Federal Real Property: GSA Needs to Strengthen Oversight of Its Delegated Leasing Program
Released: 2019-06-03T00:00:00

Letter

Background

As the landlord for the federal government, GSA acquires space on behalf of federal agencies through new construction and leasing. In this capacity, GSA leases space in 8,681 buildings or other assets and maintains a total inventory of more than 370 million square feet of workspace for 1.1 million federal employees, plus support contractors. Furthermore, GSA is authorized by law to enter into lease agreements for up to 20 years and is permitted to obligate funds for its multiyear leases one year at a time.

GSA can delegate its leasing authority to agencies if GSA determines it is in the government’s best interest. Agencies may request this delegation of authority when they believe they can obtain the lease more efficiently than GSA. GSA grants three types of delegations of leasing authority, depending on the intended use of the leased space:

General purpose – types of space that might be needed by almost any agency, such as office or warehouse space;

Categorical – specific types of space that might be needed by some agencies, such as for antennas, depots, or docks; and

Special purpose – types of space designated for 13 specified agencies, such as laboratories for the Department of Health and Human Services or office space in or near stockyards for USDA.

GSA’s FMR Bulletin C-2, issued in 2014, (the 2014 Bulletin) provides usage and reporting requirements for delegations of leasing authority. Many of these requirements restate or elaborate on various requirements in statute and regulation. All delegations of leasing authority, including general purpose, categorical, and special purpose space delegations, are covered by the 2014 Bulletin. Agencies are responsible for compliance with all applicable requirements when using delegated leasing authority. Agencies must also conform with the requirements of any delegation approval from GSA. The requirements can include limits on square footage or the length of the lease.

Although GSA delegates its leasing authority to other agencies, it acts as a guarantor for the leases in the event of a default by an agency. GSA officials said that there have not been any defaults to date.

The process to apply for delegated leasing authority and then obtain a delegated lease is outlined in figure 1 below.

GSA Has Reformed its Delegated Leasing Program, but Data Issues Remain

GSA Has Made Efforts to Reform its Delegated Leasing Program

In 2007, GAO found that GSA’s delegated leasing program documentation was incomplete, inconsistent, unclear, and outdated. Specifically, we found that GSA’s lease delegation process lacked certain management controls, such as current written policies and procedures. In addition, the GSA OIG found that some delegated leases had excessive rental rates and inadequately documented lease files, primarily due to customer agencies’ lack of expertise. Further, 56 percent of the lease files reviewed by the OIG contained insufficient documentation to support that the federal government received a fair and reasonable price.

In response to problems identified in GAO and GSA reviews, GSA reformed its lease delegation program by clarifying requirements, documenting policies and procedures, and centralizing data management. In 2007, GSA issued new requirements for the delegated leasing program in the FMR Bulletin 2008-B1 (2008 Bulletin). For example, the 2008 Bulletin instructed GSA and the agencies on the proper submission of documents to GSA; and required agencies to have an organizational structure in place to support the delegation of authority, and to ensure compliance with all applicable laws, regulations, and GSA directives governing the lease acquisition.

In 2014, GSA began using a new electronic system—G-REX—to review and process applications for delegations of leasing authority. Requesting agencies began electronically submitting pre-authorization and post award documents to G-REX. In 2014, GSA re-emphasized and updated the requirements applicable to GSA leasing delegations in its 2014 Bulletin, which continued to be in effect when this report was issued.

GSA Continues to Address Data Quality Issues

GSA continues to address data quality issues that persist in spite of its reform efforts. These data quality issues affect GSA’s ability to monitor its delegated leasing program. First, we found that when information is compiled, the G-REX system overstates the total delegated lease contract values by 12 times higher than they actually were for every delegated lease in the G-REX system. This occurred because it multiplied annual rents by the number of months of the lease, instead of by the number of years. For example, for a lease with an annual rent of $2,300,000 and a lease term of 48 months, the calculated total contract value was $110,400,000 instead of the $9,200,000 total contract value it should have had for the 4 year lease. GSA officials confirmed this error and corrected it during the course of our review. Second, we also found data errors in G-REX resulting in approved delegated leasing projects with annual rental rates higher than they actually were. For example, we found a data entry within G-REX for an approved delegated lease with a total lease rental rate several times higher than the average annual rent rate. After reviewing the lease file, GSA officials confirmed that the rental rate was incorrectly entered by the user into G-REX. We also found two G-REX data entries for approved delegated leasing projects with 25 year lease terms. General purpose delegated leases can only be for terms of up to 20 years. GSA officials confirmed that both identified leases were within the authorized delegated leasing parameters but that the data entries were inaccurate due to a system error within G-REX that incorrectly calculated the renewal options.

GSA officials said that they are aware of some data quality issues with the G-REX system and are working to address them in an updated version, which they plan to launch later in 2019. Officials said that the new version of G-REX will include more business rules to prevent missing data and identify anomalies. Further, uploading required post award documents is not currently a mandatory action in G-REX. Instead, G-REX sends automatic reminder emails to agencies if these documents have not been uploaded. To address this issue, GSA officials said that the new version of G-REX would improve the post award document upload process. As we discuss later in this report, we found that selected agencies did not always submit all required post award documents.

GSA Has Not Annually Reconciled G-REX and FRPP Data

While GSA is taking steps to improve the G-REX system, it does not reconcile FRPP and G-REX data. Specifically, the 2014 Bulletin states that GSA will perform an annual reconciliation of data between FRPP and G-REX. GSA officials described the annual reconciliation as an oversight procedure that would help ensure that GSA has an accurate listing of delegated leases by comparing FRPP data with the centralized records on delegated leases (currently stored in G-REX).

According to GSA officials, they tried to fully reconcile the two databases in 2014 but were unable to do so. GSA officials stated that while they could identify certain specific discrepancies between FRPP and G-REX, conducting a full reconciliation of the two databases has many degrees of complexity. Specifically, G-REX does not include all delegated leases, in part, because not all existing delegated leases migrated into G-REX from the prior GSA leasing system. In addition, GSA officials said FRPP and G-REX do not directly match because each database serves different purposes. Specifically, FRPP is a single comprehensive database that contains information on federal real property worldwide, updated annually. In contrast, G-REX is considered a business process management software application and is primarily used by GSA to process and capture lease delegation applications, according to GSA officials. GSA officials now report that, even though the 2014 Bulletin still calls for the annual reconciliation of data in G-REX and FRPP, they believe fully reconciling the two datasets would have little, if any, value, and currently have no intentions to do so.

The Standards for Internal Control in the Federal Government state that improving the reliability of data could help agencies better manage programs. For example, in this case, agencies could utilize real property data to measure performance and inform decision-making to ultimately improve the cost effectiveness and efficiency of their real property portfolio. Moreover, although FRPP data quality could be improved, FRPP can still provide reliable background information on GSA’s federal real property portfolio. Since agencies are required to report data to FRPP on all leased assets acquired under a delegation from GSA, FRPP may provide GSA with useful information on an agency’s delegated leases, in addition to what is included in G-REX.

We recognize the challenges posed by attempting to fully reconcile G- REX and FRPP. However, the 2014 Bulletin does not explicitly state GSA will perform a full reconciliation. GSA could partially reconcile G-REX and FRPP by doing some cross-data comparison. For example, had GSA cross-verified G-REX and FRPP data, even on a case-by-case basis, it could have potentially caught and addressed the data quality issues we found in G-REX earlier. Some comparison of G-REX with the relevant data in FRPP could improve the reliability, and thereby the usefulness, of both data sets. For example, GSA officials said that GSA could, in theory, begin comparing leases reported in FRPP as being awarded with delegated authority against G-REX’s record of delegated leases. A partial reconciliation like this could identify leases possibly acquired without delegated leasing authority or other data quality issues and GSA could then take steps to increase the reliability of the G-REX data. Until GSA clarifies its position on what efforts it will take to reconcile G-REX and FRPP, GSA is potentially losing opportunities to enhance its oversight and is operating at odds with its own procedures.

GSA Does Not Know if Agencies Have the Policies and Procedures to Appropriately Manage Their Delegated Leasing Activities GSA Does Not Regularly Assess Whether Agencies Have Policies and Procedures to Effectively Manage Delegated Leasing Activities

We found that GSA has not designed control activities that would allow it to regularly determine the adequacy of requesting agencies’ policies and procedures to manage their delegated leasing activities. Instead, GSA officials said that they expect agencies to have the capacity to manage their delegated leases until evidence suggests otherwise and said GSA assesses agencies’ activities on an ad hoc basis. For example, GSA officials said that GSA audited USDA and Bureau of Indian Affairs (BIA) because of tips from outside sources. Agencies requesting a delegation of leasing authority must submit, among other things, an organizational structure and staffing plan to support the delegation that identifies trained and experienced staff to support delegated leasing activities.

In our review, we found that not all selected agencies had sufficient policies and procedures to manage their own delegated leases. For example, GSA’s ad hoc review of USDA’s delegated leases found significant oversight issues. Specifically, GSA found that USDA had awarded seven leases without a delegation of authority. In addition, USDA was unable to locate the executed lease for one of the delegated leases we reviewed. USDA officials said the agency has learned from experiences like this one and is currently developing better policies and procedures to prevent this from happening again. For example, USDA has centralized leasing oversight between two bureaus and plans to annually review selected delegated leases. Moreover, GSA’s ad hoc review of BIA’s delegated leases found that BIA had also leased property without delegated authority. Further, GSA’s 2012 audit of post award documents found that BIA had some delegated leases that had expired, and some exceeded the space threshold of 19,999 square feet. As a result of its review, GSA did not grant BIA any new delegated leasing authority until its OIG completed its findings and BIA responded with a corrections plan that corrected these deficiencies, according to GSA.

GSA’s 2014 Bulletin states that GSA will review the adequacy of the requesting agency’s organizational structure and staffing proposed for the delegation; and whether the requesting agency has complied with all applicable laws, executive orders, regulations, OMB Circulars, and reporting requirements under previously authorized delegated leases. Further, according to federal standards for internal control, management should design control activities to achieve objectives and respond to risks. Control activities are the actions management establishes through policies and procedures to achieve objectives and respond to risks in the internal control system. Accordingly, agencies with delegated leasing authority should have an appropriate organizational structure and effective policies and procedures to support the delegation and to ensure compliance with applicable laws and other requirements, both of which help agencies manage their delegated leasing activities.

If GSA had designed control activities to regularly review each agency’s policies and procedures for managing its delegated leases, GSA officials could have known earlier that an agency lacked the ability to manage its delegated leases and possibly delayed granting additional delegations of leasing authority until the agency had demonstrated their ability to manage its delegated leasing activities. GSA officials said assessing an agency’s policies and procedures to manage delegated leasing activities when reviewing the agency’s individual application for a delegation of leasing authority is not practical. GSA officials noted that it would become a repetitive and unproductive process to review an agency’s policies and procedures each time they applied for delegated leasing authority as the same agencies are requesting delegated leasing authority for many leases and an agency’s policies and procedures would not change with each new application. However, GSA could assess agencies’ policies and procedures for managing delegated leasing activities at regular intervals, such as annually or biennially. Because GSA is not following its own procedures set out in the 2014 Bulletin, or designing control activities that would allow it to assess, at regular intervals, agencies’ ability to manage their own delegated leasing activities, GSA cannot ensure that it is providing this authority to agencies that can manage it effectively.

GSA Does Not Track Agencies’ Performance in Meeting GSA Management Goals

GSA does not track agencies’ performance toward meeting GSA’s management goals, which is inconsistent with the 2014 Bulletin and GSA policy. GSA has three key management goals for tracking the success of the delegated leasing program: 1. Delegated leases should have lease rates that are at or below private sector rates over half the time, according to GSA’s annual performance plan. The 2014 Bulletin states that, prior to granting the agency’s request for a leasing delegation, GSA will consider the demonstrated ability of the requesting agency to meet or exceed this published performance measure for the cost of leased space, among other things. 2. Delegated leases should not extend into holdover status. The 2014 Bulletin states that a lease in holdover status, or an agency occupying a building or space with no lease because it has expired, is in violation of the lease delegation authority. 3. Delegated leases should not be extended unless necessary to avoid a holdover. GSA’s leasing desk guide states that short-term lease extensions should only be used as a last resort because they typically cost more, among other reasons.

The post award documents that agencies submit into G-REX do not allow GSA to track agencies’ performance in meeting these management goals. For example, G-REX does not calculate when lease rates are at or below private sector rates. GSA officials said that GSA does not track the performance of agencies with delegated leasing authority against these three management goals because it is primarily the agencies’ responsibility to ensure they meet them. However, the four agencies with delegated leases that we reviewed did not always meet GSA’s three goals.

Officials from two of the agencies we interviewed said that they were unaware of GSA’s performance cost metric for negotiating lease rates at or below private sector rates or that it applied to delegated leases. Consequently, the agency officials did not know if they met it. Since neither G-REX nor the agencies with delegated authority track lease rates in this way, GSA does not know if agencies are meeting GSA’s performance cost metric or, more simply stated, if agencies are negotiating cost-effective lease rates.

Regarding holdovers, we found all four agencies in our review were experiencing holdovers, which raises questions about how effective their policies are to prevent them. For example, USDA does not use its lease expiration data in an effective manner to track expiring leases to submit lease delegation applications, according to GSA’s audit of USDA delegated leases. Consequently, USDA had one quarter (1,100 of 4,000) of its delegated leases in holdover status in the past 24 months, according to the GSA report. Furthermore, according to our analysis of agency data, all four selected agencies have expired delegated leases where the agency either has a standstill agreement with the landlord, or is simply in holdover status. For example, VA had approximately 10 percent of its delegated leases in holdover status in fiscal year 2018.

Regarding extensions, according to G-REX data, almost half of all approved delegated lease authority requests from fiscal year 2016 to fiscal year 2018 were for lease extensions, which goes against GSA’s goals. Officials from three of the four agencies in our review said that they use extensions because they need more time to develop the agency’s space need requirements for a new delegated lease, and they might not have the time to do so before the current delegated lease’s expiration date. GSA staff stated that if an agency has a large number of extensions or holdovers, it denotes that the agency may not be monitoring its leases and as a result is not fully aware of expiring delegated leases. Tenant agencies agree that lease extensions are often not in the best financial interest of the federal government because they are not open to competition, according to this previous work. For example, the USDA’s delegated lease site in Coquille, Oregon was extended without competition for 45 years. USDA officials agreed this was not in the best financial interest of the federal government and that delegated leases should be opened for competition after 20 years.

Lease extensions and expired leases in holdover or standstill status are inefficient and costly for the federal government for two reasons. First, without competition among landlords, an agency may be unable to meet the goal of negotiating a lease rate at or below the private sector rate. Second, we have previously reported that the short-term nature of holdovers and standstill agreements creates uncertainties, which can make it challenging for agencies to plan and budget for space needs and difficult for lessors to secure financing. Moreover, we have reported that holdovers can create an adversarial relationship with building owners, prompt concerns about an agency’s portfolio management, and create unnecessary uncertainty for relevant stakeholders. We also noted that holdovers and standstills occur for a variety of reasons, including challenges finalizing space requirements, tenant agency labor shortages, and the sometimes lengthy duration of the leasing process.

Absent procedures to regularly track the performance of agencies with delegated leasing authority to ensure cost effectiveness and limit the use of extensions, holdovers, and standstill agreements, GSA cannot ensure that these agencies are meeting the management goals of the delegated leasing program. When previously reviewing GSA’s management of its own portfolio, we found that tracking and monitoring several measures over the life cycle of the lease acquisition process may help reduce the overall number of holdovers and extensions. For example, using a tracking tool to alert management of delegated leases approaching their expiration date could help to reduce the reliance on extensions and to prevent holdovers and standstill agreements. Regularly tracking agencies’ ability to meet key management goals would alert GSA to holdovers and heavy use of extensions that are not cost effective and may warrant additional oversight.

GSA Cannot Ensure That Individual Delegated Leases Met Requirements

GSA requires that agencies submit an acquisition plan for their lease when requesting delegated leasing authority, but GSA does not systematically ensure that the subsequently executed leases follow those plans and meet program requirements. Agencies submit an acquisition plan along with other documents in order to request delegated leasing authority. GSA officials told us that they review requests for delegated leasing authority by verifying that all required information and documents are uploaded into G-REX and that a lease consistent with the acquisition plan would meet program requirements. GSA officials noted, however, that the acquisition plan is strictly a planning tool and that the terms and conditions are subject to change when finalizing the lease. When approving a request for delegated leasing authority, GSA issues an executive summary and approval letter to the agency identifying the parameters of the leasing authority delegated, such as space limits.

Once the agency with delegated leasing authority awards the lease, the agency is required to upload to G-REX certain post award documentation, including the executed lease, within 30 days. These documents provide insight on final lease terms such as square footage, lease expiration date and cost, which may differ from the acquisition plans agencies submitted when applying for delegated leasing authority.

We have previously identified risk-based assessment and mitigation as leading practices for providing assurances to managers that they are complying with existing legislation, regulations, and standards and effectively preventing, detecting, and responding to potential fraud, waste, and abuse. Assessing a selection of delegated leases’ post award documents could serve as an early warning system for managers to help mitigate or promptly resolve issues through corrective actions and ensure compliance with existing legislation, regulations, and standards.

However, GSA officials said that they do not have a process in place to systematically review post award documents from delegated leases to determine whether the lease awarded met program requirements and were within the authority granted in the approval letter. We found that as of November 2018, GSA had reviewed approximately one percent of the post award documents agencies submitted into G-REX, according to G- REX data. GSA officials told us they had not developed a system for reviewing post award documents because GSA views it as primarily the responsibility of the agency with the delegated authority to ensure they comply with the 2014 Bulletin’s post award requirements. Further, according to GSA officials, GSA’s primary role in the lease delegation process is to review and approve requests for delegated leasing authority. As a result, GSA officials have determined that regularly reviewing post award documents is not the best use of their already constrained resources. However, GSA’s reliance on agencies to comply with all requirements absent any mechanism to ensure post award accountability could allow agencies to lease space outside of the delegated authority granted to them. GSA’s previously mentioned, ad hoc audits of USDA and BIA delegated leases reinforced the need for strengthened oversight to ensure that leases meet requirements, as both audits found problems. For example, the DOI’s OIG confirmed in 2014 GSA’s findings that BIA approved $32.7 million in delegated lease agreements that exceeded GSA square footage and purchase approval limits.

GSA’s review of USDA’s delegated leases also found that approximately 540 lease files were missing the awarded lease documents in G-REX. In addition, the review found that no file, in its sample of 27 lease files, had all the required documents uploaded in G-REX. Furthermore, among our selected delegated leases, we found instances of agencies not uploading post award documents to G-REX after the lease was awarded. For example, one delegated lease file in our sample was still missing the executed lease over 2 years after the lease was signed. If post award documents are not uploaded as required, GSA may not even have the documentation necessary to determine if a delegated lease met program requirements and was within the authority granted.

Even if all post award documents are uploaded, GSA still cannot verify that the leases were executed within the parameters of the granted delegated leasing authority and in accordance with program requirements without a systematic process for reviewing post award documentation. For example, as noted above, if GSA assessed a selection of delegated leases’ post award documents, it may have identified the missing executed lease and other deficiencies noted above and been able to notify the agency. Further, GSA cannot ensure that agencies are preventing fraud, waste, or abuse.

Conclusions

GSA oversees the delegated leasing program and is a guarantor of the government’s monetary obligations under a delegated lease in the event of default. However, if not properly managed, delegated leases run the risk of not being cost effective for the federal government. GSA has taken some actions to address previously identified issues with the program, but its current oversight and management of the program is compromised by a lack of key processes that make it unable to ensure the program is working as intended.

Because GSA has not determined how to reasonably reconcile G-REX and FRPP data, pursuant to its own procedure, it is missing oversight opportunities, such as finding leases with annual rent or lease terms that do not meet program requirements. Additionally, without a way to regularly assess agencies’ policies and procedures to manage their delegated leasing activities or track their performance in meeting key management goals, GSA cannot be sure agencies can sufficiently manage their leases or secure cost-effective rates. Periodic reviews of an agency’s ability to manage its delegated leasing activities would help GSA ensure that it is providing this authority to agencies that can manage it effectively and efficiently. Finally, without a systematic process for monitoring a selection of submitted post award documents to help identify and promptly resolve issues and ensure compliance with existing legislation, regulations, and standards, GSA cannot ensure that delegated leases comply with the terms of the delegation and the program is free from fraud, waste, and abuse.

Recommendations

We are making the following four recommendations to GSA The Administrator of GSA should take steps to reconcile G-REX and FRPP to the extent practical. (Recommendation 1)

The Administrator of GSA should develop a process for assessing at regular intervals, such as annually, agencies’ policies and procedures for managing their delegated leasing activities. (Recommendation 2)

The Administrator of GSA should develop a process that would allow GSA to track agencies’ progress in meeting GSA management goals, such as cost effective lease rates, and avoiding holdovers. (Recommendation 3)

The Administrator of GSA should develop a systematic, risk-based process for monitoring a selection of submitted post award documents. (Recommendation 4)

Agency Comments

We provided a draft of this product to GSA, VA, USDA, Interior, and Commerce for review and comment. In its comments, reproduced in appendix I, GSA concurred with the recommendations. GSA and USDA provided technical comments, which we incorporated as appropriate. VA, Interior, and Commerce did not have comments.

We are sending copies of this report to the appropriate congressional committees, the Administrator of the General Services Administration, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-2834 or RectanusL@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II.

Appendix I: Comments from the U.S. General Services Administration

Appendix II: Contact and Staff Acknowledgements

Contact

Lori Rectanus, (202) 512-2834 or RectanusL@gao.gov.

Staff Acknowledgements

In addition to the individual named above, other key contributors to this report were Keith Cunningham, Assistant Director; Sarah Jones, Analyst in Charge; Eli Albagli; Lacey Coppage; Josh Ormond; Colleen Taylor; Michelle Weathers; and Elizabeth Wood.