In 1996, GSA began a program called “Can’t Beat GSA Leasing” that offered federal agencies the choice of (1) using GSA as their leasing agent, (2) assuming responsibility for their own leasing, or (3) using a combination of both options. The program was an outgrowth of GSA’s commitment to streamline its leasing operations, respond to the government’s changing needs, and address recommendations from client agencies. GSA delegated leasing authority to HHS in September 1996, and HHS redelegated this authority to NIH, one of its four lease-holding agencies, in December 1996. GSA’s original delegation consisted of six conditions, which included the requirements that federal agencies acquire and utilize leased space in accordance with all applicable laws and regulations and —prior to finalizing lease contracts and alterations to leased buildings that exceed a legislatively established threshold—work through GSA to secure an approved prospectus from the appropriate congressional committees. Since 1997, NIH has elected to rely on GSA for some of its leasing needs, but it has issued a majority of its leases on its own. In response to past problems identified in a 2003 internal review of its leases, NIH developed a formal leasing process in 2003 that includes decision points for budget scoring. The process was updated in 2005, and if implemented effectively, it should ensure that NIH leasing complies with OMB’s scorekeeping guidelines for classifying leases. This new process should also ensure that no violations of the Antideficiency Act occur due to improper scorekeeping. The executive and legislative branches formulated the budget scorekeeping rules in connection with the Budget Enforcement Act of 1990. The purpose of these rules is to ensure that scorekeepers adhere to scorekeeping conventions and specific legal requirements when they measure the effects of legislation. They are also used by OMB for determining amounts to be recognized in the budget when an agency signs a contract or enters into a lease. The rules are reviewed annually by the scorekeepers and revised, as necessary, to achieve their purpose. According to scorekeeping guidelines, a lease is classified as either operating or capital, based on six criteria. If a lease meets all six criteria, then it qualifies as an operating lease; otherwise, it must be treated as a capital lease for purposes of budget scoring. For operating leases for agencies other than GSA, budget authority is required for the estimated total payment that is expected to arise under the full term of the contract or, if the contract includes a cancellation clause, for an amount sufficient to cover the lease payments for the first fiscal year plus an amount sufficient to cover the costs associated with cancellation. For GSA operating leases, only the budget authority needed to cover the annual lease payment is required. For a capital lease, budget authority is required for the net present value of the total cost of the lease and property taxes (but not for imputed interest costs and identifiable annual operating expenses). In 2003, NIH’s Assistant Director for the Chief Financial Officer and Central Services asked the Acting Director of the Office of Research Facilities Development and Operations (ORFDO) to certify that all leases were operating leases for the purposes of the annual NIH financial statements, according to an NIH official. To address this request, the ORFDO Acting Director conducted an internal risk assessment. This resulted in a review of all NIH’s leases, which identified problems with implementing budget scorekeeping guidelines and OMB requirements, as well as identifying prospectus leases. More specifically, this review identified eight leases that had been improperly classified as operating leases instead of capital leases and potential unrecorded obligations from 50 active multiyear operating leases that totaled $565 million, as of September 30, 2005. According to the Director of the Office of Acquisitions, NIH’s lease scoring process had been inconsistent and informal from 1996 to 2003, which may explain the improper lease classifications and unrecorded obligations identified in the 2003 review. Due to staff changes at the agency in past years, we were not able to determine why the budget scoring process was inconsistent and informal from 1996 to 2003. In 2003, NIH attempted to address its problems in complying with scorekeeping guidelines by developing the Leasing Management and Oversight Program (LeMOP), a new multistep leasing process that includes budget scoring. LeMOP is a means for NIH to exercise stronger oversight in the leasing process than it had done previously. The process consists of a business case that goes through the following five critical decision points: 1. Initial approval that there is a justifiable need, 2. Approval of a general strategy on how the need will be met, 3. Approval of a detailed strategy for meeting the need, 4. Signing of the lease and obligation of the funds, and 5. Documentation that the agency has reviewed the action and the space requirement is being met. As part of the third decision point, the Office of Business Systems and Finance (OBSF) uses the budget scoring process for leases that it developed during NIH’s 2003 review to conduct an independent test of the planned lease contract against OMB’s budget scorekeeping requirements. The test is based on estimates of the lease rate, the lease term, and other factors. As part of the fourth decision point, OBSF tests the final lease price against OMB scoring requirements to determine if the proposal conforms to applicable rules for budget scoring. In effect, the process establishes a specific requirement that ensures that NIH leases undergo budget scoring. In addition to implementing LeMOP, NIH corrected its improper classification of the eight operating leases identified in the 2003 review. Two of these leases were reclassified as capital leases, and the remaining six were renegotiated by eliminating the option-to-renew clauses from the lease so that they could properly qualify as operating leases. By deleting the option-to-renew clauses, NIH reduced the terms of the leases, which impacted budget scoring. This allowed the leases to meet the scoring criteria for an operating lease—that the present value of the minimum lease payments over the life of the lease not exceed 90 percent of the fair market value of the asset at the beginning of the lease term. Leases exceeding this 90 percent level are to be identified as capital leases. As a final measure in response to the 2003 review, NIH sought HHS’s advice on whether it had $565 million in unrecorded obligations that violated the Antideficiency Act. The unrecorded obligations occurred because NIH scored its operating leases without cancellation clauses similar to GSA—that is, it scored only the budget authority that was needed to cover the annual lease payment. This was done instead of following scorekeeping guidance for an operating lease for agencies other than GSA—that is, budget authority is required for the estimated total payment expected to arise under the full term of the contract or, if the contract includes a cancellation clause, for an amount sufficient to cover the lease payments for the first year plus an amount sufficient to cover the costs associated with the cancellation clause. NIH asked HHS whether it thought that the $565 million in unrecorded obligations was an Antideficiency Act violation. This act states that an officer or employee of the United States is prohibited from making expenditures or incurring obligations in advance of available appropriations unless otherwise authorized by law. HHS stated that it did not believe the potential $565 million in unrecorded obligations from scoring operating leases to be Antideficiency Act violations. We concluded that no Antideficiency Act violation exists. Under the Federal Property and Administrative Services Act of 1949, as amended (Property Act), GSA is authorized to enter into a lease agreement for a term of up to 20 years to accommodate the federal government. In addition, GSA is authorized under the Property Act to delegate to the head of another federal agency most of its authorities, which includes leasing authority. When GSA delegated its leasing authority to the Secretary of HHS, who then redelegated this authority to NIH, the GSA leasing delegation signed by the Administrator specifically stated, “I hereby delegate authority to the heads of all federal agencies to perform all functions related to the leasing of general purpose space for a term of up to 20 years regardless of geographic location.” GSA has specific statutory authority to obligate funds in advance of available appropriations. This authority provides that, when entering into multiyear leases, “the obligation of the amount for a lease is limited to the current fiscal year for which payments are due without regard to the Antideficiency Act.” Accordingly, GSA is directed by law to obligate funds for multiyear leases one year at a time, and it is exempt from the general prohibition in the Antideficiency Act against obligating the government in advance of appropriations for GSA leases. Since GSA delegated all of its leasing authorities through HHS to NIH, the provision in the Property Act relating to the obligation of multiyear leases also applies to NIH. This delegation authorizes NIH to enter into multiyear leases without recording the entire amount of the lease in the first year. Therefore, the fact that NIH entered into multiyear leases without having an appropriation for the entire amount of each lease did not constitute a violation of the Antideficiency Act. GSA is drafting a modification to its guidance for delegated leasing authority which, according to a GSA official, will clarify that agencies with delegated leasing authority can score operating leases in the same manner as GSA does. GSA and agencies with delegated leasing authority are expected to continue to score capital leases according to OMB’s requirements. As part of its leasing process, NIH has established decision points for identifying leases whose costs exceed a legislatively established threshold and for which a prospectus should be submitted for congressional review and approval prior to finalizing contracts. In addition, all alterations to leased buildings are reviewed by an NIH leasing official. These changes should ensure that NIH identifies leases that need to be submitted for review.