General Services Administration: Actions Taken to Correct Rent Expense
Estimation Weaknesses (Letter Report, 08/19/1999, GAO/GGD-99-123).
Congress has raised concerns about how the General Services
Administration (GSA) estimated the funding needs for the rental-of-space
account within the Federal Buildings Fund. In August 1997 and again in
January 1998, GSA requested that it be allowed to reprogram $324 million
from other Fund accounts into the rental-of-space account to cover its
underestimation of expenses to be paid out of that account. GSA
officials said that the reprogramming was necessary because of
forecasting problems relating to lease expansion, lease cancellations,
rent increases for existing leases, and the annualization of the fiscal
year 1997 reprogramming. GSA has been changing its rent expenditure
tracking and estimating process and has been developing a new computer
program, known as Galaxy, to facilitate this process. This report
discusses whether (1) the new Galaxy program included the elements
needed for tracking actual rental expenditures and forecasting future
rental-of-space funding requirements and (2) the additional steps that
GSA's Public Buildings Service was taking to improve its budget process
addressed the causes of its underestimation of the rental-of-space
account.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-99-123
TITLE: General Services Administration: Actions Taken to Correct
Rent Expense Estimation Weaknesses
DATE: 08/19/1999
SUBJECT: Rental rates
Federal office buildings
Cost analysis
Future budget projections
Management information systems
Federal agency accounting systems
IDENTIFIER: GSA Galaxy Program
PBS System for Tracking and Administering Real Property
Federal Buildings Fund
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United States General Accounting Office GAO Report
to Congressional Requester August 1999 GENERAL SERVICES
ADMINISTRATION Actions Taken to Correct Rent Expense Estimation
Weaknesses GAO/GGD-99-123 United States General Accounting Office
GAO Washington, D.C. 20548 General Government
Division B-282846 August 19, 1999 The Honorable Bob Franks,
Chairman Subcommittee on Economic Development, Public Buildings,
Hazardous Materials and Pipeline Transportation Committee on
Transportation and Infrastructure House of Representatives Dear
Mr. Chairman: This report responds to the Subcommittee's request
for a review of the General Services Administration's (GSA) system
for estimating the rental expenses of the Federal Buildings Fund
(FBF). The Subcommittee was concerned about how GSA estimated the
funding needs for the rental-of- space account within FBF. On
August 8, 1997, and again on January 9, 1998, the Subcommittee
received requests from GSA to allow it to reprogram a combined
total of $324 million in New Obligational Authority (NOA) from
other FBF accounts into the rental-of-space account to cover its
underestimation of the expenses to be paid out of this account in
fiscal years 1997 and 1998. In its requests, GSA attributed the
need for the reprogramming actions to forecasting problems
relating to lease expansions, lease cancellations, rent increases
for existing leases, and the annualization of the fiscal year 1997
reprogramming. At the time we started work on this request in
August 1998, GSA's Public Buildings Service (PBS) was changing its
rent expenditure tracking and estimating process and developing a
new computer program, known as Galaxy, to facilitate this process.
As agreed with the Subcommittee, the objectives of our review were
to determine whether (1) the new Galaxy program included the
elements needed for tracking actual rental expenditures and
forecasting future rental-of-space funding requirements, and (2)
the additional actions PBS was taking to improve its budget
process addressed the causes of its underestimation of the rental-
of-space account. Galaxy has seven basic components that appear
capable of providing the Results in Brief data elements needed
to track the actual expenditures made from the rental-of-space
account and thus aid in forecasting the funding required for the
rental-of-space account for budget purposes. PBS has recognized
that the success of the Galaxy program depends on the accuracy and
maintenance of the data entered into Galaxy. Consequently, it has
emphasized this issue in its training manual for Galaxy. This
manual states Page 1 GAO/GGD-99-123
PBS' Rent Estimating System B-282846 that all active leases and
projects loaded into Galaxy "must be validated." The manual lists
five steps that the analyst must follow to validate the
information. Rent account analysts1 that we interviewed
emphasized the need to maintain good communications among (1)
themselves, who maintain Galaxy; (2) the realty specialists, who
maintain PBS' System for Tracking and Administering Real Property
(STAR),2 the system from which the data in Galaxy were downloaded,
and (3) customer agencies, that provide information on their space
needs. We agree that GSA and its customer agencies need to have
good communications to ensure that GSA knows about any potential
changes in inventory that a customer agency may plan in a given
fiscal year, so that those changes are reflected in GSA's budget
submission. PBS has taken steps to improve (1) how it calculates
the rental-of-space estimate, such as using local market rental
increases instead of national averages in calculating the rent
increase estimates, and (2) the budgeting process in general, by
establishing the Office of Financial and Information Systems (FIS)
to, among other things, oversee budget formulation, including
estimating the rental-of-space account funding requirements. We
believe that the actions PBS has identified to improve its
budgeting process, if effectively implemented, address the causes
it identified for its underestimation of the rental-of-space
account. Funds from the rental-of-space account in FBF pay for all
leased space in Background GSA's inventory. During fiscal
years 1997 and 1998, GSA received appropriations of about $4.6
billion in NOA for this account, about $2.3 billion in each fiscal
year. GSA submitted two requests, totaling $324 million in NOA,
to reprogram funds from other FBF accounts into the rental-of-
space account. On August 8, 1997, GSA requested approval to
reprogram $110 million of the fiscal year 1997 appropriated funds,
and on January 9, 1998, it requested approval to reprogram another
$214 million of fiscal year 1998 appropriated funds. Both
requests were approved. The amounts requested equaled about 4.7
percent of the amount initially requested by GSA in its budget
requests for the rental-of-space account for fiscal year 1997, and
9.4 percent of the amount requested for fiscal year 1998. 1 We
have used rent account analyst as a generic term for the budget
analysts and program analysts who assist in maintaining the Galaxy
program. 2 STAR is a new information system that became
operational in January 1998. GSA currently uses STAR for project
administration, space management, and client billing. We are
currently reviewing STAR to determine what user problems may exist
and what steps PBS is taking to ensure accurate, reliable, and
consistent data in it. Page 2
GAO/GGD-99-123 PBS' Rent Estimating System B-282846 In its August
8, 1997, reprogramming request for fiscal year 1997, GSA
attributed the need for the reprogramming to three causes. First,
it had estimated that the overall average rents would increase by
2 percent, but actual rent increases ranged from 3 to 5 percent.
This resulted in the cost to the account being underestimated by
about $30.9 million. Second, on the basis of regional
expectations, GSA had overestimated the amounts that would be
saved through lease cancellations by about $74.1 million. Third,
GSA had not been able to absorb a $5.1 million congressional
reduction in appropriations requested for rental-of-space
expenditures in fiscal year 1997.3 According to a GSA official,
the agency could not absorb this cut because GSA was already short
of NOA in this account. GSA alerted its oversight committees in
its reprogramming request letter that these problems would also
affect the rental-of-space account in fiscal year 1998. In its
January 9, 1998, reprogramming request for fiscal year 1998, GSA
attributed the need for the reprogramming to four causes. First,
GSA needed $143.6 million to cover the $110 million
underestimation in fiscal year 1997 and to annualize this error
for fiscal year 1998. Second, as in fiscal year 1997, GSA had
estimated the overall average rental rate increase at 2 percent,
but actual increases ranged from 3 to 5 percent. This resulted in
the cost to the account being underestimated by about $22.5
million. Third, as in fiscal year 1997, it had overestimated
savings from lease cancellations, this time by about $41.8
million. Finally, on the basis of what regional staff believed
was going to happen, GSA had underestimated the need for expansion
space. This resulted in a need for an additional $6.1 million.
The process of formulating the budget is to begin no later than
the spring of each year, about 9 months before it is transmitted
to Congress and 18 months before the beginning of the fiscal year
in which the budget becomes effective. During the first 6 months
of this period (from about April through September), PBS compiles
information on the various budget elements, including the rental-
of-space account; reviews the information for reasonableness and
accuracy; and prepares its budget estimates. During the next 3
months (October through December) these estimates are to be
submitted as a portion of GSA's budget request to the Office of
Management and Budget (OMB) for review. OMB reviews the budget
request and passes it back to GSA with any changes, and GSA may
appeal OMB `s changes before the budget is finalized. Early the
following year (between the first Monday in January and the first
Monday in 3 The three figures total $110.1 million for fiscal year
1997 after rounding. Page 3
GAO/GGD-99-123 PBS' Rent Estimating System B-282846 February), the
budget is to be submitted to Congress for its review and
appropriation of funds. Because of the timing of the budget
process, when GSA realizes that an estimation error has been
included in its budget request for that fiscal year (in fiscal
year 1997 in this case), the error usually cannot be corrected in
a future budget estimate until the second fiscal year after the
error occurred (in this case, fiscal year 1999). To accomplish our
objectives, we observed the Galaxy program in Scope and
operation, reviewed training materials on its operation, reviewed
Methodology documentation on the reprogramming requests,
and interviewed PBS officials and budget and/or program analysts
responsible for maintaining Galaxy in 10 of GSA's 11 regions. We
discussed with the PBS Deputy Controller what elements were needed
to track and forecast rent expenditures. We checked to see that
the elements discussed were included in the Galaxy program. We
did not verify the accuracy of the data in Galaxy, but we did
obtain information from PBS on how it planned to ensure that the
data would be accurate, reliable, and consistent. We also did not
contact customer agencies to verify the extent to which they were
being contacted by GSA regarding their future space needs. We did
our work in Washington, D.C., between August 1998 and May 1999 in
accordance with generally accepted government auditing standards.
We requested comments on a draft of this report from the
Administrator of GSA. GSA's comments are discussed at the end of
this letter. GSA has taken corrective actions to specifically
improve its tracking of the GalaxyGSA's Major rental-of-space
account and to improve its budget estimating for this Effort to
Improve account. The major step taken to improve both the
tracking and estimating of the rental-of-space account was GSA's
development of the Tracking and Galaxy program to be the
primary tool to manage the rental-of-space Estimating in Its
account for fiscal year 1999 and to help manage project
expenditures for Rental-of-Space fiscal year 2001. The
reason Galaxy was developed was to provide a Account
means to have all the regions use a consistent format, the same
set of tools, and the same assumptions to monitor, reconcile, and
estimate future expenditures from the rental-of-space account.
Rent account analysts responsible for the rental-of-space account
had not had a financial management tool for tracking and analyzing
the account since September 1997. The previous automated system
was discontinued when STAR was being put on-line. Rent account
analysts had been using manual spreadsheets to monitor the account
since that time. Page 4 GAO/GGD-99-
123 PBS' Rent Estimating System B-282846 The Galaxy program
software was developed under an existing support services
contract, at no additional cost to GSA except for some travel to a
region, as an interim program until a module could be developed
for STAR. Current plans are to enhance Galaxy so that it will
interface with STAR. A statement of work to accomplish this
objective is currently being developed. To implement Galaxy, GSA
provided each region with training on its use and a copy of the
software already loaded with the region's data for active lease
contracts and active lease projects as of October 1, 1998. Galaxy
has seven basic components, which include the elements PBS has
identified as needed for tracking actual expenditures and
estimating the funding requirements for future expenditures from
the rental-of-space account. These components are described in
table 1. Table 1: Galaxy Components Component title
Component description Base leases Provides an
inventory of all active lease contracts for space leased by GSA.
This database includes lease number, building address, base square
feet, and rental cost per square foot. Reimbursable work
Tracks agreements, using RWA number, between GSA and an
authorizations (RWA) agency to have GSA provide specific
services that are beyond the standard level covered by the rental
agreement. Intra-budget activity Tracks transfers of funds,
using the IBAA number, from the authorizations (IBAA)
rental-of-space account, Budget Activity 53, to the field office
for each lease when the government is paying utilities and/or
services not included in the lease. Lump sum (debits) and
Tracks debits or credits to lessors other than recurring monthly
withholds (credits) rent, such as tax claims, damage
claims, and lessor default. Operating cost Tracks any
increases or decreases in annual rental that are not
escalations/consumer the result of changes to the base
leased square footage, such price index (CPI) as a
scheduled increase in cost per square foot agreed to in the lease.
Allowances and monthly/ Tracks amounts provided to each GSA region
for its rental-of- quarterly reports space account and
the plans for expending them. Projects Tracks
agencies' requests for such things as new space and/or expansions
to and deletions from existing space. Source: GSA documents and
officials. The program can also generate various reports on both
leases and projects, such as base rent by month, RWAs by lease
number, IBAAs by lease number, lump sums by lease, operating cost
escalation/CPI by lease, NOA by base lease, and estimate of rent
increases tied to projects. Rent account analysts are responsible
for ensuring that Galaxy's data are accurate, reliable, and
consistent. The training manual states that all active leases and
projects loaded in Galaxy "must be validated." The Page 5
GAO/GGD-99-123 PBS' Rent Estimating System B-282846 manual lists
five steps that the analyst must follow to validate the
information. Table 2 lists these steps. Table 2: Data Validation
Steps Step Activity 1 Reconcile Galaxy base leases to
National Electronic Accounting and Reporting System (NEAR).a Any
discrepancies must be resolved and accounted for properly. NEAR,
STAR, and Galaxy must reflect the same data at the start of the
fiscal year. 2 Review all lease projects in Galaxy to see
whether they upload from STAR, there is a project for every
expiring lease, and all projects are up-to-date and make sense. 3
Enter estimated average CPI increase for each lease in order to
activate the CPI projections. 4 Enter all Lump Sums,
IBAA's, or RWA's. These data should be identified through STAR,
budget call data, and interviews with realty specialists. 5
Ensure that the analyst keeps the database up-to-date throughout
the fiscal year. aNEAR is GSA's financial accounting system.
Source: GSA document. Also, other guidance in the manual
indicates that Galaxy must be reconciled to NEAR on a monthly
basis to ensure that accurate obligations are stated in NEAR.
Further, the manual states that the effectiveness of any system is
contingent upon the information it is supplied. Therefore, each
region is responsible for ensuring the accuracy of the data input
into Galaxy. Without accurate data, a credible status report for
the rental-of- space account cannot be produced. Further, the
regional rent account analysts we interviewed all agreed that
communications between themselves and the realty specialists will
be key in maintaining the accuracy of Galaxy. The analysts
believed that communications would be of particular importance in
estimating the rent account for a future budget year because, in
order to estimate future expenditures, they rely not only on
information about active leases, but also on information on
projects in process. Project information is dependent upon the
realty specialists' communications with the customer agencies.
The analysts we interviewed all believed that, with proper
communications, Galaxy should help avoid past problems and improve
the estimating process. We were told that all GSA regions are to
create a branch that will have as one of its responsibilities the
initiating and inputting of all project data into STAR. This
process should help ensure that the projects are entered into
STAR. In May 1999, at least one region had already begun
interviewing applicants for positions in the new branch. We agree
that good communication between the analysts maintaining Galaxy
and the realty specialists maintaining STAR is critical to the
accuracy of the data in Galaxy. To project the rent expenditure
account, it Page 6
GAO/GGD-99-123 PBS' Rent Estimating System B-282846 is
particularly important to obtain data on lease projects, which
reflect potential changes in the inventory. This information is
not as readily available as data on existing leases, but must be
obtained from customer agencies. Further, we agree that good
communication between GSA and its customer agencies is essential
to improving the accuracy of the rental- of-space estimate.
However, this may not be easily accomplished, even with good
communications, given that for budget purposes GSA needs to
estimate changes in space requirements approximately 18 months in
advance. In his testimony on April 24, 1997, the PBS Commissioner
testified that, when he asked federal agency facility managers in
a quarterly meeting whether they could identify the space
reductions from downsizing a year in advance, they all said that
they could not. This shows how difficult it may be for GSA to get
accurate information on changes in the inventory. In addition to
implementing Galaxy, GSA has taken other steps to address
Improvements to Other its underestimation that led to a total of
$324 million in reprogramming Problem Areas in PBS' requests for
fiscal years 1997 and 1998. Table 3 lists the areas with budget
estimation problems in the rental-of-space account as well as the
NOA Rental-of-Space needed by fiscal
year. Forecasting Process Table 3: Areas Underestimated in the
Dollars in millions Rental-of-Space Account, by Fiscal Year
Problem area FY 1997
FY 1998 Underestimating rent increases
$30.9 $22.5 Overestimating lease cancellations
74.1 41.8 Congressional reduction for lease
expenditures 5.1 0.0
Annualization of fiscal year 1997 shortage
0.0 143.6 Underestimating expansions
0.0 6.1 Total
$110.0a $214.0 aDoes not total due to rounding.
Source: GSA documents. In addition to implementing Galaxy, GSA
has taken several other steps to specifically address the problem
areas listed in table 3. First, a GSA official told us that GSA
regions would use local market rental rate increases to determine
the region's estimated rental rate increase for a budget year. In
fiscal years 1997 and 1998, GSA used national averages to
determine rental rate increases. Further, according to an
official, GSA will try to improve its estimation of lease
cancellations by comparing the amount of a region's projected
cancellations with the historical trends for that region. If the
projected cancellations for a region appear to deviate from the
historical trends, the divergence will be reviewed to see whether
there is a justification for it. If there is not, GSA will rely
on the historical trend data. In fiscal years 1997 and 1998, the
budget estimates that Page 7
GAO/GGD-99-123 PBS' Rent Estimating System B-282846 overestimated
the savings from lease cancellations relied on the figures
provided by the regions. Finally, with regard to expansion space,
according to a GSA official, no specific action other than the use
of Galaxy is being taken. The variance in this area only amounted
to 0.03 percent and that only in fiscal year 1998. Also, PBS
officials told us that four controls have been established to
improve the rental-of-space account estimate of future
expenditures. Each region (1) will be required to develop a
financial plan to be used to track the rental-of-space account on
a quarterly basis, (2) will be required to provide an explanation
for a variance of plus or minus 0.5 percent between actual
obligations and the established targets, (3) will have a set limit
of NOA for existing leases and annualizations of leases, and (4)
will have a "cannot exceed limit" for indefinite authority.4
Further, as we stated in our March 1998 testimony on
overestimation of rental revenue projections, GSA issued an order
in July of 1997 establishing FIS, with one of its responsibilities
being the budget estimating process.5 It also hired a chief
financial officer to oversee FIS. If implemented as designed,
both actions should, in our opinion, improve PBS' financial
management of FBF. Galaxy appears to have elements needed to track
PBS' rental-of-space Conclusions account and
aid in more accurately estimating this account for future budgets.
To the extent that PBS effectively implements the steps it has
taken to maintain accurate data and good communications within GSA
and with its customer agencies, has improved its estimation and
budgetary process, and has corrected the problems it identified as
causing its underestimation of the rental-of-space account, it
should be able to produce better estimates of this account in the
future. On July 16, 1999, the PBS Deputy Controller provided oral
comments on a Agency Comments and draft of this report. He said
that GSA generally agreed with the draft Our Evaluation
report and pointed out that PBS had established a requirement that
the regions explain variances of plus or minus 0.5 percent between
actual obligations and established targets. We modified our
report to reflect this requirement. 4 PBS defines indefinite
authority as the funding for unplanned expansions whereby the net
new increase in revenue is sufficient to cover all associated
costs of the lease action. 5 General Services Administration:
Overestimation of Federal Buildings Fund Rental Revenue
Projections (GAO/T-GGD-98-69, Mar. 5, 1998). Page 8
GAO/GGD-99-123 PBS' Rent Estimating System B-282846 We are sending
copies of this report to Representative Robert E. Wise, Ranking
Democratic Member of your Subcommittee; Senator Ben Nighthorse
Campbell, Chairman, and Senator Byron L. Dorgan, Ranking Minority
Member, Senate Subcommittee on Treasury and General Government,
Committee on Appropriations; Senator George V. Voinovich,
Chairman, and Senator Max S. Baucus, Ranking Minority Member,
Senate Subcommittee on Transportation and Infrastructure,
Committee on Environment and Public Works; Representative Jim
Kolbe, Chairman, and Representative Steny Hoyer, Ranking Minority
Member, House Subcommittee on Treasury, Postal Service, and
General Government, Committee on Appropriations; the Honorable
David J. Barram, Administrator, GSA; and to others upon request.
If you have any questions regarding this report, please call me or
Ron King at (202) 512-8387. The key contributor to this
assignment was Tom Keightley. Sincerely yours, Bernard L. Ungar
Director, Government Business Operations Issues Page 9
GAO/GGD-99-123 PBS' Rent Estimating System Page 10 GAO/GGD-99-
123 PBS' Rent Estimating System Page 11 GAO/GGD-99-123 PBS'
Rent Estimating System Page 12 GAO/GGD-99-123 PBS' Rent
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