In support of the President’s annual budget request for VA health care services, which includes a request for advance appropriations, VA develops a budget estimate of the resources needed to provide such services for 2 fiscal years. Typically, VHA starts to develop a health care budget estimate approximately 10 months before the President submits the budget request to Congress in February. This is approximately 18 months before the start of the fiscal year to which the request relates and about 30 months prior to the start of the fiscal year to which the advance appropriations request relates. VA’s health care budget estimate includes estimates of the total cost of providing health care services as well as costs associated with management, administration, and maintenance of facilities. VA develops most of its budget estimate for health care services using the Enrollee Health Care Projection Model. VA uses other methods to estimate needed resources for long-term care, other services, and health-care-related initiatives proposed by the Secretary of Veterans Affairs or the President. After determining the amount of VA’s appropriations, Congress provides VA resources for health care through three accounts: Medical Services, which funds health care services provided to eligible veterans and beneficiaries in VA’s medical centers, outpatient clinic facilities, contract hospitals, state homes, and outpatient programs on a fee basis; Medical Facilities, which funds the operation and maintenance of the VA health care system’s capital infrastructure, including costs associated with NRM and non-NRM activities, such as utilities, facility repair, laundry services, and grounds keeping; and Medical Support and Compliance, which funds the management and administration of the VA health care system, including financial management, human resources, and logistics. VA allocates most of its health care resources for these three accounts through VERA—a national, formula-driven system—at the beginning of each fiscal year and allocates additional resources throughout the year. VA allocates about 80 percent of the health care appropriations to its 21 health care networks through VERA. VA uses methods other than VERA to allocate the remaining resources to networks and medical centers for such programs as prosthetics, homeless grants, and state nursing homes. VA may also use methods other than VERA to allocate any additional resources it may receive from Congress during the year. The networks in turn allocate resources received through VERA and other methods to their respective medical facilities, as part of their role in overseeing all medical facilities within their networks. In addition to amounts allocated to networks and medical facilities at the beginning of the fiscal year, VA also sets aside resources from each of VA’s three health care appropriations accounts—in what is known as a national reserve—so that resources are available for contingencies that may arise during the year. In general, VA allocates resources from the national reserve to match network spending needs for each appropriations account. Within each appropriations account, VA also has flexibility as to how the resources are used. For example, within the Medical Services account, VA has the authority to use resources for outpatient services instead of hospital services, should the demand for hospital services be lower than expected and demand for outpatient services be higher. In a similar manner, VA has the authority to use resources in the Medical Facilities account for NRM instead of non-NRM activities—such as utilities—should spending for those activities be less than estimated. In June 2012, we reported that VA’s NRM spending has consistently exceeded the estimates reported in VA’s budget justifications from fiscal years 2006 to 2011. This pattern continued in fiscal year 2012 when VA spent about $1.5 billion for NRM, which was $622 million more than estimated. (See fig. 1.) To help inform its budget estimates for NRM, VA collects information on facility repair and maintenance needs as part of an ongoing process to evaluate the condition of its medical facilities. VA conducts facility condition assessments (FCA) at each of its medical facilities at least once every 3 years. VA uses contractors to conduct FCAs, and these contractors are responsible for inspecting all major systems (e.g., structural, mechanical, plumbing, and others) and assigning each a grade of A (for a system in like-new condition) through F (for a system in critical condition that requires immediate attention). As part of this assessment, the contractors use an industry cost database to estimate the correction costs for each system graded D or F. According to VA officials, the agency’s reported NRM backlog represents the total cost of correcting these FCA-identified deficiencies. Our analysis of data for fiscal years 2006 through 2012 found that in each of these years VA had higher than estimated resources available in its Medical Facilities account, which VA used to increase NRM spending by about $4.9 billion. These resources derived from two sources: (1) lower than estimated non-NRM spending, which made more resources available for NRM, and (2) higher than estimated budget resources, which included annual appropriations, supplemental appropriations, reimbursements, transfers, and unobligated balances. As figure 2 shows, after fiscal year 2008, lower than estimated spending on non- NRM activities accounted for most of VA’s spending on NRM that exceeded VA’s budget estimates. Lower than estimated non-NRM spending. VA spent fewer resources from the Medical Facilities account on non-NRM activities than it estimated, which allowed the agency to spend over $2.5 billion more on NRM than it originally estimated in fiscal years 2009 through 2012. When we asked why VA spent more on NRM projects than estimated, VA officials said one reason was that the agency spent less than it estimated on non-NRM activities and that the most practical use of these unspent resources was to increase spending on NRM because of the large backlog of FCA-identified deficiencies. VA officials further explained that VA spent less for non-NRM activities than anticipated because of a decrease in the demand for utilities and other weather-dependent non- NRM activities because of mild weather patterns during the last four winters. However, lower spending on these weather-dependent activities only accounted for $460 million—18 percent—of the resources eventually used for NRM. The remaining 82 percent eventually used for NRM came from resources originally intended to be used for various other activities, including administrative functions and rent. VA has consistently overestimated spending for these non-NRM activities, and if the agency continues to determine estimates for such activities in the same way, its future budget estimates of spending for non-NRM may not be reliable. Higher than estimated budget resources. VA had more budget resources available in its Medical Facilities account than the agency estimated it would have, and this allowed VA to spend over $2.3 billion more on NRM than it originally estimated. When we asked why VA spent more on NRM projects than estimated, VA officials said that in addition to spending less on non-NRM activities the agency also received higher annual appropriations than requested and unanticipated supplemental appropriations from Congress. For example, in fiscal year 2009 VA received $300 million more than it requested in annual appropriations as well as $1 billion in supplemental appropriations included in the American Recovery and Reinvestment Act of 2009 (Recovery Act). VA also received $550 million in supplemental appropriations as part of the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007.appropriations were specifically for NRM. In addition to higher annual appropriations and supplemental appropriations, we also found that VA used other budget resources to increase NRM spending. The budget resources included transfers from VA’s other appropriations accounts, reimbursements for services provided under service agreements with the Department of Defense, and unobligated balances carried over from prior fiscal years. While, according to VA officials, the agency did not track the use of specific resources used to increase NRM spending, data provided by VA suggests that more than $1.8 billion from higher than requested appropriations and about $762 million from other budget resources were available for this spending in fiscal years 2006 through 2012. VA used VERA to perform an initial allocation of resources for NRM at the beginning of each fiscal year for fiscal years 2006 through 2012, allocating a total of about $4.6 billion over this time frame. In addition, for fiscal years 2009 through 2012, VA allocated $2.9 billion in total for NRM from higher than requested appropriations and its reserve account. Figure 3 shows the nearly $7.5 billion allocated for NRM using VERA and other methods, which included network estimated costs to maintain medical facilities in good working condition—that is for sustainment—and costs to address the NRM backlog of FCA-identified deficiencies for fiscal years 2006 through 2012. Over the course of allocating about $4.6 billion for NRM using VERA between fiscal years 2006 and 2012, VA changed VERA’s NRM allocation formula from one being based primarily on patient workload in the networks to one that primarily considers both sustainment of buildings and the NRM backlog in each network. Prior to fiscal year 2009, VA used VERA to allocate nearly $1.5 billion of NRM resources on the basis of patient workload and adjusting the cost of construction. Under this formula, networks that treated the largest number of patients received the most resources for NRM, according to VA officials. Beginning in fiscal year 2009, VA used VERA to allocate resources for NRM primarily based on each network’s estimated cost for sustainment and the cost for addressing the NRM backlog. VA used VERA to allocate about $2.6 billion from fiscal year 2009 through 2012—which according to VA officials resulted in more resources being allocated to networks with a higher proportion of more expensive building space. In addition, since fiscal year 2009, VA has also used VERA to allocate about $512 million to NRM projects that improve access or provide accommodations for specific health care services, such as research, women’s health, and mental health, and certain other NRM projects. In fiscal years 2009 and 2010, VA allocated more than $1.4 billion of higher than requested Medical Facilities appropriations using methods other than VERA. Over the course of both fiscal years, VA allocated $1 billion of supplemental appropriations included in the Recovery Act mostly on the basis of each network’s estimated cost of addressing FCA- identified deficiencies, according to VA officials. In both fiscal years, Congress also provided higher appropriations in the Medical Facilities account than the President requested, in part, to fund additional NRM projects. In providing these higher appropriations for NRM, Congress required VA to allocate a specific amount using methods other than VERA. In fiscal year 2009, VA allocated $300 million based on each network’s estimated cost of addressing the NRM backlog of FCA- identified deficiencies. the basis of networks’ estimated sustainment costs and their cost to address the NRM backlog. See Pub. L. No. 110-329, div. E, tit. II, 122 Stat. 3574, 3705 (2008). the backlog of FCA-identified deficiencies.Medical Facilities appropriations in the reserve that are not used for non- NRM purposes are available for NRM. The Under Secretary for Health determines whether funds in the reserve are available and recommends allocations of those funds to the Secretary of Veterans Affairs, who approves the allocations. VA officials explained that the allocation of funds from the reserve for NRM were typically based on sustainment costs as well as the cost of addressing FCA-identified deficiencies and other VA NRM priorities, such as VA’s energy investment “Green” initiatives. These allocations are also subject to the networks’ ability to award the projects and obligate the additional funds prior to their expiration. In anticipation of the availability of such resources, networks typically identify in advance projects that can be implemented if additional funds become available, according to VA officials. Officials explained further that the networks do this to better address the NRM backlog. VA relied on its networks to prioritize all NRM spending until centralizing this process for more costly projects in fiscal year 2012. NRM projects VA funded were generally consistent with VA priorities. For fiscal years 2006 through 2011, VA relied on its networks to prioritize projects for NRM spending. Each fiscal year, networks provided VA headquarters with a list of prioritized NRM projects, known as NRM operating plans. According to officials from headquarters and the two selected networks, NRM operating plans represented all of the NRM projects that a network plans to fund and carry out in a given year. VA officials told us that to prioritize NRM projects during this period, the networks used oral guidance communicated to the networks during management meetings with VA headquarters that encouraged the networks to prioritize projects addressing critical FCA-identified deficiencies and sustainment. Beginning in fiscal year 2012, VA changed its process for prioritizing more costly NRM projects. Specifically, VA headquarters assumed responsibility for prioritizing these NRM projects as part of VA’s newly established Strategic Capital Investment Planning process, known as SCIP. Through SCIP, VA headquarters evaluates these more costly NRM projects and other types of capital investment projects using a set of weighted criteria in order to develop a list of prioritized projects to guide the agency’s capital planning decisions.threshold for including NRM projects in this centralized prioritization process was $1 million. VA used this process to identify 190 projects as the agency’s highest NRM priorities for fiscal year 2012. Under SCIP, VA prioritizes NRM projects based on the extent to which they meet the following six criteria: For fiscal year 2012, the 1. improve the safety and security of VA facilities by mitigating potential damage to buildings facing the risk of damage from natural disaster, improving compliance with safety and security laws and regulations, and ensuring that VA can provide service in the wake of a catastrophic event; 2. address selected key major initiatives and supporting initiatives identified in VA’s strategic plan;3. address existing deficiencies in its facilities that negatively affect the delivery of services and benefits to veterans; 4. reduce the time and distance a veteran has to travel to receive services and benefits, increase the number of veterans utilizing VA’s services, and improve the services provided; 5. right-size VA’s inventory by building new space, converting underutilized space, or reducing excess space; and 6. ensure cost-effectiveness and the reduction of operating costs for new capital investments. While VA uses SCIP to prioritize more costly NRM projects, the networks remain responsible for prioritizing all other or “below-threshold” NRM projects. However, VA has not provided its networks with written policies on how to prioritize these projects. According to a VA official, in fiscal year 2012, below-threshold projects accounted for over $625 million or 42 percent of VA’s NRM spending. According to officials, instead of providing written guidance, VA officials have orally encouraged the networks to apply the same criteria included in SCIP when prioritizing below-threshold NRM projects. VA’s lack of written policies for prioritizing below-threshold NRM projects which specify that is inconsistent with federal internal control standards,agency policies should be documented and that all documentation should be properly managed and maintained. Without written policies that clearly document VA’s guidance to networks for prioritizing these less costly NRM projects, there is an increased risk that networks may not apply, or may inconsistently apply, the criteria included in SCIP. Our review of VA data shows that for fiscal years 2006 through 2011 the majority of the NRM projects that were funded by the networks were projects that the networks had prioritized in their operating plans. Specifically, in each year during this period, at least 85 percent of the NRM projects the networks funded were listed in the networks’ operating plans. For example, of the 2,905 NRM projects that networks funded in fiscal year 2011, over 2,400 projects (85 percent) were listed on the operating plans. When asked about funded projects that were not listed on networks’ operating plans, VA officials told us that networks may fund NRM projects in response to emerging needs during the course of the year. For fiscal year 2012, our analysis of VA data also shows that NRM projects funded that year were generally consistent with projects prioritized using SCIP and those prioritized by the networks in their operating plans. Specifically, in fiscal year 2012, 189 NRM projects that were prioritized through the SCIP process received funding. Moreover, as figure 4 shows, of the 1,909 NRM projects that were funded by the networks outside of the SCIP process in fiscal year 2012, 1,668 (87 percent) were listed on the networks’ 2012 operating plans. This consistency notwithstanding, because VA has not provided its networks with written policies for prioritizing below-threshold projects, the agency faces an ongoing risk that NRM projects could be funded in a manner inconsistent with the SCIP criteria. Officials at VA headquarters have taken several steps in recent years to better monitor NRM spending to ensure that funded projects were consistent with the agency’s priorities. In fiscal years 2009 and 2010, in compliance with congressional requirements, VA tracked and reported spending on NRM projects that used funding provided through the Recovery Act. Recognizing the value of such monitoring, VA headquarters officials decided to expand efforts tracking NRM spending by project on a monthly basis. Since fiscal year 2011, VA has used what it calls its capital assets database to manage and monitor NRM spending on a monthly basis. As part of these efforts, VA has instructed its project managers to update the information on each project on a monthly basis and review tracking reports to ensure that spending for each project is within its estimated cost. VA officials told us that there are new efforts under way to improve the data reliability of the capital assets database and to incorporate its tracking reports into the SCIP process. Our work shows that VA has consistently spent more on NRM than estimated because of the availability of higher than estimated resources in its Medical Facilities account. These additional resources derived from lower than estimated spending for non-NRM activities and higher than requested appropriations. Further, our work shows that spending for administrative functions, utilities, and rent accounted for most of the lower than estimated non-NRM spending in recent years. Thus, given the underestimates for these activities, VA’s future budget estimates for non- NRM activities in its budget justification may not be reliable if the agency continues to determine its estimates in the same way. VA has taken important steps in establishing a centralized process for prioritizing more costly NRM projects through SCIP, and during the period we reviewed, VA’s funded NRM projects were generally consistent with agency priorities. However, VA does not have reasonable assurance that spending on NRM will be consistent with criteria included in SCIP. Our work shows that while networks remain responsible for prioritizing below- threshold NRM projects, VA has not provided its networks with written policies for prioritizing these less costly NRM projects. Spending on these projects is not insignificant: in fiscal year 2012, spending on projects below the threshold was over $625 million or 42 percent of VA’s spending on NRM. Without written policies that clearly document VA’s guidance to networks for prioritizing below-threshold NRM projects, VA faces a continued risk that its networks may not apply, or may inconsistently apply, the criteria included in SCIP when funding these projects. We recommend the Secretary of Veterans Affairs take the following actions: to improve the reliability of information presented in VA’s congressional budget justifications that support the President’s budget request for VA health care, determine why recent justifications have overestimated spending for non-NRM activities and incorporate the results to improve future budget estimates for such activities; and to provide reasonable assurance that VA’s networks prioritize NRM spending consistent with VA’s overall NRM priorities, establish written policies for its networks for applying SCIP criteria when prioritizing the funding of NRM projects that are below the threshold for inclusion in VA’s centralized prioritization process. We provided a draft of this report to the Secretary of Veterans Affairs for comment. In the agency’s comments—reprinted in appendix I—VA concurred with both of our recommendations. In concurring with our first recommendation regarding improvements needed in its estimates for non-NRM activities, VA noted that the budget formulation process has been modified to include a better synchronization of events that play a significant role in the overestimated spending for non-NRM activities. VA stated that this modification has been incorporated in the fiscal year 2014 President’s budget. In concurring with our second recommendation regarding written guidance on the application of SCIP criteria to prioritization of below-threshold NRM projects, VA noted that the NRM handbook and related guidance will be updated to direct facilities and networks to apply SCIP criteria when prioritizing below-threshold NRM projects. In addition, networks’ Capital Asset Managers, who are responsible for monitoring and evaluating each network’s NRM program, will be required to review below-threshold NRM projects included in a network’s operating plan. VHA’s Office of Capital Asset Management Engineering and Support will also review networks’ operating plans to ensure compliance. We are sending copies of this report to the Secretary of Veterans Affairs and appropriate congressional committees. In addition, the report will be 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) 512-7114 or williamsonr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. In addition to the contact named above, James C. Musselwhite, Assistant Director; Krister Friday; Aaron Holling; Lisa Motley; and Said Sariolghalam made key contributions to this report. Veterans’ Health Care Budget: Better Labeling of Services and More Detailed Information Could Improve the Congressional Budget Justification. GAO-12-908. Washington, D.C.: September 18, 2012. Veterans’ Health Care Budget: Transparency and Reliability of Some Estimates Supporting President’s Request Could Be Improved. GAO-12-689. Washington, D.C.: June 11, 2012. VA Health Care: Estimates of Available Resources Compared with Actual Amounts. GAO-12-383R. Washington, D.C.: March 20, 2012. Veterans Affairs: Issues Related to Real Property Realignment and Future Health Care Costs. GAO-11-877T. Washington, D.C.: July 27, 2011. Veterans’ Health Care Budget: Changes Were Made in Developing the President’s Budget Request for Fiscal Years 2012 and 2013. GAO-11-622. Washington, D.C.: June 14, 2011. VA Health Care: Need for More Transparency in New Resource Allocation Process and for Written Policies on Monitoring Resources. GAO-11-426. Washington, D.C.: April 29, 2011. VA Real Property: Realignment Progressing, but Greater Transparency about Future Priorities Is Needed. GAO-11-521T. Washington, D.C.: April 5, 2011. VA Real Property: Realignment Progressing, but Greater Transparency about Future Priorities Is Needed. GAO-11-197. Washington, D.C.: January 31, 2011. Veterans’ Health Care: VA Uses a Projection Model to Develop Most of Its Budget Estimate to Inform President’s Budget Request. GAO-11-205. Washington, D.C.: January 28, 2011. VA Health Care: Overview of VA’s Capital Asset Management. GAO-09-686T. Washington, D.C.: June 9, 2009. VA Health Care: Challenges in Budget Formulation and Issues Surrounding the Proposal for Advance Appropriations. GAO-09-664T. Washington, D.C.: April 29, 2009. VA Health Care: Challenges in Budget Formulation and Execution. GAO-09-459T. Washington, D.C.: March 12, 2009. VA Health Care: Long-Term Care Strategic Planning and Budgeting Need Improvement. GAO-09-145. Washington, D.C.: January 23, 2009. VA Health Care: VA Should Better Monitor Implementation and Impact of Capital Asset Alignment Decisions. GAO-07-408. Washington, D.C.: March 21, 2007. VA Health Care: Budget Formulation and Reporting on Budget Execution Need Improvement. GAO-06-958. Washington, D.C.: September 20, 2006. VA Health Care: Preliminary Findings on the Department of Veterans Affairs Health Care Budget Formulation for Fiscal Years 2005 and 2006. GAO-06-430R. Washington, D.C.: February 6, 2006.

Summary: VA operates about 1,000 medical facilities--such as hospitals and outpatient clinics--that provide services to more than 6 million patients annually. The operation and maintenance of its facilities, including NRM, is funded from VA's Medical Facilities appropriations account, one of three accounts through which Congress provides resources for VA health care services. In prior work, GAO found that VA's spending on NRM has consistently exceeded its estimates. GAO recommended that VA ensure that its NRM estimates fully account for this long-standing pattern, and VA agreed to implement this recommendation. GAO was asked to conduct additional work on NRM spending. In this report, GAO examines, for fiscal years 2006 through 2012, (1) what accounted for the pattern of NRM spending exceeding VA's budget estimates; (2) VA's allocation of resources for NRM to its health care networks; and (3) VA's process for prioritizing NRM spending and the extent to which NRM spending was consistent with these priorities. GAO reviewed VA's budget justifications and VA data and interviewed officials from headquarters and selected networks. During fiscal years 2006 through 2012, the Department of Veterans Affairs (VA) had higher than estimated resources available for facility maintenance and improvement--referred to as non-recurring maintenance (NRM); these resources accounted for the $4.9 billion in VA's NRM spending that exceeded budget estimates. The additional resources came from two sources. First, VA spent less than it estimated on non-NRM, facility-related activities such as administrative functions, utilities, and rent, which allowed VA to spend over $2.5 billion more than originally estimated. Lower spending for administrative functions, utilities, and rent accounted for most of the resources estimated but not spent on non-NRM activities. Given that VA has consistently overestimated the costs of such activities in recent years, VA's budget estimates for its non-NRM activities may not be reliable. Second, more than $2.3 billion of the higher than estimated spending on NRM can be attributed to VA having higher than estimated budget resources available. In some years VA received higher appropriations from Congress than requested and supplemental appropriations for NRM--such as those included in the American Recovery and Reinvestment Act of 2009. The additional budget resources VA used for NRM also included transfers of funds from the agency's appropriations account that funds health care services. VA allocated about $7.5 billion in resources for NRM to its 21 health care networks from fiscal year 2006 through fiscal year 2012. VA allocated about $4.6 billion of these resources at the beginning of each fiscal year through the Veterans Equitable Resource Allocation--its national, formula-driven system. In addition, VA allocated $2.9 billion during this period from higher than requested annual appropriations and its national reserve account, which is maintained to address contingencies that may develop each fiscal year. In anticipation of such resources, networks typically identify projects that can be implemented if additional funds become available. VA officials told us that they do this to better address the backlog of identified building deficiencies most recently estimated to cost over $9 billion. To prioritize NRM spending more centrally, VA established a new process for projects above a minimum threshold, and from fiscal years 2006 through 2012 spending on NRM was generally consistent with VA priorities. Prior to fiscal year 2012, VA provided oral guidance to networks for prioritizing NRM spending and relied on its 21 health care networks to prioritize NRM projects to maintain medical facilities in good working condition and address deficiencies. Beginning in fiscal year 2012, as part of VA's Strategic Capital Investment Planning (SCIP) process, VA headquarters assumed responsibility for prioritizing more costly NRM projects using a set of weighted criteria. For fiscal year 2012, the threshold for NRM projects to be included in this centralized process was $1 million, while networks remain responsible for prioritizing "below-threshold" NRM projects. NRM spending during fiscal years 2006 through 2012 was generally consistent with VA priorities: at least 85 percent of the projects funded in each year were identified by networks as priorities. However, VA has not provided written policies for networks on how to apply SCIP criteria to below-threshold projects, which represented over 40 percent of VA's fiscal year 2012 NRM spending. Without such written policies, VA does not have reasonable assurance that network spending for below-threshold NRM projects will be consistent with SCIP criteria. GAO recommends that VA determine why it has overestimated spending for non-NRM and use the results to improve future, non-NRM budget estimates. GAO also recommends that VA provide networks with written guidance for prioritizing below-threshold NRM projects. VA concurred with GAO's recommendations.