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. 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. 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. 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. 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. NIH Corrected Weaknesses in Implementation of Prospectus Guidance, but Some Past Prospectus-level Leases Remain Unreported

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. To address previous problems with inconsistent and informal  implementation of prospectus guidance, NIH has incorporated into its  leasing process several decision points for identifying any leases for which  a congressionally approved prospectus should be submitted. Furthermore, according to NIH’s Office of Acquisitions, ORF, it is now  responsible for ensuring that the contracting for alterations to leased  buildings does not exceed that prospectus threshold. This process involves agencies with  delegated leasing authority, which must identify prospectus level leases to  GSA for submission. While there is no legal penalty for  not following the congressional prospectus process, failure to do so  hinders the ability of the appropriate congressional committees to fulfill  their oversight responsibilities for all prospectus-level leases. Conclusions

NIH has taken actions to formalize its processes of lease scoring and  prospectus analysis by developing and implementing LeMOP, its new  leasing process. An issue remains with five prior leases that were not submitted to the  appropriate congressional committees for review under the Public  Buildings Act of 1959, as amended. At that time, we will send copies of this report to the  appropriate congressional committees, the Director of the National  Institutes of Health, the Secretary of Health and Human Services, the  Administrator of the General Services Administration and the Director of  the Office of Management and Budget.
Why GAO Did This Study

The National Institutes of Health (NIH) is the nation's primary medical and behavioral research agency. NIH's need for leased space has more than doubled since 1996 to about 3.9 million square feet in 2005. In 1996, General Services Administration (GSA) delegated leasing authority to NIH that includes performing budget scoring and prospectus analysis. In light of NIH's increased use of leased space, GAO was asked to address two issues: (1) Is NIH complying with budget scorekeeping guidelines and Office of Management and Budget's (OMB) requirements for implementing the guidelines to determine if a lease should be classified as operating or capital and ensure that no violations of the Antideficiency Act occur because of improper budget scorekeeping? and (2) Is NIH complying with the congressional prospectus process for both leases and alterations to leased buildings? To address these issues we interviewed leasing and financial officials, reviewed laws and reviewed budget scoring and prospectus analysis of 59 leases.

What GAO Found

NIH has implemented a formal leasing process that, if carried out effectively, should comply with budget scorekeeping guidelines and OMB's requirements for classifying operating and capital leases. This process should ensure that no Antideficiency Act violations occur due to leasing. The agency's new leasing process addresses previous problems with inconsistent and informal implementation of the guidelines and requirements by properly identifying operating and capital leases and properly recording lease obligations for budget scoring purposes. In October 2005, the U. S. Department of Health and Human Services expressed the belief that the potential $565 million in unrecorded obligations from 50 active multiyear NIH leases were not Antideficiency Act violations. We agree that no Antideficiency Act violations exist because the GSA delegation of leasing authority included specific authority that directed NIH to obligate funds for multiyear leases, one year at a time, and that such actions were exempt from the Antideficiency Act. GSA is also modifying its guidance for delegated leasing authority, which would make it clear that agencies with delegated leasing authority can score operating leases in the same manner as GSA. The scoring process for capital leases would remain unchanged. As part of its leasing process, NIH has also established decision points for identifying any leases for which a prospectus should be submitted through GSA for congressional approval, under the Public Buildings Act of 1959, as amended. This process involves submitting leases and alterations to leased buildings for approval whose costs exceed a legislatively established threshold. In addition, NIH has designated the Office of Acquisitions, Office of Resource Facilities to review prospectus-level alterations to leased buildings to ensure that the contracting for alterations to leased buildings does not exceed the prospectus threshold for alterations to leased buildings. However, NIH has taken no action to address five prospectus-level leases that were not submitted to the appropriate congressional committees in past years. While there is no penalty provided in law for not submitting a prospectus, failure to do so hinders the ability of the appropriate congressional committees to fulfill their oversight responsibilities for all prospectus-level leases.