Bureau of Prisons: Methods for Cost Estimation Largely Reflect Best Practices, but Quantifying Risks Would Enhance Decision Making
Published: 2009-11-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Justice's (DOJ) Federal Bureau of Prisons (BOP) is responsible for the custody and care of about 209,000 federal inmates--a population which has grown by 44 percent over the last decade. In fiscal years 2008 and 2009, the President requested additional funding for BOP because costs for key operations were at risk of exceeding appropriated funding levels. Government Accountability Office (GAO) was congressionally directed to examine (1) how BOP estimates costs when developing its annual budget request to DOJ; (2) the extent to which BOP's methods for estimating costs follow established best practices; and (3) the extent to which BOP's costs for key operations exceeded requested funding levels identified in the President's budget in recent years, and how this has affected BOP's ability to manage its growing inmate population. In conducting our work, GAO analyzed BOP budget documents, interviewed BOP and DOJ officials, and compared BOP's cost estimation documentation to criteria in GAO's Cost Estimating and Assessment Guide.
section_title: What GAO Found
paragraphs: BOP uses three general steps to estimate costs for its annual budget submission: (1) estimating cost increases to maintain service levels, such as inmate medical care and utilities; (2) projecting inmate population changes for the budget year and for several years into the future using a modeling program that incorporates data on the current inmate population and estimated incoming population and associated sentences; and (3) estimating costs to both provide additional capacity to house projected inmate population growth and implement new programs, such as activating new prisons. BOP's methods for cost estimation largely reflect best practices outlined in GAO's Cost Estimating and Assessment Guide. BOP followed a well-defined process for developing a mostly comprehensive, well documented, accurate, and credible cost estimate for fiscal year 2008. For example, BOP used relevant historical cost data and considered adjustments for general inflation when estimating costs for its budget request to DOJ. Moreover, BOP's methods for projecting inmate population changes were accurate, on average, to within 1 percent of the actual inmate population growth from fiscal year 1999 to August 2009. Still, BOP could strengthen its methods in two ways. First, BOP has not quantified the level of confidence associated with its cost estimate. While not required by the Office of Management and Budget or DOJ, conducting an uncertainty analysis of this kind is a best practice. By providing the results of such analysis to DOJ, BOP officials could share advance information on the probability and associated risks of operating expenses exceeding enacted funding levels. Second, during our review of documentation for BOP's fiscal year 2008 cost estimate, in some cases we required the guidance of BOP budget analysts to identify backup support because the documentation was insufficient to allow someone unfamiliar with the budget to locate detailed corroborating data. By documenting all steps, BOP would be better positioned to recreate its budget cost estimates in the event of attrition among those who initially developed them. According to BOP, from fiscal years 2004 through 2008, costs for non-salary inmate medical care and utilities exceeded funding levels in the President's budget request by about $131 million and $55 million, respectively. As a result, BOP has faced funding gaps in its operations account that has left it with limited flexibility to manage its continually growing inmate population.

section_title: Letter
paragraphs: The Department of Justice’s (DOJ) Federal Bureau of Prisons’ (BOP)  mission is to protect society by confining offenders in the controlled  environments of prisons and community-based facilities that are safe,  humane, cost-efficient, and appropriately secure. As of October 1, 2009,  BOP was responsible for overseeing a total federal inmate population of  approximately 209,000—a population which has grown by 44 percent since  fiscal year 2000. In recent years, BOP has faced challenges in meeting its  operational workload responsibilities to manage this growth. In fiscal year  2008, DOJ reported to the Office of Management and Budget (OMB) that  BOP would be unable to operate at the funding levels in its appropriation  because costs for key operations were at risk of exceeding appropriated  funding levels. BOP reported that it again anticipated a funding gap in  fiscal year 2009, and in response, Congress provided appropriations above  the amount requested in the President’s budget.
This report responds to congressional direction in the explanatory  statement accompanying the Omnibus Appropriations Act, 2009. In  accordance with this explanatory statement, and in consultation with the  House and Senate Appropriations Committee staff, we are reporting on  BOP’s methods for cost estimation, including the pricing of utilities and  inmate medical care costs. Specifically, we address issues pertaining to (1)  how BOP estimates costs when developing its annual budget request to  DOJ; (2) the extent to which BOP’s methods for estimating costs follow  established best practices or guidelines; and (3) the extent to which BOP’s  costs for key operations exceeded requested funding levels identified in  the President’s budget in recent years, and how this has affected BOP’s  ability to manage its growing inmate population. On September 10, 2009,  we provided a briefing to staff of the House and Senate Appropriations  Subcommittees on Commerce, Justice, Science, and Related Agencies.  Prior to this briefing, we provided a draft of the briefing to responsible  DOJ and BOP officials, who generally agreed with our findings. This report  (1) provides a summary of our briefing and (2) transmits  recommendations that we are making to the Attorney General of the  United States. The full briefing, including our scope and methodology, is  reprinted as appendix I. Written comments from DOJ are reprinted as  appendix II.
To address these objectives, we analyzed BOP documentation to obtain  information on the guidelines and processes BOP used to estimate costs in  its annual budget submission, including annual DOJ and BOP budget  development guidelines and memorandum and OMB’s Circular A-11. We  also analyzed available documentation, such as the formulas BOP used to  compute its fiscal year 2008 budget cost estimate, and compared the  documentation BOP used to develop its fiscal year 2008 budget cost  estimate to criteria for cost estimating best practices identified in GAO’s  Cost Estimating and Assessment Guide: Best Practices for Developing  and Managing Capital Program Costs. Additionally, we reviewed BOP  documentation of operations costs for inmate medical care and utilities  and compared these costs to the amount of funding requested in the  President’s annual budget submission to Congress for BOP (known as the  President’s budget). Finally, we interviewed cognizant BOP and DOJ  budget development officials to obtain information about BOP’s budget  cost estimating methods and the factors contributing to BOP’s operational  costs exceeding funding levels, and how this has affected BOP’s ability to  manage its growing inmate population. Through document reviews and  interviews with agency officials knowledgeable about controls in place to  maintain the integrity of BOP cost and inmate population data that BOP  reported using to estimate costs for its annual budget submission to DOJ,  we determined that the data were sufficiently reliable for the purposes of  this report.
We conducted this performance audit from May 2009 to November 2009 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the work to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our objectives.
subsections: section_title: BOP Estimates Costs for Its Annual Budget Using Three General Steps
paragraphs: When developing its annual budget submission, BOP uses three general  steps to estimate costs for its two budget accounts—the Salaries and  Expenses account (known as its operational budget) and its Buildings and  Facilities account. First, BOP estimates cost increases for maintaining the  current level of services for operations as provided in the prior year’s  enacted budget. These include costs to address mandatory staff pay raises  and benefit increases, inmate medical care, and utilities. BOP primarily  analyzes historical obligations from the past five years to identify average  annual operating cost increases. BOP also considers economic indicator  information to estimate general inflationary cost increases, using data  from the Bureau of Labor Statistics Consumer Price Index, among other  sources.
Second, BOP projects inmate population changes for the budget year and  for several years into the future. BOP uses a modeling program that  identifies each inmate as a unique record tied to variables such as  conviction year, sentence term, and conviction type, with data obtained  from a variety of sources, including the Administrative Office of the U.S.  Courts, the U.S. Sentencing Commission, and the Executive Office for U.S.  Attorneys. The model identifies the number of inmates currently in BOP’s  system and the length of those inmates’ sentences, as well as the number  of inmates estimated to enter the BOP system and the length of their  sentences. For example, for the fiscal year 2010 annual budget submission,  BOP projected a net growth in its inmate population of 4,500 inmates.
Third, BOP estimates costs to both house the projected number of new  inmates, including building and facility requirements, and fund any new  initiatives. According to BOP, a rising inmate population is the primary  driver of new service costs (see figure 1 for graph showing federal inmate  population growth from fiscal years 2000 through 2009). Thus, for any  budget year, BOP uses inmate population projections to determine the  necessary bedspace to house additional inmates. BOP estimates these  associated incarceration costs by (1) determining how to distribute the  incoming prisoners across newly activated facilities, existing facilities, or  contract facilities; and (2) calculating staffing and other operational costs  to manage the additional inmates at its facilities. BOP also identifies and  estimates costs for new initiatives, such as the activation of a new BOP  facility, by reviewing the proposals submitted by its divisions and regional  offices, as well as historical data on costs for implementing such  initiatives.
For its Buildings and Facilities account, BOP identifies new program costs  associated with new construction and maintenance and repair of existing  facilities. Using its long-term inmate population projections, BOP  considers new construction proposals based on need, funding, and the  anticipated speed of construction. BOP estimates construction costs  largely by using analogous building costs for similar security level  facilities, as well as considering assumptions, such as the rate of inflation  and when potential construction would begin. BOP ranks maintenance  and repair proposals by assigning safety the highest priority and estimates  costs based on information it obtains from a construction cost estimation  company.
section_title: BOP’s Methods for Estimating Costs Largely Reflect Best Practices
paragraphs: BOP’s methods for estimating costs in its annual budget requests to DOJ  largely reflect the best practices outlined in GAO’s Cost Estimating and  Assessment Guide. Specifically, BOP followed a well-defined process for  developing a mostly comprehensive, well documented, accurate, and  credible cost estimate for fiscal year 2008. For example, BOP used  relevant historical cost data and considered adjustments for general  inflation when estimating costs for its budget request to DOJ. Moreover,  BOP’s methods for projecting inmate population changes have been  largely accurate. For example, we found BOP’s projections were accurate,  on average, to within 1 percent of the actual inmate population growth  from fiscal year 1999 through August 20, 2009.
We identified two areas where BOP could strengthen its methods for  estimating costs in its annual budget submission. First, according to best  practices described in GAO’s Cost Estimating and Assessment Guide, it  is better for decision makers to know the range of potential costs that  surround an estimate and the reasons behind what drives that range rather  than just having a point estimate from which to make their decision. An  uncertainty analysis provides a range of costs that span a best and worst  case spread. While not required by OMB or DOJ in annual budget  development guidance, conducting an uncertainty analysis of this kind is a  best practice. BOP has not conducted an uncertainty analysis, and  therefore has not quantified the level of confidence associated with its  cost estimate. By providing the results of such analysis to DOJ, BOP  officials could share advance information on the probability and  associated risks of operating expenses exceeding enacted funding levels— a situation BOP faced in fiscal year 2008.
Second, during our review of documentation for BOP’s fiscal year 2008  cost estimate, we sometimes required the guidance of BOP budget  analysts to identify backup support. This was because the documentation  BOP provided was insufficient to allow someone unfamiliar with the  budget to locate detailed corroborating data. For example, in reviewing  BOP’s fiscal year 2008 cost estimate for a health service initiative related  to expanding kidney dialysis treatment for inmates, we required a budget  official’s assistance in locating supporting formulas used to calculate the  estimate. Best practices for cost estimation include providing enough  detail so that the documentation serves as an audit trail that allows for  clear tracking of cost estimates over time. By documenting all steps for  developing its budget cost estimate, BOP would be better positioned to  recreate its estimates in the event of attrition within its budget office  among those who developed initial budget cost estimates.
In providing feedback on our initial findings, BOP budget officials  indicated that taking these steps would strengthen their methods for  estimating costs in their annual budget submission to DOJ.
section_title: Costs for Key Operations Have Exceeded the Funding Levels Requested in the President’s Budget in Recent Years
paragraphs: BOP’s costs for key operations to maintain basic services, such as those  for inmate medical care and utilities, exceeded the funding levels  requested in the President’s budget from fiscal years 2004 through 2008,  limiting BOP’s ability to manage its growing inmate population. During this  period, BOP’s annual non-salary inmate medical care and utilities costs  exceeded funding levels in the President’s budget request by a total of  about $131 million and $55 million, respectively, largely due to inflation  and inmate population growth.
According to BOP, from fiscal years 2004 through 2008, BOP’s annual  non-salary inmate medical care costs increased by a total of about  $146.5 million. In contrast, during this period, the President’s budget  requested funding increases for non-salary inmate medical care  totaling approximately $15.4 million.
According to BOP, from fiscal years 2004 through 2008, BOP’s annual  utilities costs increased by a total of $87 million. In contrast, during  this period, the President’s budget requested funding increases for  utilities totaling approximately $31.6 million.
Table 1 compares BOP’s rates of annual cost growth due to inflation and  inmate population growth with the President’s budget requests for funding  for non-salary inmate medical care and utilities from fiscal years 2004  through 2008.
When BOP has not received funding to cover the operational cost  increases it has incurred, in some years it has used Salaries and Expenses  funding planned for other areas to cover these costs. For example, one of  BOP’s highest priorities is to increase staffing levels of corrections  officers. However, BOP officials reported using Salaries and Expenses  account funds initially planned for hiring additional corrections officers in  fiscal years 2008 and 2009 to instead cover base operations cost increases  related to inmate medical care, utilities, and personnel salary and benefit  adjustments that were unfunded in the President’s budget requests.
As with any other DOJ component, BOP’s budget requests are governed by  DOJ and OMB budget development guidance. For example, DOJ budget  development guidance for fiscal years 2008 and 2009 required components  to limit cost growth for current services to no more than 4 percent greater  than prior year levels. DOJ reported that this guidance was a general  instruction given to all components, but recognized that BOP is different  because its costs are less discretionary since BOP does not control the  number of inmates for which it must care. In this way, DOJ reported that it  did not automatically reject budget submissions from BOP that exceeded  the cap, but instead required BOP to submit substantive information to  justify need.
DOJ also reported that OMB does not automatically provide funds for  inflationary cost increases. DOJ cited OMB policy stating that inflationary  adjustments for discretionary costs (such as utilities) can include some,  all, or no allowance for inflation. DOJ officials reported that OMB typically  does not include general inflationary adjustments that DOJ submits on  behalf of BOP.
Nonetheless, DOJ has reported to OMB that other DOJ components could  reduce operations, implement across-the-board hiring freezes, and  implement policy changes that would reduce costs if faced with funding  shortfalls similar to what BOP has faced in its operations budget.  However, DOJ reported that BOP has already implemented significant  reductions to programs and streamlined and centralized administrative  functions to eliminate 2,300 positions. DOJ also reported that BOP has  limited flexibility because almost all of BOP’s operational costs are  devoted to staff salaries and provision of services. According to BOP data,  in fiscal years 2007 and 2008, 99.5 percent of BOP’s Salaries and Expenses  budget was fixed for its operations for paying staff salaries and providing  services to house and care for the inmate population.
section_title: Conclusions
paragraphs: In each of the last 2 fiscal years, BOP has needed additional funding to  meet its operating costs for managing its growing inmate population.  However, we found that BOP’s cost estimation methods largely reflect  GAO’s cost estimating best practices. Furthermore, BOP officials reported,  and DOJ officials acknowledged, that BOP has already implemented  significant reductions in operations costs, such as by eliminating positions  and centralizing administrative functions. Given BOP’s unique  responsibility for managing this population, and its limited discretion  when costs for key operations exceed funding levels, it is especially  important for BOP to develop accurate cost estimates and clearly convey  to decision makers the potential risk of costs exceeding funding levels.
In light of these circumstances, BOP’s budget cost estimation practices  could be strengthened in two ways. First, although BOP is not required to  report in its annual budget submission the extent to which actual costs  may be expected to vary from cost estimates, we have identified the  provision of an uncertainty analysis as a best practice. If BOP identified its  level of cost estimation confidence and provided this information to DOJ,  DOJ could more fully understand the range of potential costs—and the  potential need for more funding—if estimating assumptions for key cost  drivers, such as inmate population growth, do not hold true.
Second, by improving documentation of all steps for developing its cost  estimate, BOP would be better positioned to re-create its estimates in the  event of attrition within its budget office among those who developed  initial cost estimates.
section_title: Recommendations for Executive Action
paragraphs: To improve transparency in BOP’s cost estimation process, as well as  DOJ’s annual budget formulation and justification process, and to provide  DOJ with more detailed information to consider when deliberating its  budget proposal for BOP, we recommend that the Attorney General take  the following two actions:  instruct the BOP Director to require the BOP budget staff to conduct  an uncertainty analysis quantifying the extent to which operations  costs could vary due to changes in key cost assumptions and submit  the results along with budget documentation to DOJ so that DOJ could  be aware of the range of likely costs and BOP’s associated confidence  levels; and  instruct the BOP Director to require the BOP budget staff to improve  documentation of calculations used to estimate its costs.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOJ for its review and comment. The  BOP Director provided written comments on this draft and concurred with  our findings and recommendations. BOP stated that including the results  of an uncertainty analysis in the budget document would provide DOJ,  OMB, and Congress better context for decision making and stated that it  would include such analysis in preparation of its 2012 budget submission.  BOP also stated that if time permits, it would work with DOJ and OMB to  incorporate an uncertainty analysis into the President’s 2011 budget.  BOP’s comments are reproduced in appendix II.
We are sending copies of this report to the Attorney General and  interested congressional committees. In addition, this report will be  available at no charge on the GAO Web site at http://www.gao.gov.
Should you or your staff have any questions concerning this report, please  contact me at (202) 512-9627 or by e-mail at maurerd@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. Key contributors to this report are  listed in appendix III.
section_title: Appendix I: Briefing Slides to Congressional Staff
subsections: section_title: Briefing Overview
section_title: Conclusions Recommendations Agency Comments Appendix I
subsections: section_title: Scope and Methodology
section_title: To assess the reliability of the information we obtained about BOP's
paragraphs: methods for estimating costs for its annual budget submission, we  compared the documents BOP provided supporting its budget estimates for  fiscal years 2004 to 2008 with information contained in the President's  budget request for BOP for those years to determine the consistency of the  information.
We also interviewed agency officials knowledgeable about controls in place  to maintain the integrity of (1) inmate population and sentenced offender data BOP used to populate its inmate population projection model for fiscal  years 1999 to 2009 and (2) data on annual operations costs BOP reported  between 2004 and 2008, including inmate medical care and utilities. As a  result, we determined that the data were sufficiently reliable for the  purposes of this report.
section_title: We conducted this performance audit from May 2009 to September 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the work to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our objectives.
subsections: section_title: To improve transparency in BOP’s cost estimation process, as well as DOJ’s annual budget formulation and justification process, we plan to make two recommendations to the Attorney General
paragraphs: 1. instruct the BOP Director to require BOP budget staff to conduct an  uncertainty analysis quantifying the extent to which operational costs  could vary due to changes in key cost assumptions—and submit the  results, along with budget documentation, to DOJ so that DOJ can be  aware of the range of possible costs and BOP's confidence levels associated with each point along the range; 2. instruct the BOP Director to require the budget staff to improve documentation of calculations used to estimate its costs.
DOJ and BOP generally agreed with our findings and provided technical  comments, which we integrated into our findings as appropriate.
section_title: Through the multi-phase federal budget formulation process, BOP is required to identify resource requirements and estimate costs for its annual budget request to DOJ. This process is guided by OMB, which makes decisions on executive agencies’ budgets and submits them as the “President’s Request” to Congress. Key steps in this process involve:
section_title: Figure 1
section_title: BOP’s appropriated budget is comprised of the Salaries and Expenses (S&E) and Buildings and Facilities (B&F) accounts.
paragraphs: The S&E account—known as BOP’s operations budget—includes sub-accounts  covering costs for staffing; medical care; food; and utilities, such as water and  gas. In fiscal year 2009, staffing costs for employee salaries comprised about  60 percent of this account.
The B&F account has sub-accounts covering costs for design and construction  of new facilities and modernization and repair (M&R) of existing facilities.
S&E expenses have accounted for the vast majority of BOP’s annual enacted  budget from fiscal years 1999 through 2008—averaging about 90 percent.
The President’s fiscal year 2010 budget request for BOP’s S&E and B&F accounts  totals $6.1 billion, which is 23 percent of DOJ’s $26.7 billion budget.
Figure 2 compares the President’s request for BOP to its enacted funding levels from  fiscal year 1999 through 2009, and figure 3 shows the composition of the President’s  request (S&E versus B&F) for BOP over the same period.
section_title: Figure 2
section_title: Figure 3
section_title: A 2005 BOP study found that an increase in crowding levels or inmate to
paragraphs: staff ratios leads to an increase in serious violence among inmates.8  As of August 1, 2009, BOP reported being staffed at 34,829—about 88  percent of its authorized Full Time Equivalent (FTE) staffing level of  39,692. About half of its authorized positions are for corrections officers.
Figure 4 compares BOP S&E staffing levels to its inmate population  beginning in fiscal year 2000.
Department of Justice, Federal Bureau of Prisons, The Effects of Crowding and Staffing Levels in Federal Prisons  on Inmate Violence Rates (Washington, D.C., 2005).
section_title: Figure 4
section_title: First, BOP estimates cost increases for maintaining the level of services— operational costs—provided in the prior year’s enacted budget for the S&E account.
paragraphs: These costs include adjustments to address mandatory staff pay  raises and benefit increases, inmate medical care, and utilities across  BOP’s 115 facilities.
BOP primarily analyzes historical obligations from the last 5 years to identify  average annual operating cost increases.
BOP also considers economic indicator information to estimate general  inflationary cost increases, using data from the Bureau of Labor Statistics  Consumer Price Index and other sources.
subsections: section_title: Second, BOP projects inmate population changes for the budget year, and for 9 years into the future.
paragraphs: BOP uses a modeling program that identifies each inmate as a unique record tied to  variables such as conviction year, sentence term, and conviction type.
BOP’s model uses data and information from a variety of sources, including the  Administrative Office of the U.S. Courts, the U.S. Sentencing Commission, and the  Executive Office for U.S. Attorneys to identify  Number of inmates currently in prison and the length of their sentences, and  Number of inmates estimated to enter prison and the length of their sentences.
For the fiscal year 2010 annual budget submission, BOP projected a net growth of  4,500 inmates.
section_title: Third, BOP estimates costs to both house the projected number of new inmates, including building and facility requirements, and fund any new initiatives.
paragraphs: According to BOP, a rising inmate population is the primary driver of new  service costs.
For the budget year, BOP uses inmate projections to determine necessary  bedspace to house additional inmates.
For future years, BOP uses inmate projections to plan for long term  capacity needs, including new construction and arrangements for contract  confinement.
BOP estimates the associated incarceration costs by (1) determining how to  distribute incoming prisoners across newly activated facilities, existing facilities,  or privately operated facilities, and (2) calculating staff and other operational  costs at each facility type.
BOP identifies and estimates costs for new initiatives/program increases, such  as activation of a new BOP prison facility, by reviewing the proposals submitted  by its divisions and regional offices, and historical data.
section_title: Using its long term population projections, BOP considers new construction
paragraphs: proposals based on need, funding, and the anticipated speed of construction.
BOP estimates construction costs (for new prisons or expansions to existing  facilities) largely by using analogous building costs for similar security level  facilities. Cost estimates are also based on assumptions, including the rate of  inflation and when construction will begin.
M&R project proposals are ranked by assigning safety the highest priority, with  lesser importance given to improving accessibility and updating facilities more  than 50 years old. BOP estimates costs for replacement values through  information it obtains from a construction cost estimation company.
Since fiscal year 2005, OMB has placed a moratorium on new BOP prison  construction because OMB has focused on contracting with private prisons to  address bedspace needs. However, BOP has identified new construction plans  and included proposals for new construction as part of its capacity plan.
section_title: As table 1 illustrates, we found that BOP’s methods for estimating costs met
paragraphs: one and substantially met three of these four practices. The following  explains the definitions we used in assessing BOP’s methods for  estimating costs in its annual budget submission to DOJ: Met – BOP provided complete evidence that satisfies the entire criterion; Substantially Met – BOP provided evidence that satisfies a large portion of  the criterion;  Partially Met – BOP provided evidence that satisfies about half of the  criterion;  Minimally Met – BOP provided evidence that satisfies a small portion of the  criterion;  Not Met – BOP provided no evidence that satisfies any of the criterion.
DOJ officials reported being satisfied with BOP’s cost estimation methods,  noting that they could not identify any area needing improvement.
subsections: section_title: Best practice
paragraphs: Satisfied?
section_title: Credible
paragraphs: The cost estimates should discuss any limitations in the  analysis performed due to uncertainty surrounding data or  assumptions. Further, the estimates’ derivation should  provide for varying any major assumptions and recalculating  outcomes based on sensitivity analyses, and their associated  risks/uncertainty should be disclosed. Also, the estimates  should be verified based on cross-checks using other  estimating methods and by comparing the results with  independent cost estimates.
section_title: Comprehensive
paragraphs: The cost estimates should include both government and  contractor costs over the program’s full life cycle, from the  inception of the program through design, development,  deployment, and operation and maintenance to retirement.  They should also provide an appropriate level of detail to  ensure that cost elements are neither omitted nor double  counted and include documentation of all cost-influencing  ground rules and assumptions.
section_title: Consistent with best practices, BOP used relevant historical cost data and considered adjustments for general inflation when estimating costs for its fiscal year 2008 budget request to DOJ, and its methods for projecting inmate population have been largely accurate.
paragraphs: Non-salary inmate medical care costs refer to the amount BOP spent on pharmaceuticals, medical supplies,  and outside medical care (community hospital services and a portion of guard escort service and a portion of  salaries (overtime).
subsections: section_title: Figure 5
section_title: Table 2
section_title: We reviewed BOP’s fiscal year 2008 budget request to DOJ and supporting
paragraphs: documentation and found budget officials had documented the formulas they used to  calculate cost elements for new initiatives, such as activation-related costs for a new  prison facility planned to open in the budget year. In some cases, however, we required the guidance of BOP budget analysts to  identify backup support because the documentation was insufficient to allow  someone unfamiliar with the budget to locate detailed corroborating data. For  example, in reviewing BOP’s fiscal year 2008 cost estimate for a health service  initiative related to expanding kidney dialysis, we required a budget official’s  assistance in locating supporting formulas used to calculate the estimate. Best  practices include providing enough detail so that the documentation serves as an  audit trail to allow for clear tracking of cost estimates over time.
Documenting all steps for developing its cost estimate would better position BOP to  recreate its estimates in the event of attrition within its budget office among those  who have developed initial cost estimates.
section_title: Consistent with best practices, BOP performed independent government cost estimates related to constructing new prisons and used historical data to estimate key operational costs, including utilities and inmate medical care, and its calculations and results substantially met characteristics for credibility.
paragraphs: BOP performed cross-checks by benchmarking new estimates against historical  data, such as by estimating medical care costs based on cost obligations in recent  years and developed numerous risk analyses and impact scenarios of funding cuts.
Although not required to do so by OMB or DOJ annual budget development  guidelines, BOP did not perform an uncertainty analysis consistent with best  practices to quantify the risk associated with changes to various assumptions that  drive its cost estimates.Major assumptions include the inmate population  projection; inflation indices for medical care and utilities; and annual salary  increases.
Such an analysis would help provide DOJ, Congress, and other stakeholders with  information to determine the probability that costs for key operations, such as inmate  medical care and utilities, may exceed funding levels requested in the President’s  budget.
Consistent with best practices, BOP detailed pertinent costs related to its S&E and B&F accounts across sub-accounts. This level of detail helped ensure that no cost elements were omitted or double counted in its budget request submission to DOJ, and that BOP’s calculations and results substantially met characteristics for comprehensiveness.
BOP relied on ground rules and assumptions, such as using inmate population projections to drive cost estimates for capacity needs and using  historical obligation trends to estimate growth for utilities and inmate  medical care costs.
However, as noted earlier, BOP did not determine risk distributions for all  assumptions, which would enable it to perform an uncertainty analysis for  key cost elements.
section_title: Objective 3 – To what extent have BOP’s costs for key operations
paragraphs: exceeded requested funding levels in the President’s  budget in the last five fiscal years, and how has this affected  BOP’s ability to manage its growing inmate population?
Costs for key operations to maintain basic services, such as those for inmate  medical care and utilities, have exceeded the funding levels requested in  the President’s budget over the past five fiscal years, and this has limited  BOP’s ability to manage its growing inmate population.
From fiscal years 2004 through 2008, the funding levels requested in the  President’s budget for BOP have been insufficient to cover annual cost  growth for maintaining existing services, including inmate medical care and  utilities. Moreover, population adjustment funding—necessary to cover  expenses associated with housing a growing inmate population in BOP- operated facilities—has not consistently been included in the President’s  budget, with BOP receiving no funding adjustments in some years.
As a result, BOP has faced funding gaps in its operations account that has  left it with limited flexibility to manage its continually growing inmate  population.
section_title: Objective 3 – Costs to Maintain Key Operations and Accommodate a Growing Inmate Population Have Exceeded Funding Levels Requested in the President’s Budget
subsections: section_title: BOP’s annual cost growth to maintain key operations exceeded annual funding adjustments requested in the President’s budget from fiscal years 2004 through 2008. For example, during this time, costs for non-salary inmate medical care and utilities exceeded funding levels by about $131 million and $55 million, respectively. BOP attributed the cost growth to inflation and inmate population growth.
paragraphs: Medical care costs: From fiscal year 2004 through 2008, BOP’s annual  non-salary inmate medical care costs increased by about $146.5 million. In  contrast, during this period, the President’s budget requested funding cost  adjustments for non-salary inmate medical care totaling about $15.4  million.
In fiscal year 2008, non-salary inmate medical care and utilities costs were $430.5 million and $234 million,   respectively.
section_title: Objective 3 – Costs to Maintain Key Operations and Accommodate a Growing Inmate Population Have Exceeded Funding Levels Requested in President’s Request
paragraphs: Utilities costs: From fiscal year 2004 through 2008, BOP’s annual utilities  costs increased by a total of $87 million. In contrast, during this period, the  President’s budget requested funding cost adjustments for utilities costs  totaling about $31.6 million.
Table 3 compares the rates of BOP’s average annual cost growth for non- salary inmate medical care and utilities to average rates of annual funding  adjustments requested in the President’s budget, from fiscal year 2004  through 2008.
subsections: section_title: Table 3
paragraphs: Inmate medical  care (non-salary)
section_title: Objective 3 – Costs to Accommodate a Growing Inmate Population and Maintain Staffing Levels Have Exceeded Funding Adjustments Requested in the President’s Budget, According to BOP
subsections: section_title: As with any other DOJ component, BOP’s budget requests are governed by
paragraphs: standard DOJ and OMB budget development guidance.
For example, DOJ budget development guidance for fiscal years 2008  and 2009 instructed components to limit cost growth for current  services to no more than 4 percent greater than prior year levels.
DOJ reported that the 4 percent cap guidance is a general instruction  given to all components but recognizes that BOP is different because  its costs are less discretionary. Furthermore, DOJ reported that it did  not automatically reject budget submissions from components that exceeded the cap, but instead required components to submit  substantive information to justify need.
section_title: In each of the last 2 fiscal years, BOP has needed additional funding
paragraphs: to meet its operating costs.
However, we found that BOP's cost estimation methods either met  or substantially met GAO’s cost estimating best practices.
Further, BOP officials report, and DOJ officials acknowledged, that  BOP has already implemented significant reductions in programs  by eliminating positions and centralizing administrative functions.  In addition, the current level of overcrowding within BOP facilities  presents an already serious safety challenge. Given BOP’s unique responsibility for managing this population, it has limited discretion  when costs for key operations exceed funding levels.
subsections: section_title: Second, by improving documentation of all steps for developing its cost
paragraphs: estimate, BOP would be better positioned to recreate its estimates in the  event of attrition within its budget office among those who have developed  initial cost estimates.
section_title: To improve transparency in BOP’s cost estimation process, as well as DOJ’s
paragraphs: annual budget formulation and justification process, and to provide DOJ with more detailed information to consider when deliberating its budget proposal for BOP, we recommend that the Attorney General of the United States take the following two actions: instruct the BOP Director to require the BOP budget staff to conduct  an uncertainty analysis quantifying the extent to which operations  costs could vary due to key cost assumptions changing and submit the  results along with budget documentation to DOJ so that DOJ could be  aware of the range of likely costs and associated confidence levels;  and  instruct the BOP Director to require the BOP budget staff to improve  documentation of calculations used to estimate its costs.
section_title: We provided a draft of this report to DOJ and BOP for review and comment. We also verbally described our findings and proposed recommendations to DOJ and BOP officials in a meeting on August 31, 2009. Additionally, we received technical comments from DOJ and BOP, which we incorporated where appropriate.
paragraphs: DOJ and BOP generally agreed with the findings. DOJ and BOP  will formally review our recommendations when we submit our final  product in fall 2009.
We made several requests to meet with OMB, but we were unable  to schedule a meeting during our review.
section_title: Appendix I – GAO’s 12 Step Cost Estimating Practices
section_title: Appendix II: Comments from the Department of Justice, Federal Bureau of Prisons
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Joy Gambino, Assistant Director,  and Jay Berman, Analyst-in-Charge, managed this assignment. Pedro  Almoguera, Tisha Derricotte, Geoffrey Hamilton, Marvin McGill, Karen  Richey, Adam Vogt, and Melissa Wolf made key contributions to this  report.