability of additional  trained and experienced staff in the event of a future disaster. For example, SBA has not established a time  line for completing the key elements of its disaster management plan, such  as cross-training nondisaster staff to provide back up support. To strengthen SBA capacity to respond to a future disaster, the report  recommends that SBA    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 plan to continue assessing  whether the use of disaster simulations or catastrophe models would  enhance the agency’s overall disaster planning process. However, it  remains to be seen how comprehensive SBA’s final disaster management  plan will be and how effectively the agency will respond to a future  disaster.
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. In the aftermath of the Gulf Coast hurricanes, SBA has planned or initiated several measures that officials said would enhance the agency's capacity to respond to future disasters. For example, SBA has completed an expansion of DCMS's user capacity to support a minimum of 8,000 concurrent users as compared with just 1,500 for the Gulf Coast hurricanes. Additionally, SBA initiated steps to increase the availability of trained and experienced disaster staff and redesigned its process for reviewing loan applications and disbursing funds. However, SBA has not established a time line for completing key elements of its disaster management plan, such as cross-training agency staff not typically involved in disaster assistance to provide back up support in an emergency. SBA also has not (1) assessed whether its disaster planning process could benefit from the supplemental use of disaster simulations or catastrophe models and (2) developed a long-term strategy to obtain suitable office space for its disaster staff. While SBA agreed with GAO's report recommendations to address these concerns, it remains to be seen how comprehensive the agency's final disaster plan will be and how the agency will respond to a future disaster.