SBA'S RESPONSE TO
THE DEEPWATER HORIZON OIL SPILL
Report Number 11-12
Date Issued: April 7, 2011
Prepared by the
Office of Inspector General
U.S. Small Business Administration
o
u.s. Small Business Administration
Memorandum
Office of Inspector General
To:
From:
Subject:
James E. Rivera
Associate Administrator, Office of Disaster
Assistance
lsi Original Signed
Peter L. McClintock
Deputy Inspector General
Date:
April 7, 2011
Report on the SBA's Response to the Deepwater Horizon Oil Spill,
Report No. 11-12
This report summarizes OIG's review performed in response to a July 2, 2010
letter received from Senator Olympia 1. Snowe. The letter inquired about the
Small Business Administration's (SBA) strategy for developing economic relief to
small business owners impacted by the Deepwater Horizon oil spill. Specifically,
we were asked to provide: (1) total expenditures and additional resources
committed by SBA to assisting disaster victims of the Deepwater Horizon oil spill;
(2) performance benchmarks that have been reached as a result of the investment;
and (3) recommendations for ensuring that SBA's disaster response is most cost
effective and targeted toward the needs of those concerned. We have previously
responded to Senator Snowe regarding the first two requests. Since the third
request was to provide recommendations, this report has been addressed to the
Agency.
The objectives of this audit were to determine whether SBA's disaster response
was most cost effective and targeted toward the needs of those concerned. To
accomplish this, we interviewed Office of Disaster Assistance (ODA), Small
Business Development Center and state and local economic development officials.
We also analyzed workload d statistics and related cost estimates pertaining to
Business Recovery Centers (BRC) for the period May through August 2010. We
visited four BRCs in Louisiana during June 2010 and one BRC in Mississippi
during September 2010. We conducted the audit between June and December
2010 in accordance with Government Auditing Standards prescribed by the
Comptroller General.
1
BACKGROUND
The Deepwater Horizon oil spill in the Gulf of Mexico stemmed from an April 20,
2010 drilling rig explosion, causing oil to flow for three months. It was the largest
accidental marine oil spill in the history of the petroleum industry and the second
widespread disaster to affect the Gulf Coast region within five years. After
releasing million of gallons of crude oil, the leak was stopped in July 2010. In
September 2010, the relief well process was successfully completed and the
Federal Government declared the well "effectively dead."
The spill caused extensive damage to marine and wildlife habitats as well as the
Gulfs fishing and tourism industries. The U.S. Government named British
Petroleum (BP) as the responsible party, and officials committed to holding the
company accountable for all cleanup costs and other damages. However, it was
unknown how rapidly BP could provide the financial assistance needed to sustain
local small businesses impacted by the disaster. Governors from Louisiana,
Alabama, Florida, and Mississippi petitioned SBA to declare this event an
economic injury disaster and provide financial assistance to the numerous small
businesses affected.
In response to the Governors' requests, in May 2010, SBA issued Economic Injury
disaster declarations for specific regions in the affected states. As is customary,
SBA sent teams of employees to the disaster areas to provide onsite advice and
assistance for obtaining SBA disaster assistance. Business Recovery Centers l
(BRC) were established in key areas thought to have the largest number of
businesses injured by the disaster.
Because the Deepwater Horizon oil spill was an extraordinary event, the Agency
was not able to obtain accurate projections of the number of businesses impacted
by the disaster. Therefore, SBA relied upon requests made by local and state
government officials to determine where assistance was needed. In May 2010,
SBA initially established 27 BRCs in 4 states, however, the number of open
centers fluctuated during the six month period they were operational. The last
BRC was closed by SBA on November 18,2010.
At the BRCs, small business owners were interviewed to determine whether they
met the requirements to qualify for an SBA Economic Injury Disaster Loan
(EIDL) loan. Also, business owners that already had an SBA disaster loan as a
result of a previous disaster were offered deferment of their prior loans. SBA
made extensive outreach efforts, deploying staff from the BRCs and creating
1 In most disasters, SBA co-locates with FEMA in their Disaster Recovery Centers. When FEMA is not
involved, SBA establishes its BRCs.
2
outreach teams to educate small businesses impacted by the disaster about the
availability of SBA assistance. The table below illustrates the magnitude of the
BRC's efforts:
Total BRC Actions
(May 2010 through August 2010)
Total
Activit~
I
Miscellaneous Outreach - Businesses
11,489
Contacted
4,723
Other Interviews & Loan Deferrals
Loan Applications Issued
4,410
Loan Applications Accepted
822
Loan Closings
159
ODA advised that total expenditures relating to the Deepwater Horizon Oil Spill
for the period May through November 2010 were $6.4 million. The costs captured
at each center included salaries and benefits, travel, leased space, and
miscellaneous expenses. We reviewed these expenses incurred by four different
cost centers: (1) Field Operations Center West; (2) Field Operations Center East;
(3) the Processing and Disbursement Center (PDC) in Fort Worth, TX; and (4) the
Disaster Assistance Customer Service Center in Buffalo, NY.
During the six month period the BRCs were operational, a significant number of
small businesses were contacted and informed of the availability of SBA
assistance. Ultimately, relatively few businesses sought SBA assistance. As of
February 9,2011, the PDC received 1,767 (822 were initially accepted at the
BRCs) EIDL applications of which 410 were approved, totaling approximately
$37.2 million. An additional 1,098 prior disaster loans were deferred. In contrast,
BP indicated that by November 2010, they had received over 315,000 claims of
which 92,000 had been paid or approved for payments totaling $1.7 billion.
RESULTS OF REVIEW
Cost Effectiveness of SBA's Disaster Response
During the Deepwater Horizon Oil spill, the Agency was slow to make
adjustments to staffing levels despite a continuously low workload. This occurred
because the Agency was tasked with maintaining a steady presence in the region,
despite the limited demand for SBA financial assistance. The Agency made
extensive outreach efforts to businesses impacted by the disaster and maintained
BRCs in affected locations for several months.
3
In order to evaluate the cost effectiveness of staffing decisions made by the
Agency, we reviewed staffing levels at the BRCs from May through August 2010.
To analyze the cost effectiveness, we devised a production factor to measure the
time employees spent providing assistance. The production factor represents the
percentage of an 8 hour day utilized in completing specific tasks 2 . We calculated
this percentage using data compiled from field activity reports for the period May
through August 2010. These reports listed daily actions performed by employees
at the BRCs, including processing loan applications and performing loan closings,
other interviews, and miscellaneous outreach. Staff employed at the BRCs spent
an average of38 percent of the work day accomplishing these tasks. ODA
believed there may have been more time spent on tasks not recorded on the Daily
Activity Reports; however, ODA had not provided data for these ancillary tasks to
account for the remaining 62 percent of the work day and we had no basis to
evaluate this time spent to account for the remaining work day.
The following table illustrates the BRC staffing levels and production:
BusIOess R ecovery C enter Sta ffi109 Leve s
.
c:J
May
June
July
August
Number
of
BRCs
27
31
29
30
Number
ofBRC
Employees
96
96
98
87
Measurable
Production
(Hours)
3.0
3.0
2.7
2.2
Measurable
Production
(Percentage)
38
38
33
28
Source: Numbe ofBRCs and Employees ProvIded by ODA
As the table illustrates, using estimates furnished by ODA, we determined that
BRC employees spent only 38 percent of their time to accomplish daily tasks
specified on the activity reports during May 2010. This was further evidenced
during our site visits conducted at five BRCs located in Louisiana and Mississippi,
where we observed that there were no business owners seeking SBA assistance.
Demand for SBA assistance remained consistently low during the four month
period ending in August 2010. Despite the low demand, SBA did not adjust
staffing levels until August when the BRC staff was reduced by 11 employees.
Based on the activity reports, it appears that staffing could have been reduced
2 ODA provided estimates on the average time spent to complete each task. These averages were used to
calculate the production factor.
4
sooner to a level which would have resulted in employees accomplishing key tasks
identified on the daily activity reports for the majority of the work day.
While ODA officials advised that they monitored daily activity reports, we noted
ODA did not have written guidance for establishing BRC sites, or monitoring
BRC workload and adjusting staffing. Further, they did not make timely
adjustments to BRC staffing levels based upon the daily activity reports. Given
the low level of activity, SBA may have been able to reduce the hours and days of
operation at some centers or potentially close those centers with minimal activity.
These adjustments would have allowed SBA to continue to meet demands for
assistance while simultaneously reducing staff.
SBA's disaster response could have been provided at a lower cost by reducing the
number of BRCs, or staff at BRCs, or both. According to the ODA Daily Field
Activity Report (DF AR), SBA employees appeared to experience a significant
amount of idle time during the period of our review. We estimated the salaries
and travel expense relating to the idle time totaled approximately $2.5 million
based on reported costs for the BRCs during May through August 2010. While
ODA officials have acknowledged that all disasters may have some amount of idle
time, we found no criteria or metric that would guide when to make adjustments in
BRC staffing.
In summary, SBA's response to the Deepwater Horizon Oil spill did not appear to
be most cost effective. The Agency advised us that its priority was to maintain a
presence and prevent the appearance of a lack of government support or
curtailment of services. In future disasters, SBA should regularly review the daily
activity reports and make periodic adjustments to staffing levels to ensure that
service is maintained at a cost effective level. SBA should also evaluate BRC
business operation days and times and ensure they correspond with activity levels.
SBA Targeted the Needs of Deepwater Horizon Oil Spill Disaster Victims
Who Qualified for Assistance
SBA targeted the needs of Deepwater Horizon Oil Spill victims by offering:
• Low interest disaster loans - While these services were offered to all
business owners impacted by the disaster, there was limited demand for
SBA loans. SBA received 1,767 EIDL loan applications, of which 410
were approved as of February 9,2011. In comparison, BP received
315,000 claims for assistance. As these statistics indicate, most of the
Deepwater Oil Spill disaster victims sought compensation from BP rather
than an SBA loan. Additionally, many businesses affected by the oil spill
5
were still recovering from the effects of the Gulf Coast hurricanes and were
reluctant to incur new debt due to poor economic conditions.
• Loan Deferments on Active SBA Loans - SBA routinely approved deferral
of existing SBA disaster loans for borrowers impacted by the disaster. As
of December 15,2010, the Agency had deferred 1,098 active disaster loans
totaling approximately $6 million. Deferments for existing borrowers in
the impacted areas were provided upon request with no documentation
required. SBA also encouraged private lenders to defer SBA-guaranteed
business loans to borrowers impacted by the spill.
• Translation Services - In Louisiana, many of the disaster victims required
translation services. SBA provided 14 Vietnamese translators at the BRCs
during the crisis period. At three locations where SBA and BP were co
located, the SBA BRC staff provided Vietnamese translation services to
borrowers during the process of filing BP claims. ODA also provided
translation services in Spanish, Chinese, Arabic and other languages, as
needed. Additionally, SBA staff from the BRCs participated in, and
provided translation services, at numerous community meetings.
• Counseling Services Provided by SBA's Resource Partners - SBA
sponsored its resource partners, the Small Business Development Centers
(SBDCs) and SCORE Counselors to America's Small Business, who
helped with local outreach by making potential applicants aware of SBA's
services. They also provided business counseling, screened and
interviewed potential applicants, helped the applicants complete
documents, and assisted with loan applications and BP claims.
RECOMMENDATIONS
We recommend that the Associate Administrator for the Office of Disaster
Assistance develop written procedures to establish:
1. Performance metrics to assess workload and appropriate onsite staffing
levels.
2. Guidelines for monitoring onsite productivity and adjusting staffing levels
in a timely manner.
6
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL
RESPONSE
On March 18,2011, we provided the Office of Disaster Assistance (ODA) with
the draft report for comment. On April 7, 2011, ODA submitted its formal
response which is contained in Appendix I. Management agreed with our findings
and concurred with our recommendations. A summary of management's
comments and our response is as follows.
Recommendation 1
Management Comments
ODA agrees to establish written procedures outlining performance metrics to
assess workload for Governor Certification Declarations (described in 7(b )(2)(D)
of the Small Business Act).
DIG Response
Management's comments are responsive to the recommendation.
Recommendation 2
Management Comments
ODA agrees to establish written procedures to monitor onsite productivity and
adjust staffing levels in a timely manner for Governor Certification Declarations
(described in 7(b )(2)(D) of the Small Business Act).
DIG Response
Management's comments are responsive to the recommendation.
ACTIONS REQUIRED
Please provide your management decision for each recommendation on the
attached SBA Forms 1824, Recommendation Action Sheet, within 180 days from
the date of this report. Your decision should identify the specific action( s) taken
or planned for each recommendation and the target date( s) for completion. We
appreciate the courtesy and cooperation of the Office of Disaster Assistance
during the audit. If you have any questions regarding this report, please contact
me at (202) 205-7203 or Craig Hickok, Director, Disaster Assistance Group, at
(817) 684-5341.
7
APPENDIX I. AGENCY RESPONSE
u. S. SMALL BUSINESS ADMINISTRATION
WASHINGTON,
D.C. 20416
Date:
April 7, 2011
To:
Peter L. McClintock
Deputy Inspector General
From:
James Rivera
Associate Administrator
Office of Disaster Assistance
Subject:
Report on the SBA's Response to the Deepwater BP Oil Spill (Project No. 10901)
We have reviewed the draft audit report regarding SBA's Response to the Deepwater BP Oil Spill (BP Oil
Spill). The objectives of this audit were to determine whether SBA's disaster response was cost effective
and targeted toward the needs of those concerned. Thank you for the opportunity to respond to the draft
report.
The BP Oil Spill was an unprecedented event with a disastrous impact on the states surrounding the Gulf
Coast and the small businesses located there. Small businesses in the Gulf Region that earned their living
fishing in the local waters, as well as seafood retailers, boat yards, shipping companies, processing plants
and many other small businesses that supported the oil industry and tourism industry, faced tremendous
financial losses from having to shut down operations.
With the magnitude of the BP Oil Spill and the potential effects of the disaster along the Gulf Coast, SBA
received requests for Economic Injury Disaster Loan (EIDL) declarations from the Governors of Alabama,
Florida, Louisiana and Mississippi. Upon receipt and appropriate due diligence, SBA declared four
Governor Certification Declarations (under Section 7(b)(2)(D) of the Small Business Act). A total of 42
primary counties and 64 contiguous counties were declared (see Figure 1), making EIDLs available in
those disaster areas.
Figure 1
8
APPENDIX I. AGENCY RESPONSE
The BP Oil Spill disaster was not representative of a typical EIDL-only disaster. It is not customary for
SBA to send teams of employees to the disaster areas and to stand up BRCs for EIDL-only declarations.
For a number of reasons, however, the BP Oil Spill disaster required a more robust government response
than is typically required for EIDL-only disasters:
Due to its magnitude, the BP Oil Spill was the first incident in U.S. history to be declared a Spill
of National Significance (SONS) under the National Oil and Hazardous Substances Pollution
Contingency Plan (NCP) by the Department of Homeland Security. SBA participated in the
national coordinated effort led by the White House and concluded that it was critical that SBA
establish a strong physical presence in the affected states by opening BRCs throughout the Gulf
region and making assistance available as quickly as possible. In the absence of a Presidential
disaster declaration and with no field presence by FEMA, SBA worked in concert with the State
and local officials to determine the hardest hit areas and the best locations for the BRCs.
In order to maintain a high level of customer service in the affected areas and for security
purposes, SBA assigned a minimum of two employees to most of the BRCs in the Gulf Coast.
This allowed us to give prompt assistance to small business owners affected by the oil spill as well
as to ensure the availability of translation services.
SBA staff in the BRCs met individually with small business owners to answer questions about the
EIDL program, to issue loan applications, to provide help in completing the loan forms (both for
SBA's EIDL loan program and applications for the Gulf Coast Claims Facility established by BP),
and to answer questions regarding deferments of existing disaster loans. Due to the diversity of
the disaster applicants, translation services in seven languages were a necessity in many of the
centers. The typical interview for an EIDL application generally takes 30 minutes, however due to
the complexity of the BP Oil Spill and the additional time required to translate, it was not
uncommon for the issuance of a single EIDL application to take up to 2 hours, and sometimes up
to 4 hours, for two SBA employees (one a loan officer and the other a translator). One particularly
challenging translation required 11 hours.
Despite these challenges, BRCs were established to provide necessary services economically and in a
manner that would require minimal overtime, if any.
OIG RECOMMENDATIONS AND AGENCY RESPONSE
OIG recommends the Associate Administrator for the Office of Disaster Assistance develop written
procedures to establish:
1. Performance metrics to assess workload and appropriate onsite staffing levels.
aDA Response: aDA agrees to establish written procedures outlining performance metrics to
assess workload for Governor Certification Declarations (described in 7(b)(2)(D) ofthe Small
Business Act).
2. Guidelines for monitoring onsite productivity and adjusting staffing levels in a timely manner.
aDA Response: aDA agrees to establish written procedures to monitor onsite productivity and
adjust staffing levels in a timely manner for Governor Certification Declarations (described in
7(b)(2)(D) ofthe Small Business Act).
9
