GENERAL SERVICES

ADMINISTRATION

Actions Taken to

Correct Rent Expense

Estimation

Weaknesses

United States General Accounting Office

GAO Report to Congressional Requester

August 1999

GAO/GGD-99-123

United States

General Accounting Office

Washington, D.C. 20548

General Government Division

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GAO

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-ofspace 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

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

Results in Brief
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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

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.

Background
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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.
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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

operation, reviewed training materials on its operation, reviewed

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

rental-of-space account and to improve its budget estimating for this

account. The major step taken to improve both the tracking and

estimating of the rental-of-space account was GSA’s development of the

Galaxy program to be the primary tool to manage the rental-of-space

account for fiscal year 1999 and to help manage project expenditures for

fiscal year 2001. The reason Galaxy was developed was to provide a

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.

Scope and

Methodology

Galaxy–GSA’s Major

Effort to Improve

Tracking and

Estimating in Its

Rental-of-Space

Account
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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.

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

authorizations (RWA)

Tracks agreements, using RWA number, between GSA and an

agency to have GSA provide specific services that are beyond

the standard level covered by the rental agreement.

Intra-budget activity

authorizations (IBAA)

Tracks transfers of funds, using the IBAA number, from the

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

withholds (credits)

Tracks debits or credits to lessors other than recurring monthly

rent, such as tax claims, damage claims, and lessor default.

Operating cost

escalations/consumer

price index (CPI)

Tracks any increases or decreases in annual rental that are not

the result of changes to the base leased square footage, such

as a scheduled increase in cost per square foot agreed to in

the lease.

Allowances and monthly/

quarterly reports

Tracks amounts provided to each GSA region for its rental-ofspace 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

Table 1: Galaxy Components
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manual lists five steps that the analyst must follow to validate the

information. Table 2 lists these 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.

a

NEAR 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-ofspace 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

Table 2: Data Validation Steps
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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 rentalof-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

its underestimation that led to a total of $324 million in reprogramming

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

needed by fiscal year.

Dollars in millions

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 a

Does 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

Improvements to Other

Problem Areas in PBS’

Rental-of-Space

Forecasting Process

Table 3: Areas Underestimated in the

Rental-of-Space Account, by Fiscal Year
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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

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

draft of this report. He said that GSA generally agreed with the draft

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).

Conclusions

Agency Comments and

Our Evaluation
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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
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