Lack of Informed Fee Design Contributes to Expectation Gaps with Stakeholders and Unknown Cross- Subsidizations Among Payers

		FPS Does Not Have an Informed Fee Design

When FPS was a part of GSA, GSA did not charge customer agencies  security fees to recover the full cost of physical security services. Despite a number of security fee increases  and cost-cutting efforts in the 7 years since transferring to DHS, FPS has  not conducted a fee review to develop an informed, deliberate fee design. As shown in table 2, to cover its costs FPS has increased its fees four times  from 2004 to 2009. We have previously reported that fee collections should be sufficient to  cover the intended portion of program costs over time and that while  regular, timely, and substantive fee reviews are critical for any agency,  they are especially important for agencies—like FPS—that are mostly or  solely fee funded in order to ensure that fee collections and operating  costs remained aligned. FPS Describes an Alignment Between Specific Fees and Specific Activities That Does Not Exist

FPS does not know the cost of providing specific security activities to its  customer agencies, although in its Security Services and Pricing  Provision document, FPS associates specific security activities with  specific security fees—an alignment that does not exist (see table 3). By  law FPS is required to charge fees that cover its total operating expenses,  but it is not required to have specific fees match the cost of specific  activities. First, FPS officials  said their mission—to ensure safety at GSA-controlled federal facilities—is  a national policy goal and therefore the basic security costs are intended  to be shared evenly among the facilities. Second, FPS officials said the building-specific and SWA administrative  fees are designed to reflect the increased risk inherent to facilities  requiring or requesting additional countermeasures and therefore the  administrative fees should subsidize the aggregate cost of basic security  services. Alternate Fee Structures Could Address Concerns About Alignment and Cross-Subsidizations

Other security fee structures may address the current equity and cross- subsidizations and improve transparency to customer agencies. However,  without a full fee review it is difficult to understand fully the relative trade- offs in any particular proposal. In addition, revising the funding  mechanisms alone would not address the variations in service levels  reported by FPS’s customer agencies nor the overall level of services FPS  provides at GSA-controlled facilities. Funding all or some of FPS’s activities with a direct appropriation may  also increase demand for FPS services. FPS Cannot Finalize Its Fee Rates Until Its Appropriation Is Enacted

While FPS can indicate a fee increase in its budget documents, it cannot  finalize its fee rates for a given fiscal year until DHS’s appropriation is  enacted. As a  result, to respond timely to current threats, customer agencies must  reallocate funds to countermeasures for which they did not and could not  plan. Alternative Account Structures Could Provide Needed Flexibility to Help Mitigate Budgeting Challenges for FPS and Customer Agencies

There is no obvious solution for the federal budget timing disconnects  described above, but in our prior work reviewing fee-funded agencies, we  have identified various budget account structures that could help mitigate  budgeting and timing challenges for FPS and customer agencies without  compromising accountability for federal funds. FPS’s customer agencies do not  receive timely estimates of future costs, impairing agencies’ ability to  budget for those costs. FPS has data that could help FPS’s customer  agencies with this issue. Recommendations for Executive Action

The Secretary of Homeland Security should direct the Director of the  Federal Protective Service to take the following six actions:    conduct regular reviews of FPS’s security fees and use this information to  inform its fee setting;  include systemwide capital investments when estimating costs and include  them when setting basic security fee rates;    make information on the estimated costs of key activities as well as the  basis for these cost estimates readily available to affected parties to  improve the transparency and credibility—and hence the acceptance by  stakeholders—of the process for setting and using the fees;  in implementing our previous recommendation to evaluate the current fee  structure and determine a method for incorporating facility risk, assess  and report to Congress on:  the current and alternative fee structures, to include the options and  trade-offs discussed in this report, and if appropriate,    options to fund FPS through a combination of fees and direct  appropriations, to include the options and trade-offs discussed in  this report;    evaluate and report to Congress on options to mitigate challenges agencies  face in budgeting for FPS security costs, such as:    an alternative account structure for FPS to increase flexibility,  while retaining or improving accountability and transparency or    an approved process for estimating fee rates; and    work with customer agencies to collect and maintain an accurate list of  points of contact of customer agency officials responsible for budget and  billing activities as well as facility designated points of contact as we  previously recommended. The General Services Administration had no comments on the report. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to (1) analyze the Federal Protective  Service’s (FPS) current fee design and proposed alternatives, and (2)  examine how FPS’s security fees challenge FPS and customer agency  budget formulation and execution.
Why GAO Did This Study

The Federal Protective Service (FPS) is a fee-funded agency in the Department of Homeland Security (DHS) responsible for providing physical security to over 9,000 federal facilities. In 2003 FPS transferred to DHS from the General Services Administration and for the first time was to fully recover its costs. GAO recently reported that stakeholders were concerned about FPS's ability to determine security costs, and the strategies used to address funding challenges had adverse effects on FPS. In this context, Congress directed GAO to evaluate FPS's resource levels. This report (1) analyzes FPS's fee design and proposed alternatives, and (2) examines how FPS's security fees challenge FPS and customer agency budget formulation and execution. GAO reviewed legislation and agency documentation and interviewed FPS and customer agency officials in headquarters and four FPS regions.

What GAO Found

FPS increased its basic security fee four times in 6 years to try to cover costs (an increase of over 100 percent). FPS has not reviewed its fees to develop an informed, deliberate fee design. GAO has found that timely, substantive fee reviews are especially critical for fee-funded agencies to ensure that fee collections and operating costs remain aligned. FPS is legally required to charge fees that cover its total costs, but it is not required to align specific fees with specific activities. Nevertheless, in its pricing documents FPS describes an alignment between specific fees and specific activities that does not exist. FPS charges a basic security fee based on facility square footage. In addition, FPS charges facilities that have contractor-provided countermeasures, such as guards, the cost of the countermeasure plus an administrative fee that is a percentage of the countermeasure cost. Federal facilities vary in how much they cost to protect, but FPS does not know to what extent some facilities currently subsidize others. This contributes to expectation gaps with and unknown cross-subsidizations among payers. FPS officials said that basic security costs are meant to be "shared evenly" (i.e., based on square footage) among all payers while administrative fees for FPS-recommended or facility-requested countermeasures are meant to both (1) reflect the increased risk inherent to those facilities requiring or requesting additional countermeasures and (2) subsidize the aggregate cost of basic security services. Charging beneficiaries more or less than actual costs may help achieve policy goals, but FPS lacks data to determine whether this occurs as intended. Modifying the current fee structure or funding FPS through a combination of fees and direct appropriations may address equity and cross-subsidization issues and improve transparency to customers, but without detailed activity cost information and a full fee review the relative trade-offs in any particular proposal are unclear. Further, revising the fee structure alone will not address the variations in service levels reported by FPS's customer agencies or the overall level of services FPS is able to provide. The design and implementation of FPS's fees affect agencies' and FPS's ability to budget for and timely implement security measures in multiple ways. First, FPS lacks a method to propose security fee rates prior to submitting its budget request and cannot finalize its rates each year until it receives congressional instructions about its staffing levels in its appropriation act. As a result, agencies annually request security funding without accurate security cost estimates. Second, FPS makes security recommendations to customer agencies based on current threats, but agencies budget for security costs in advance and therefore must reallocate funds to pay for countermeasures for which they had not planned. Although there are no obvious solutions for these and other budget timing disconnects, alternative budget account structures like a reimbursable account or a revolving fund could help mitigate budgeting and timing challenges for FPS and customer agencies without compromising accountability for federal funds.

What GAO Recommends

GAO recommends that the Secretary of Homeland Security direct the Director of FPS to, among other things, conduct and make available regular fee reviews to improve its fee design, include capital investment costs in its rates, and evaluate its current and alternative funding and budget account structures to mitigate budget timing and other issues. DHS concurred with GAO's recommendations.