Input:
	Background

		VHA’s Allocation of Funds

In February of each year, the President submits the budget request for  VHA health care, which includes requested funding for the upcoming  fiscal year as well as an advance appropriation request to Congress.  VHA allocates funds by the beginning of each fiscal year—October 1—to  VISNs and medical centers based on the amount VA received in the  advance appropriation. Once appropriations are enacted for the  upcoming fiscal year, VHA updates the allocated funding levels for VISNs  and medical centers. For example, VHA’s appropriations for fiscal year  2018 included advance appropriations for fiscal year 2019. VHA allocated  funds by October 1, 2018 (the beginning of fiscal year 2019), based on  the advance appropriation for fiscal year 2019 and updated the funding  levels once appropriations for fiscal year 2019 were enacted.
VHA allocates general purpose funds to its 18 VISNs through the  Veterans Equitable Resource Allocation (VERA) model. It uses a  separate model, called the Medical Center Allocation System (MCAS), to  allocate each VISN’s general purpose funds—as determined by the  VERA model—to the medical centers within each network. VHA guidance  permits VISNs to make adjustments to the general purpose funding levels  determined by MCAS for each medical center.
VHA uses other methods to allocate specific purpose funds to VHA  program offices that manage various health care programs, such as those  for community care, prosthetics, and homelessness.  The program  offices, in turn, typically allocate funds for these programs directly to  medical centers. (See fig. 1.)
Once funds are allocated and distributed to VISNs and medical centers,  these funds may be redistributed in accordance with law across VA’s  health care system. These redistributions can help address unfunded  needs or surpluses that may arise. For example, according to officials, a  medical center may need additional funds to provide care for veterans  when natural disasters occur.

		VHA’s General Purpose and Specific Purpose Funding Levels

From fiscal year 2015 to fiscal year 2019, general purpose funds  increased by 33 percent- from $37 to $49 billion—while specific purpose  funds increased by 24 percent—from $19 to $23 billion. (See fig. 2.) In  fiscal year 2019, community care accounted for $10.5 billion—46  percent—of the $23 billion allocated in specific purpose funds. Patient  care services, homelessness programs, non-recurring maintenance, and  medical residency programs also accounted for large portions of specific  purpose funds.

		VA’s Appropriation Accounts and Community Care

As of fiscal year 2017, VA primarily receives appropriated funds for all  health care it provides or purchases through four appropriation accounts.  The amount of funds in each appropriation account is determined by VA’s  annual appropriation. VHA allocates both general and specific purpose  funds from these appropriation accounts. These accounts include the  following:
Medical Services: health care services provided to eligible veterans  and other beneficiaries in VA facilities and non-VA facilities, among  other things.
Medical Community Care: health care services that VA authorizes for  veterans and other beneficiaries to receive from community  providers.
Medical Support and Compliance: the administration of the medical,  hospital, nursing home, domiciliary, supply, and research activities  authorized under VA’s health care system, among other things.
Medical Facilities: the operation and maintenance of VHA’s capital  infrastructure, such as the costs associated with nonrecurring  maintenance, leases, utilities, facility repair, laundry services, and  groundskeeping, among other things.
Separate from VA’s health care appropriation accounts, the Veterans  Access, Choice, and Accountability Act of 2014 established the Veterans  Choice Fund and provided $10 billion in funds for the Veterans Choice  Program (Choice Program), which was implemented in early fiscal year  2015 and authorized until funds were exhausted or through August 7,  2017, whichever occurred first. The Choice Program allowed veterans  to elect to receive care from community providers when the services  needed were not available at a VA medical center, were not available  within VHA’s wait-time goals, or when veterans did not reside near a VA  medical facility with a full-time primary care provider. Eligible veterans  could also elect to receive care in the community if they met other  eligibility criteria as well.
VA received additional authority and funds to maintain the Choice  Program through June 6, 2019, when it sunsetted, and the new Veterans  Community Care Program (VCCP) went into effect. The VCCP was  established by the VA MISSION Act and consolidated the Choice  Program along with several other community care programs. The VCCP  is primarily funded through specific purpose funds in the Medical  Community Care appropriation account. The VCCP is similar to the  former Choice Program in allowing veterans to elect to receive care from  community providers when certain eligibility criteria are met, including  criteria relating to the availability and accessibility of the services at  VHA. Under the VCCP, VHA adopted designated access standards for  VCCP eligibility determinations that are broader than the eligibility criteria  that existed under the Choice Program.

	VHA Allocates Funds Based on Patient Workload but Does Not Use the Most Up- to-date Data and Certain Adjustments to Funding Levels May Lead to Inefficiencies

		VHA Allocates General Purpose and Community Care Funds Based on Patient Workload

VHA’s VERA model uses a national, formula-driven approach that  considers the number and type of veterans served and the complexity of  care provided—collectively referred to as patient workload—as well as  certain geographic factors, such as local labor costs, to determine the  amount of general purpose funds each VISN should receive. VHA uses  VERA to establish funding levels for each VISN in the following areas:  patient care, equipment, education support, and research support, the  largest of which is patient care.
After determining the amount of funds VISNs should retain for VISN-level  initiatives, administrative purposes, and reserves, VHA uses its MCAS  model to distribute the remainder of each VISN’s general purpose funds  to medical centers within the VISN. MCAS is based on a workload  measure developed by VHA, called patient-weighted work (PWW) that  accounts for medical center-level factors such as patient volume, case- mix, and specialized services. According to VHA officials, PWW establishes an equitable measure of workload among medical centers  that vary significantly in their geographic location, and types and costs of  services provided. Furthermore, PWW lessens the impact of cost  differences between medical centers, by recognizing the varying costs  and levels of resource intensity associated with providing care for each  patient at each medical center. For example, PWW would result in more  funds being allocated to a medical center that provides more complex  care, such as open heart surgery, than a workload measure based solely  on a count of each individual patient, which would not account for the  additional costs associated with more complex care.
Similar to MCAS, VHA’s Office of Community Care uses a patient  workload-based model to allocate community care funds—which are  specific purpose funds—to medical centers, based on each medical  center’s community care patient workload in prior years. To determine the  community care funding needs for each medical center, VHA calculates  the PWW associated with community care. VHA determines the total  amount of funds available for community care based on the amounts  appropriated to the Medical Community Care appropriation account and  the amount available for community care in the Veterans Choice Fund.  VHA distributes the funds to each medical center in proportion to each  medical center’s PWW. VHA officials told us that VHA is considering  making changes to the methodology for allocating community care funds  under the new VCCP, but as of July 2019, updates to the methodology  had not been developed or implemented.
The other four program offices we reviewed developed other  methodologies for allocating other specific purpose funds. In general,  these methodologies involve coordination between VISNs and their  medical centers on needs for these funds and allocating available funds  based on identified needs. For example, the Office of Patient Care  Services which manages prosthetics and hepatitis C drugs allocates  available funds based on identified needs by each of the medical centers.  Appendix 1 provides an overview of the methodologies used by these  four program offices to allocate special purpose funds.

		VHA’s Allocation Models for General Purpose and Community Care Funds Do Not Reflect the Most Up-To-Date Patient Workload Data Available

To allocate funds for an upcoming fiscal year, VHA’s allocation models  rely on actual patient workload data from prior fiscal years, but not the  most recently completed fiscal year.
VHA’s VERA model relies on actual patient workload data from two to  six years prior to the upcoming fiscal year, in addition to future  workload projections. For example, to allocate funds for fiscal year  2019, the VERA model relied on actual workload data from fiscal  years 2013 and 2017, in addition to some future projected workload,  but did not take into account actual workload data from fiscal year  2018.
VHA’s MCAS and community care models rely on actual patient  workload data from two years prior to the upcoming fiscal year. For  example, the 2019 MCAS and community care models were based on  actual workload data from fiscal year 2017, but did not take into  account actual workload data from fiscal year 2018.
According to VHA officials, patient workload data from the most recently  completed fiscal year are not yet available when VHA runs the preliminary  VERA, MCAS, and community care models for each fiscal year in August.  However, these officials told us that these data would be available in  December of each year and therefore could be incorporated into the final  model run after VHA receives its enacted appropriation amount for the  upcoming fiscal year. These officials told us that doing so would result in  little to no delay in when the final model run and the final distribution of  funds takes place, which occurs after the appropriation act is enacted.  Specifically, according to officials from VHA’s Office of Finance, if the full  fiscal year appropriation is enacted prior to the start of the fiscal year on  October 1, VHA will be able to perform the final model runs by mid- November. As a result, incorporating data from the most recent fiscal year  would result in a one month delay in the final model run. Should the  enactment of a full year appropriation be delayed, the timing of the final  model would not be impacted by using data from the most recently  completed fiscal year. (See fig. 3.)
A VHA Office of Finance official told us that VHA had not previously  considered using patient workload data from the most recently completed  fiscal year because VHA did not believe that using updated data would  have a significant impact on the model. However, the official told us that  the implementation of the VCCP in June 2019 may result in more  significant year-to-year workload changes due to veterans increasing their  use of VHA health care services. As a result, the official told us that using  more up to date information would be more useful in informing allocation  levels. Federal standards for internal control related to information calls  for management to use quality information to achieve the entity’s  objectives. Quality information is appropriate, current, complete, accurate,  accessible, and provided on a timely basis.
Because the VERA, MCAS, and community care models do not use the  most up-to-date patient workload data available, the models may not  reflect the most recent workload trends affecting medical centers. This  may result in funding levels determined by the models that may not be  commensurate with medical centers’ actual patient workload. For  example, VHA data we reviewed show that some medical centers  experienced workload changes in fiscal year 2018—changes that were  not captured by the models for fiscal year 2019 allocations. Specifically,  from fiscal years 2017 through 2018, while PWW for care provided by VA  medical centers grew over 1 percent VHA-wide, 34 medical centers  experienced growth of over 3 percent, and 9 experienced a decline of  over 3 percent. Similarly, the PWW for care in the community grew over 6  percent VHA-wide from fiscal year 2017 to fiscal year 2018, with 97  medical centers experiencing growth of over 3 percent and 25  experiencing a decline in community care of over 3 percent over this time  period.
Additionally, officials we interviewed at six VISNs told us that the models  have not accounted for recent workload growth their medical centers  were experiencing due to an increase in the number of veterans they  serve, the addition of new services, or changes in the medical centers’  reliance on community care. Two of these VISNs analyzed recent  workload trends at the medical centers within their VISN and allocated  additional funds to those medical centers with recent growth not  accounted for by MCAS. If VHA were to incorporate the most recent  available workload data into its allocation models, the need for such  funding changes would likely be reduced.

		VHA Does Not Adequately Monitor Adjustments Made to Medical Centers’ Allocated Funding Levels, and Certain Adjustments May Lead to Inefficiencies

As part of the allocation process, VISNs may make adjustments to the  amounts of general purpose funds calculated by MCAS and allocated to  medical centers. VHA guidance requires VISNs to provide a written  explanation to VHA for any adjustments. However, we found that VHA  does not adequately monitor these adjustments and that some of these  adjustments may lead to inefficiencies.

			VHA Does Not Adequately Monitor Allocation Adjustments

We found that VHA Office of Finance officials did not adequately review  the fiscal year 2019 MCAS adjustments to ensure that adjustments were  documented and fully explained. Specifically, VHA did not provide  evidence that they sought an explanation for MCAS adjustments made by  2 VISNs that provided no written explanation for their adjustments, even  though these explanations are required by VHA guidance. VHA Office of  Finance officials said they use informal methods via email to learn about  the adjustments and follow-up as needed, but could not provide  documentation that follow-up and review had occurred. Additionally, VISN  officials we interviewed from all 18 VISNs stated that they had not  received questions or other feedback from the VHA Office of Finance on  the adjustments they made, even if they had not documented and  explained the adjustments.
Furthermore, even if VISNs follow the requirement and submit written  explanations for the adjustments, they may not provide the type of  information VHA needs to adequately monitor the adjustments. This is  because VHA guidance does not require VISNs to provide information on  how they determined how much and for what reasons they are making  the adjustments. For example, we found that 6 VISNs provided limited  explanations for their fiscal year 2019 MCAS adjustments, such as stating  that they had decided to reallocate funds among medical centers to  ensure “continuity of operations,” which is insufficient information to allow  VHA to determine if the adjustments were appropriate.
Federal standards for internal control related to monitoring state that  management should establish and operate monitoring activities to monitor  the internal control system and evaluate the results. These monitoring  activities could include establishing a formal process to document VHA’s  review of VISN adjustments to medical center allocations. Additionally,  monitoring activities could include requiring VISNs to provide information  on how they determined how much and for what reasons they are making  the adjustments and then reviewing such information. As VHA evaluates  the adjustments, documenting the results of its monitoring and having the  information needed to help determine the appropriateness of the  adjustments will help VHA identify areas for improvement in the allocation  process. Without adequate monitoring, VHA cannot reasonably ensure  these adjustments are justified and align with VA’s strategic plan, which  calls for the efficient allocation of funds.

			Certain Adjustments May Lead to Inefficiencies

Based on interviews with VISN officials, we found that, in fiscal year 2019,  seven VISNs adjusted the allocations determined by MCAS to ensure that  every medical center within their VISN received either the same level of  funding or a minimum funding increase of up to 2 percent relative to the  prior year. According to VISN officials, funds were often shifted from  medical centers that had received relatively large increases in funds due  to growing workload to medical centers that had received a decrease or  relatively flat funds compared to the prior year due to either declining or  relatively flat workload. According to VISN officials, declining workload  may be the result of medical centers serving fewer patients or patients  obtaining care from community providers rather than VA providers. When  asked about these adjustments, officials at the seven VISNs stated that  they were necessary to ensure that affected medical centers could  continue to cover the costs for the services they offer and the staff they  employ, including providing federally mandated annual salary increases  for those staff. Officials from four of these VISNs stated that it is difficult  for medical centers to absorb a funding cut or only a small increase in  funding from one year to the next due to rising costs they face.
While VISNs are allowed to make adjustments to medical centers’  allocated general purpose funds, these adjustments may lead to  inefficiencies because medical centers are not required to improve  efficiency—such as, adjust the level of services they offer—to account for  their decreases in workload. Additionally, officials from VHA’s Allocation  Resource Center within the Office of Finance, which is responsible for  developing and executing VHA’s allocation models, told us that because  allocations made through MCAS are based on medical center workload,  VISNs should avoid reallocating funds so that all medical centers receive  a minimal increase. These officials said that doing so results in medical  centers failing to adjust the level of services to meet workload needs.  However, we found that for medical centers with declining workload, VHA  guidance on allocation of funds does not require VISNs—in conjunction  with these medical centers—to develop and submit approaches to  improve the efficiency of medical center operations. Such improvements  in efficiency would help lower overall costs.
As we have previously stated, VHA’s strategic plan calls for the efficient  allocation of funds. In addition, federal internal control standards related  to control activities state that management should design control activities  to achieve agency objectives. Such an activity could include having  guidance on the allocation and adjustment of funds that promotes the  efficient use of funds for delivering health care services to veterans.  Without requiring VISNs—in conjunction with medical centers—to  develop and submit an approach to change how medical centers with  decreasing workload should operate, VHA increases the risk that these  adjustments will not align with VA’s strategic plan.

	VHA Monitors the Use of Allocated Funds, but Does Not Adequately Monitor Redistribution of Funds

		VHA Monitors the Use of Allocated General Purpose and Specific Purpose Funds Using Multiple Mechanisms

Once funds are allocated and distributed to VISNs and medical centers,  VHA uses multiple mechanisms to monitor the balance of general  purpose and specific purpose funds. VA uses these mechanisms to  ensure that VISNs and medical centers operate within their allocated  funding levels and are in compliance with the Anti-Deficiency Act. VHA’s  primary monitoring mechanism is through VA’s financial management  system, which is used to track obligations and prevent VISNs and medical  centers from obligating amounts that are greater than the funds they have  available. VHA also employs additional mechanisms to monitor the use  of general and specific purpose funds. These additional mechanisms are  described below.

			General Purpose Funds

VHA’s Office of Finance requires each VISN to prepare an annual  operating plan after the initial allocation of general purpose funds for each  fiscal year that reflects the total planned obligations for the medical  centers they oversee. These operating plans describe the planned  obligation of funds throughout the fiscal year for various budget  categories, such as personnel, equipment, transportation, and supplies  and materials. VHA requires planned obligations reported in operating  plans to align with the funding levels available to each VISN, which  include allocated funds as well as anticipated collections,  reimbursements, and funds carried over from previous years. VISNs are  required to revise their operating plans during the fiscal year if major  changes are made to their available funding levels, due to, for example,  the enactment of a final appropriation bill, which results in final  allocations.
To monitor VISNs’ use of general purpose funds, VHA uses the operating  plans to compare each VISN’s planned obligations with actual obligations  on a monthly basis. VHA does not compare planned obligations with  actual obligations for each medical center individually; instead, each of  the 18 VISNs as well as the five medical centers we reviewed developed  their own tools to monitor the use of funds. According to VHA officials,  VHA requires each VISN to provide an explanation to VHA’s Office of  Finance on a monthly basis about any variances of 5 percent or more  above or below the amount between planned obligations in their  operating plans and actual obligations.
Based on VHA documents we reviewed, all 18 VISNs provided  explanations for situations in which their actual obligations were equal to,  higher, or lower than 5 percent from their planned obligations in fiscal  years 2018 and 2019 and in some cases, also explained the actions they  were planning to take to address the variance. VISNs reported several  reasons for the variances. For example, some VISNs reported that their  actual obligations exceeded planned obligations in some months because  contracts or equipment purchases were executed earlier than anticipated  in the year. Conversely, some VISNs reported that contracting delays led  to actual obligations lagging behind planned obligations reported in their  operating plans. An official from the VHA Office of Finance told us that  they may contact VISN leadership—including the Director and Chief  Financial Officer—if the variations are significant and additional actions  needed to be taken. VHA Office of Finance officials also told us that they  may review other reports if they become aware of an issue of significant interest to VHA leadership regarding a VISN’s or medical center’s  obligations.

			Specific Purpose Funds

Based on our review of VHA documents and interviews with program  office officials, VHA program offices use various monitoring processes  developed by each program office to monitor the use of specific purpose  funds. Specifically, officials from the Office of Community Care told us  that they monitor the use of community care funds by comparing actual  obligations to planned obligations based on authorized community care.  According to VHA officials, as of February 2019, VHA was in the process  of developing an updated process to monitor the use of community care  funds, which—starting in fiscal year 2019—were obligated at the time of  claim payment rather than when care in the community was authorized.  The other four VHA program offices we reviewed monitor the use of the  funds they manage by generating a monthly or quarterly budget status  report that compares each medical center’s actual obligations against  their planned obligations. For example, officials from the Office of Patient  Care Services told us that to monitor the use of funds for prosthetics, they  conduct monthly reviews of obligations and ask the VISNs and medical  centers to explain deviations between the actual and planned  expenditures and provide an action plan.

		VHA Does Not Adequately Monitor the Redistribution of Funds Throughout the VA Health Care System, Which May Promote Inefficiencies

After funds are allocated and distributed to VISNs and medical centers,  VHA can redistribute funds across the VA health care system in  accordance with law. VHA officials told us these redistributions are done  to address unfunded needs and surpluses as they are identified and  occur throughout the year. However, we found that VHA does not  adequately monitor redistributions. We identified the following instances  in which allocated funds are redistributed:
VHA officials told us that VHA’s Office of Finance redistributes any  surplus general purpose and specific purpose funds to medical  centers based on VHA priorities and to address needs identified by  VISNs. These officials said that these redistributions typically occur  after the middle of the fiscal year. As of June 2019, according to VHA  officials, one VISN had identified unfunded needs to VHA, but the  VISN was working on addressing the funding needs using its own  internal resources. Officials from another VISN told us that the VISN  anticipated unfunded needs, but had not made a request to VHA for  additional funds as of the end of May 2019.
VISNs may also exchange funds with other VISNs. For example, if a  VISN has excess medical facilities funds but a shortage of medical  services funds, the VISN may exchange these funds with another  VISN that has excess medical services funds but a shortage of  medical facilities funds. According to VHA officials, VISNs must  inform VHA about these exchanges of funds, but are not required to  provide an explanation and do not require VHA approval for the  exchanges.
VHA officials told us that VISNs also have the flexibility to redistribute  funds throughout the year from medical centers within their VISN that  are experiencing a funding surplus to ones with unfunded needs.  However, VISNs are not required to inform VHA about these  redistributions and are not required to provide an explanation or get  approval from VHA. For example, officials at one medical center told  us that in recent years, its VISN redistributed an average of $15  million per year above allocated funding levels to this medical center  to address unfunded needs.
While the redistribution of funds throughout the year gives VHA flexibility  to move funds where they are needed, VHA’s Office of Finance does not  adequately monitor these redistributions. Specifically, VHA’s Office of  Finance does not require VISNs to identify the reasons why they  redistribute funds between VISNs and medical centers, and a VHA Office  of Finance official told us VHA does not examine the amount of funds that  are redistributed. For example, VHA’s Office of Finance could not provide  us the total amount of redistributions that occurred throughout fiscal year  2018. As a result, VHA’s Office of Finance does not know why VISNs  redistributed funds and the extent to which redistributions resulted in a  deviation from VHA’s workload-based allocation levels. Monitoring the  redistributions would provide VHA with information on the effectiveness of  the allocation models and how they might be improved.
VHA’s actions are inconsistent with federal internal control standards  related to monitoring, which state that management should establish and  operate monitoring activities to monitor the internal control system and  evaluate the results. Without requiring VISNs to provide this information  and without requiring VHA to document the results of its review of the  redistributions, VHA cannot ensure that these redistributions align with  VHA’s workload-based allocation of funds. As a result, VISNs and  medical centers may not be efficiently operating within available funding  levels, which include allocated funds, collections, reimbursements, and  carry over from previous years.

	Conclusions

VA’s strategic plan calls for the efficient use of funds for delivering health  care services to veterans. Accordingly, it is critical that VHA closely  monitor and account for how its funds are allocated to VA medical centers  and redistributed throughout the year to help ensure the most efficient  use of funds. Especially as the number of veterans eligible to receive care  from a community provider potentially expands, it will be important for  VHA to ensure allocated funding levels accurately reflect individual  medical center funding needs.
However, VHA has opportunities to strengthen its processes for allocating  and monitoring funds distributed across its health care system. VHA could  improve how it allocates funds to its VISNs and medical centers if it were  to use the most up-to-date workload data available as part of its allocation  models. This would allow VHA to account for significant changes in  workload from year-to-year. VHA could also improve how it monitors  VISN adjustments to medical center allocation levels as well as  redistributions that may occur after medical centers receive their  allocations. While these adjustments and redistributions afford flexibility  and may be appropriate in certain circumstances, VHA does not have the  information it needs to monitor these changes to ensure that they are  appropriate and consistent with department goals. Specifically, VHA does  not require VISNs and medical centers to provide information on how they  determined the amount and reasons for adjustments, nor does VHA  require VISNs—in conjunction with medical centers— to develop and  submit an approach to improve efficiency at medical centers with  declining workload, such as adjusting the level of services offered.  Additionally, VHA does not require VISNs to identify the reasons why they  redistribute funds between VISNs and medical centers after allocations  have been made, and VHA does not document its review of these  redistributions. As a result, VHA lacks reasonable assurance that  adjustments and redistributions align with its strategic goals for efficient  use of funds to best serve the needs of veterans across its healthcare  system.

	Recommendations for Executive Action

We are making the following five recommendations to VHA:
The VA Under Secretary of Health should use workload data from the  most recently completed fiscal year as part of the models that inform  VISNs’ and medical centers’ general purpose funding needs, when  doing so would not significantly delay the allocation of funds.  (Recommendation 1)
The VA Under Secretary of Health should establish a formal process  to document VHA’s review of VISNs’ adjustments to medical center  allocation levels. (Recommendation 2)
The VA Under Secretary of Health should revise VHA’s existing  guidance to require VISNs to provide information on how they  determined how much and for what reasons they made adjustments  to medical center allocation levels. (Recommendation 3)
The VA Under Secretary of Health should revise its existing guidance  to require VISNs—in conjunction with medical centers—to develop  and submit approaches to improve efficiency at medical centers with  declining workload that received adjusted funding levels. These  approaches could include adjusting the level of services offered.  (Recommendation 4)
The VA Under Secretary of Health should require VISNs to provide  explanations on the amount of funds redistributed between VISNs and  medical centers and VHA to document its review of these  redistributions. (Recommendation 5)

	Agency Comments

We provided a draft of this report to VA for review and comment. In its  written comments, reprinted in appendix II, VA concurred with four  recommendations and concurred in principle with one recommendation.
VA also described steps that it plans to take to implement the  recommendations. In addition, VA provided a technical comment, which  we incorporated as appropriate.
Specifically, VA concurred with the first recommendation, stating that it  will re-run the VERA model to allocate funds based on prior year  workload data if an enacted budget is passed after the start of the second  quarter of the current fiscal year. VA also concurred with the second and  third recommendations, stating that it will update guidance to establish a  formal process to document the review of VISN adjustments to medical  center allocation levels and will require VISNs to provide information on  how they determined adjustments prior to processing the adjustments. VA  concurred in principle with the fourth recommendation, stating that VHA is  conducting market assessments over a multi-year period to increase  access and quality of care to veterans. VA said that after completing the  market assessments and reviewing information from other VHA efforts, it  may consider adjusting the level of services along with other alternatives.  VA also concurred with the fifth recommendation, stating it will require  review of redistributions between VISNs to ensure adequate explanations  are included. According to VA, the department will also run a monthly  report identifying redistributions between medical centers in a VISN that  exceed 1.5 percent of the VISN’s funding allocation.
We are sending copies of this report to the Secretary of Veterans Affairs,  appropriate congressional committees, and other interested parties. This  report is also available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or silass@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 III.

Appendix I: Methodologies Used by Four Selected Program Offices to Allocate Specific Purpose Funds

In addition to the Office of Community Care, which managed $10.5 billion,  or 46 percent, of specific purpose funds in fiscal year 2019, we contacted  four other Veterans Health Administration (VHA) program offices that  managed the largest amounts of specific purpose funds in fiscal year  2019—these included funds for patient care services, homelessness  programs, non-recurring maintenance, and medical residency programs.  These four program offices managed at least $1 billion of funds and  collectively managed about 36 percent of all specific purpose funds in  fiscal year 2019. The four program offices developed methodologies for  allocating specific purpose funds that involve coordinating with VISNs and  their medical centers on the purposes for which the funds would be used  and allocating available funds based on these needs. See table 1.

Appendix II: Comments from the Department of Veterans Affairs

Appendix III: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact named above, Rashmi Agarwal (Assistant  Director), Michael Zose (Analyst-in-Charge), and Carmen Rivera-Lowitt  made key contributions to this report. Also contributing were Krister  Friday, Cathleen Hamann, Jacquelyn Hamilton, and Ethiene Salgado- Rodriguez.

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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.
Veterans’ Health Care: VA Uses a Projection Model to Develop Most of  Its Health Care Budget Estimate to Inform the President’s Budget  Request. GAO-11-205. Washington, D.C.: January 31, 2011.
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.


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	Selected Agencies Have Scientific Integrity Policies That Are Generally Consistent with Federal Guidance

In our April 2019 report, we found that all nine of the selected agencies  have policies that are generally consistent with OSTP’s guidance for the  principles of scientific integrity that we reviewed: foundations of scientific  integrity in government and professional development of government  scientists and engineers. OSTP’s guidance describes several  components for each of these principles, which the selected agencies  addressed either (1) through their scientific integrity policies, (2) in related  policies, or (3) through related actions. For example, when addressing the  components of foundations of scientific integrity in government, NOAA’s  scientific integrity policy states that the agency will ensure the free flow of  scientific information online and in other formats, consistent with privacy  and classification standards, and in keeping with other Commerce and  NOAA policies. In another example, NASA’s scientific integrity policy  states that NASA facilitates the free flow of scientific and technological  information among scientists and engineers, between NASA staff and the  scientific and technical community, and between NASA employees and  the public. The policy goes on to cite additional NASA policies on  dissemination of information and public access to data.
Similarly, we found that all nine selected agencies addressed all of the  components of the principle professional development of government  scientists and engineers. For example, EPA’s policy states that the  agency encourages publication and presentation of research findings in  peer-reviewed, professional, or scholarly journals and at professional  meetings. NIST’s scientific integrity policy states that the agency supports  scientists’ full participation in professional or scholarly societies,  committees, task forces, and other specialized bodies of professional  societies, with proper legal review and approval. The policy goes on to  cite separate NIST guidance for staff on how to seek approval for  memberships and participation in professional organizations.

	All of the Selected Agencies Took Some Action to Achieve Policy Objectives, but Opportunities Exist for Furthering Those Objectives

We found in our April 2019 report that the nine selected agencies have  taken some actions to help achieve the objectives of their scientific  integrity policies in the three areas we reviewed—communicating  information to staff, providing oversight, and monitoring and evaluating  performance.
First, according to our analysis, seven of the nine selected agencies have  taken some actions to educate and communicate to staff about their  scientific integrity policies, and two have not. Specifically, FE and NIST  have not provided scientific integrity training for staff, according to  officials, or taken other actions to promote their scientific integrity policies  with staff. Under the 2007 America COMPETES Act, civilian agencies  that conduct scientific research are, among other things, required to  widely communicate and readily make accessible to all employees their  scientific integrity policies and procedures. According to FE and NIST  officials, the agencies made their policies available to staff on their  websites and believed no additional actions were needed. By taking  action to educate and communicate their scientific integrity policies to  staff through, for example, regular training, these agencies would have  better assurance that employees have the information, skills, and  competencies they need to help achieve agency scientific integrity  objectives. We recommended the Secretary of Energy and Director of  NIST take action to educate and communicate the agencies’ polices to  staff through, for example, regular training. In DOE’s written comments on  a draft of our report, reproduced in our final report, the department  explained that it will designate a scientific integrity official to be  responsible for leading and coordinating with other offices across DOE to  develop measures to educate and communicate to staff about scientific  integrity policies. In Commerce’s written comments, reproduced in in our  final report, NIST identified ways it plans to provide training to its staff.
Second, we found that eight of the nine selected agencies have  designated scientific integrity officials, or the equivalent, who are  responsible for overseeing the agencies’ implementation of their scientific  integrity policies. FE, which follows DOE’s policy, does not have a  scientific integrity official or the equivalent. DOE’s scientific integrity policy  states that the Secretary of Energy will designate a scientific integrity  official for the department. DOE officials explained that the scientific  integrity official has not been designated because the scientific integrity  policy was implemented in January 2017, as the administration was  changing, and that the current Secretary has not yet designated a  scientific integrity official. We recommended the Secretary of Energy  should establish steps and a time frame for designating a scientific  integrity official to oversee the department’s scientific integrity activities. In  DOE’s written comments on a draft of our report, reproduced in our final  report, the department concurred with our recommendation and estimated  that it would address the recommendation by the end of 2019.
Third, we found in our April 2019 report that four of the nine selected  agencies—ARS, EPA, NASA, and NIH—monitor and evaluate the  performance of their activities under their scientific integrity policies, or  have plans to do so. The remaining five agencies—FAA, FE, NIST,  NOAA, and USGS—have, for different reasons, not done so. Standards  for Internal Control in the Federal Government states that management  should design control activities to achieve objectives and respond to risks,  which may include establishing activities to monitor performance  measures and indicators. By establishing mechanisms to effectively  monitor the implementation of their scientific integrity policies, agencies  may be better positioned to evaluate and measure whether their scientific  integrity policies are achieving their objectives and, where necessary,  improve their implementation.
We recommended in our April 2019 report that the five agencies develop  mechanisms to regularly monitor and evaluate implementation of their  scientific integrity policies, including mechanisms to remediate identified  deficiencies and make improvements where necessary. All five agencies  agreed with our recommendation and responded as follows:  In a May 2019 letter from DOT, the department identified several  mechanisms it plans to implement by the end of March 2020.
In DOE’s written comments on a draft of our report, the department  said that its scientific integrity official will have the responsibility to  lead in developing procedures to monitor and evaluate  implementation of DOE’s policy.
In Commerce’s written comments, NIST stated that, beginning in  fiscal year 2019, the agency will review implementation of its policy at  least annually and make recommendations to the Director of NIST as  to whether any improvements are needed.
In Commerce’s written comments, NOAA stated that it will identify  additional metrics for monitoring and evaluating its policy.
The Department of the Interior’s written comments stated that the  department plans to implement a biennial scientific integrity survey of  USGS employees, beginning in 2020, to gauge scientific integrity  policy awareness and effectiveness at USGS, among other things.

	Most of the Selected Agencies Have Procedures for Addressing Alleged Violations of Scientific Integrity Policies, but Two Do Not, Raising Questions about the Consistency of Their Investigations

Seven of the nine selected agencies—ARS, EPA, FAA, NIH, NIST,  NOAA, and USGS—have specific, documented procedures for identifying  and addressing alleged violations of their scientific integrity policies.  Although the details of agencies’ procedures may vary, the procedures  generally include five basic steps: (1) report allegation, (2) screen  allegation, (3) investigate allegation, (4) respond to violation, and (5)  appeal decision (see fig. 1).
In contrast, two of the nine selected agencies—FE and NASA—do not  have specific, documented procedures for identifying and addressing  alleged violations of their scientific integrity policies. In March 2009, the  President issued a memorandum on scientific integrity that states that  each agency should have in place procedures to identify and address  instances in which the scientific process or the integrity of scientific and  technological information may be compromised. FE, which follows  DOE’s scientific integrity policy, does not have specific procedures  because DOE has not established any. DOE and FE officials said staff  can report allegations to a supervisor, the whistleblower ombudsperson,  or the U.S. Office of Special Counsel (OSC). Similarly, NASA officials  said employees can report allegations through their chain of command,  such as to a supervisor, for investigation on a case-by-case basis.  However, without documented procedures for identifying and addressing  alleged violations of their scientific integrity policies, DOE and NASA do  not have assurance that all staff have a clear understanding of how to  report allegations and that investigations will be conducted consistently.
We recommended the Secretary of Energy and Administrator of NASA  develop documented procedures for identifying and addressing alleged  violations of their scientific integrity policies. In DOE’s written comments  on a draft of our report, the department stated that it will be the  responsibility of the scientific integrity official to lead, and coordinate with  other elements of the department, in developing procedures for identifying  and addressing alleged violations of its scientific integrity policy and  estimated completing actions in June 2020. In written comments from  NASA, the agency stated that it will develop documented procedures for  identifying and addressing alleged violations of its policy and estimated  completion by October 2020.
Chairwoman Stevens and Chairwoman Sherrill, Ranking Member Baird  and Ranking Member Norman, and Members of the Subcommittees, this  concludes my prepared statement. I would be pleased to respond to any  questions that you may have at this time.

	GAO Contact and Staff Acknowledgments

If you or your staff have any questions about this statement, please  contact John Neumann, Managing Director, Science, Technology  Assessment, and Analytics, at (202) 512-6888 or neumannj@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this statement. GAO staff who  made key contributions to this testimony are Rob Marek (Assistant  Director), Wyatt R. Hundrup (Analyst in Charge), Cheryl Harris, and  Douglas G. Hunker. Also contributing to this testimony were Eric Charles  and Ben Shouse. Additional staff who made contributions to our April  2019 report are identified in that report.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.


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	Background

		FEMA’s Public Assistance Program

FEMA’s Public Assistance program provides grant funding to state,  territorial, local, and tribal governments as well as certain types of private  nonprofit organizations to assist with responding to and recovering from  presidentially-declared major disasters or emergencies. As shown in  figure 3, Public Assistance grant funds are categorized broadly as  “emergency work” or “permanent work.” Within these broad categories  are separate subcategories. In addition to the emergency work and  permanent work categories, the program includes category Z, which  represents indirect costs, direct administrative costs, and any other  administrative expenses associated with a specific project.
FEMA’s Public Assistance program also provides grant funding for cost- effective hazard mitigation measures to reduce or eliminate the long-term  risk to people and property from future natural and man-made disasters  and their effects. For example, a community that had a fire station  damaged by a disaster could use Public Assistance grant funding to  repair the facility and incorporate additional measures such as installing  hurricane shutters over the windows to mitigate the potential for future  damage.
FEMA, the state or territorial government (the recipient), and local or  territorial entities (the subrecipient) work together to develop projects  under the Public Assistance program. After a project has completed  FEMA’s review process and is approved, FEMA obligates funding for the  project by placing money into an account where the recipient has the  authority to draw down—or withdraw—funding to pay the subrecipient for  eligible work upon completion.

		The Public Assistance Alternative Procedures Program in Puerto Rico and the USVI

The Sandy Recovery Improvement Act of 2013 authorized the use of  alternative procedures in administering the Public Assistance program,  thereby providing new flexibilities to FEMA, states, territories, and local  governments for debris removal, infrastructure repair, and rebuilding  projects using funds from this program. Unlike in the standard Public  Assistance program where FEMA will fund the actual cost of a project, the  Public Assistance alternative procedures allow awards for permanent  work projects to be made on the basis of fixed-cost estimates to provide  financial incentives for the timely and cost-effective completion of work.
Under these procedures, if the actual cost of the project exceeds the  fixed-cost estimate agreed upon by FEMA and the recipient, the recipient  or subrecipient is responsible for the additional costs at the time of the  close-out process. However, if the actual cost of completing eligible work  for a project is below the estimate, the recipient may use the remaining  funds for additional cost-effective hazard mitigation measures to increase  the resilience of public infrastructure. In addition, these funds may also be  used for activities that improve the recipient’s or subrecipient’s future  Public Assistance operations or planning.
In October 2017, Puerto Rico requested, and FEMA approved, the use of  the alternative procedures program for all large-project funding for Public  Assistance permanent work projects in categories C through G.  Although FEMA had approved alternative procedure grants in 30 states  as of April 2018, in these cases, alternative procedures were used on a  project-by-project basis. Puerto Rico’s recovery from the 2017 hurricanes  is the first recovery to use alternative procedures for all large permanent  work projects. In addition, in July 2018, FEMA approved a request from  the Governor of the USVI to transition to using the Public Assistance  alternative procedures program for permanent work in the territory. Unlike  in Puerto Rico, the USVI may pursue the alternative procedures on a  project-by-project basis.

	FEMA Had Obligated $5.6 Billion and $1.8 Billion in Public Assistance Grant Funding in Puerto Rico and the USVI, Respectively, as of April 2019

As of April 2019, FEMA had obligated a total of about $7.4 billion in grant  funds for Public Assistance projects in both Puerto Rico and the USVI.  Specifically, as shown in figure 4, FEMA obligated approximately $5.6  billion for 1,264 Public Assistance projects in Puerto Rico, including  approximately $5.1 billion (90 percent) for emergency work (categories A  and B) and $377.7 million (7 percent) for permanent work in categories C  through G).
Puerto Rico had expended approximately $3.5 billion—about 61 percent  of total Public Assistance grant obligations in Puerto Rico—as of April  2019. Ninety-six percent of the expended amount went toward  emergency work projects in categories A and B while just over one  percent went toward permanent work projects. The majority of FEMA’s  obligations and the funding Puerto Rico expended as of April 2019 are for  emergency work because these projects began soon after the disasters  struck and focused on debris removal and providing assistance to  address immediate threats to life and property. In contrast, permanent  work projects take time to identify, develop, and ultimately complete as  they represent the longer-term repair and restoration of public  infrastructure.
In the USVI, FEMA had obligated approximately $1.8 billion for 583 Public  Assistance projects across the territory, as of April 2019. Similar to Public  Assistance grant funding in Puerto Rico, the majority of funding FEMA  obligated and the USVI expended was in emergency work categories A  and B. Specifically, FEMA obligated approximately $1.1 billion (63  percent) for emergency work (categories A and B) and $587.3 million (33  percent) for permanent work (categories C through G) in the territory (see  fig. 5).
Of the $1.8 billion FEMA obligated for Public Assistance projects, the  USVI had expended approximately $982.4 million as of April 2019.  Specifically, the USVI had expended about $808.1 million (82 percent) for  emergency work projects in categories A and B and $163.1 million (17  percent) for permanent work projects in categories C through G.
Emergency work. As of April 2019, FEMA had obligated a total of  approximately $6.2 billion for emergency work projects in Puerto Rico and  the USVI—including about $5.1 billion in Puerto Rico and $1.1 billion in  the USVI. These projects focused on debris removal activities and  providing assistance to address immediate threats to life and property.  For example, as of April 2019, FEMA had obligated $138.9 million for  projects focused on debris removal activities in the USVI under category  A. This included $45.9 million to the USVI Department of Public Works for  USVI-wide debris removal efforts and $39.1 million to the USVI Water  and Power Authority for these activities in St. Croix (see fig. 6).
In another example, FEMA obligated more than $140.0 million to the  Puerto Rico Aqueducts and Sewer Authority under category B to fund  emergency protective measures, including using back-up generators to  supply water to the island after Hurricane Maria, among other things.
Further, as of April 2019, FEMA had obligated $1.1 billion in Puerto Rico  and $278 million in the USVI to fund the Sheltering and Temporary  Essential Power pilot program. This program, which is implemented as a  subprogram under Public Assistance program category B, is intended to  provide essential repairs or restore power to private residences to allow  affected individuals to return or remain in their homes, thereby reducing  the demand for other shelter options. We are continuing to assess this  program as part of our ongoing work on recovery efforts in the USVI.
Permanent work. As of April 2019, FEMA had obligated approximately  $965.0 million for permanent work projects in Puerto Rico and the USVI— including about $377.7 million in Puerto Rico and $587.3 million in the  USVI. These projects focused on the restoration of disaster-damaged  infrastructure or systems. For example, under category C, FEMA  obligated $137.6 million for projects in Puerto Rico focused on the  permanent repair of roads and bridges, such as the severely damaged  road shown in figure 7 below.
In addition, under category E, FEMA obligated $39.2 million and $67.7  million for projects in Puerto Rico and the USVI, respectively, focused on  repairing and rebuilding damaged public buildings and equipment, such  as the schools shown in figure 8 below.
Further, under category F, FEMA obligated $504.9 million for projects in  the USVI to repair damaged utilities. Specifically, FEMA obligated $481.8  million—or 95 percent of this total—through the standard Public  Assistance program for projects focused on territory-wide permanent  electrical distribution system repairs. This includes replacing damaged  wooden utility poles with more resilient composite fiberglass poles that  can withstand 200 mile per hour winds as well as power transmission  lines and transformers (see fig. 9).

	Puerto Rico and the USVI Have Established Recovery Offices to Oversee and Monitor Recovery Efforts

As the recipients of federal disaster funding, Puerto Rico and the USVI  are responsible for monitoring and overseeing the Public Assistance  program to ensure it is implemented in compliance with applicable laws,  regulations, and requirements as well as FEMA policies and guidance. To  address these responsibilities, Puerto Rico and the USVI established  recovery offices to manage recovery activities and funding, including  through the Public Assistance program.

		Puerto Rico’s Central Office for Recovery, Reconstruction, and Resilience Has Developed Internal Controls to Oversee Recovery Funds

In March 2019, we reported that Puerto Rico, in accordance with  Amendment 5 to the President’s disaster declaration, established the  Central Office for Recovery, Reconstruction, and Resilience (COR3) to  oversee federal recovery funds. We also reported that COR3 was  developing an internal controls plan to help ensure better management  and accountability of the funds. According to FEMA officials, FEMA  instituted a manual reimbursement process due to Puerto Rico’s financial  situation, weaknesses in internal controls, and the large amount of  recovery funds, among other things, to mitigate risk and help ensure  financial accountability. However, from our ongoing work on Puerto Rico’s  disaster recovery efforts, we have learned that, on April 1, 2019, FEMA  removed the manual reimbursement process and began a transition to  allow the central recovery office to take responsibility for the review and  reimbursement approval of federal recovery funds.
We have also learned from our ongoing work that, in March 2019, COR3  released the Disaster Recovery Federal Funds Management Guide.  Among other things, the guide outlines COR3’s roles and responsibilities  and the internal controls COR3 put in place to oversee the recovery. For  example, COR3 will identify, procure, and administer all federal, territorial,  and private resources available to Puerto Rico related to recovery. In  addition, it will provide oversight of subrecipients using risk-based  monitoring, offer technical assistance, and advise Puerto Rico’s  governmental agencies and municipalities regarding any matter related to  recovery. COR3 continues to update its online transparency portal  intended to provide a breakdown of FEMA Public Assistance and other  federal funding obligated for disaster recovery in Puerto Rico.

		The USVI Established the Office of Disaster Recovery to Monitor and Oversee Recovery Efforts

According to our preliminary observations, in February 2019, the USVI  established the new Office of Disaster Recovery. This office serves as the  primary territorial agency responsible for overseeing all disaster recovery  efforts and funding in the territory, and coordinates across all USVI  governmental agencies and other pertinent entities. According to USVI officials, following the 2017 hurricanes, key USVI agencies did not have  enough employees with the knowledge and expertise necessary to staff  recovery-related positions and effectively manage the implementation of  recovery efforts. To address this challenge in the short-term, the USVI  government hired two contractors in December 2017—Witt O’Brien’s,  LLC and Ernst & Young Puerto Rico, LLC—to assist the territory in  planning, developing, implementing, and overseeing Public Assistance  program projects, among other responsibilities. The Director of the Office  of Disaster Recovery told us that while contractor personnel had been  valuable in augmenting the USVI’s management capacity in the short  term, the territory’s longer-term vision included the establishment of the  Office of Disaster Recovery to centrally manage all aspects of federal  recovery in the territory.
Among other things, the Office of Disaster Recovery is responsible for  taking on the USVI’s monitoring and oversight responsibilities for the  Public Assistance program in the long term. This includes tracking and  reporting on the progress of projects and overseeing reimbursement  requests for completed work to ensure compliance with applicable laws  and FEMA policies. As of March 2019, the Director of the Office of  Disaster Recovery told us the priority is to quickly hire and train qualified  individuals to staff the new agency. FEMA officials in the USVI stated that  the establishment of the Office of Disaster Recovery and the USVI’s  ongoing efforts to hire local residents into recovery-related positions  represented a positive step forward in increasing the territory’s capacity to  oversee recovery efforts. We will continue to review the monitoring and  oversight of recovery efforts in Puerto Rico and the USVI in our ongoing  work.

	Public Assistance Challenges Remain in Puerto Rico and USVI, However FEMA has Taken Some Actions to Improve Program Implementation

Our prior and ongoing work highlight the challenges with implementing  the Public Assistance program—and the alternative procedures—in  Puerto Rico and the USVI. In particular, our prior and ongoing work have  identified challenges related to (1) the clarity of FEMA’s guidance for the  Public Assistance program, (2) the time and resources needed to  transition to FEMA’s new Public Assistance program delivery model in  Puerto Rico, (3) the implementation of flexibilities provided by the  Bipartisan Budget Act of 2018, and (4) developing fixed-cost estimates.  FEMA has taken some actions, including issuing additional guidance and  developing specific training, among other things, to improve Public  Assistance implementation in Puerto Rico and the USVI. However, it is  too soon to assess their effectiveness in addressing these issues.
Clarity of Guidance. In March 2019, we reported that officials from  FEMA, COR3, and municipalities said they experienced initial challenges  with the recovery process, including concerns about lack of experience  and knowledge of the alternative procedures; and concerns about  missing, incomplete, or conflicting guidance from FEMA on the alternative  procedures. In addition, in our June 2019 testimony statement we  continued to report on these challenges and preliminary observations  from our ongoing work indicate that these challenges continue. For  example, officials from Puerto Rico’s government agencies told us they  did not feel they had sufficient guidance on the FEMA Public Assistance  program and where they did, written and verbal FEMA guidance was  inconsistent or conflicting. For instance, officials from one agency  expressed their desire for more FEMA guidance communicated in writing  as FEMA officials would frequently interpret existing guidance differently.  Similarly, officials from two agencies described situations where they had  initially been directed to follow one interpretation of a policy, only to be  directed to follow a different, conflicting interpretation in the subsequent  months. Puerto Rico agency officials also stated that the lack of sufficient  instruction led to a “back and forth” with FEMA for clarifications, which led  to delays in the phases of project development. For example, officials  from one Puerto Rico government agency stated that conflicting verbal  instructions from several FEMA officials contributed to delays in opening  the bidding process for recovery-related contracts. FEMA officials in  Puerto Rico stated that the agency has developed specific guidance for  disaster recovery in Puerto Rico and that there are various ways, such as  in-person meetings, where officials from Puerto Rico can obtain  clarification. FEMA officials also reported that they developed additional  training for new FEMA employees. We are continuing to examine this  issue as part of our ongoing review of Puerto Rico’s recovery.
FEMA’s new delivery model in Puerto Rico. In May 2019, FEMA’s  Federal Disaster Recovery Coordinator for Puerto Rico announced that  FEMA was transitioning to using the new Public Assistance program  delivery model in Puerto Rico beginning on June 3, 2019. Among other  things, the implementation of the new delivery model establishes a new  Consolidated Resource Center in Puerto Rico to support grant  development for disaster recovery across all recovery sectors and  geographic branches. Following the hurricanes, FEMA implemented a  program delivery model developed specifically for Puerto Rico which  included, among other things, a sector-based approach which  coordinated recovery resources across the federal interagency, private  sector, and nongovernmental organizations to identify and complete  proposed work. According to FEMA officials, the decision to transition  from the initial delivery model to the new delivery model in Puerto Rico  was due to improvements made since its nationwide deployment in 2017.  In response, COR3 officials raised concerns about the scope of the  changes and potential challenges with the amount of time and resources  needed to transition to the new delivery model.
The Bipartisan Budget Act of 2018. We reported in June 2019 that in  both Puerto Rico and the USVI, FEMA and local officials have reported  challenges with the implementation of the flexibilities authorized by  section 20601 of the Bipartisan Budget Act. This section of the Act  allows for the provision of assistance under the Public Assistance  alternative procedures to restore disaster-damaged facilities or systems  that provide critical services—such as medical and educational facilities— to an industry standard without regard to pre-disaster condition. Officials from Puerto Rico’s central government stated that they disagreed with  FEMA’s interpretation of the types of damages covered by section 20601  of the Bipartisan Budget Act of 2018. In response, FEMA officials in  Puerto Rico stated they held several briefings with Puerto Rico’s central  recovery office to explain FEMA’s interpretation of the section. In  addition, FEMA officials in the USVI told us that initially, they had difficulty  obtaining clarification from FEMA headquarters regarding how to  implement key components of section 20601 of the Act. Further, USVI  officials stated that at times, the appropriate process for implementing  components of the Act was not clear and that ensuring program  participants understood its key components was difficult. However, FEMA  officials in the USVI stated that they continue to move forward with  developing alternative procedures projects. USVI officials also told us that  FEMA had been responsive and helpful in identifying its options for using  the new flexibilities the Act provides.
Developing Fixed-Cost Estimates. Preliminary observations from our  ongoing work indicate that as of May 2019, FEMA had obligated funding  for four alternative procedures program projects in Puerto Rico and two  projects in the USVI. FEMA officials in Puerto Rico and the USVI stated  that the ongoing development of a “cost factor” for use in the fixed-cost  estimating process has slowed the pace of FEMA obligations for  permanent work projects. Specifically, these factors are intended to  ensure that the costs associated with implementing projects in Puerto  Rico and the USVI are sufficiently captured when developing the fixed- cost estimates for alternative procedures projects. Since incorporating the  cost factor into the fixed-cost estimating process will increase the amount  of funding obligated for any given permanent work project, FEMA officials  explained that Puerto Rico and the USVI have an incentive to delay the  obligation of individual projects until this factor is finalized. For example,  FEMA officials in the USVI told us in May 2019 that obligations for  permanent work projects in the territory were mostly on hold until the  USVI-specific cost factor was finalized. As of June 2019, the cost factors  for use in both Puerto Rico and the USVI had not yet been finalized.
According to FEMA guidance, the Puerto Rico-specific cost factor is being  developed by a third-party center of excellence comprising personnel  selected by FEMA and Puerto Rico, through COR3. In March 2019, we  reported that while FEMA had identified and chosen personnel, COR3  had not yet finalized its hiring of personnel to staff the center of  excellence, which resulted in delaying the cost estimation process.  Through our ongoing work we learned that, as of June 2019, COR3 had  identified and hired personnel to staff the center; however, FEMA and  COR3 have not come to agreement on a cost estimation approach.  Further, according to FEMA officials, no timeline has been established for  the completion of the center of excellence’s standard operating  procedures for developing fixed-cost estimates for permanent work  projects in Puerto Rico.
In addition, according to FEMA officials, the USVI-specific factor is being  developed by an independent contractor. FEMA officials told us that  territorial officials disagreed with the initial cost factors this contractor  proposed and contended the factors were insufficient in accurately  capturing the unique circumstances that influence construction costs in  the territory, such as the limited availability of local resources and the  need to import materials and labor. As of June 2019, these officials told  us the contractor was developing a third and final cost factor for potential  incorporation into the fixed-cost estimation process in the USVI. Despite  these delays, FEMA officials in the USVI stated that they continue to work  with territorial officials to develop alternative procedures projects in the  territory. They added that once the cost factor is finalized and  incorporated into FEMA’s fixed-cost estimating process, FEMA and the  USVI will be well positioned to quickly finalize these projects and obligate  funding. However, we reported in June 2019 that the territory plans to  take a cautious approach in pursuing permanent work projects using the  Public Assistance alternative procedures program. Specifically, USVI  officials we interviewed told us that developing fixed-cost estimates for  alternative procedures projects that accurately incorporate the future  impact of inflation and increases in materials and labor costs for certain  projects was difficult. Further, these officials stated that since the territory  is financially responsible for any costs that exceed these fixed-cost  estimates, the USVI plans to pursue alternative procedures projects that  do not include high levels of complexity or uncertainty to reduce the risk  of cost overruns, especially given its already difficult financial situation.
As established in FEMA guidance, Puerto Rico’s deadline for finalizing  fixed-cost estimates for permanent work projects using the alternative  procedures—and the Bipartisan Budget Act, as applicable—is October  2019. Since Puerto Rico must use the alternative procedures for all  large permanent work, all fixed-cost estimates for Public Assistance  program permanent work projects in Puerto Rico must be finalized by this  date, or, according to FEMA officials, Puerto Rico must request that  FEMA extend this deadline on a project-by-project basis. In contrast, the  USVI has the flexibility to pursue either the alternative procedures or the  standard procedures on a project-by-project basis. As the USVI’s  deadline for finalizing these projects is in March 2020, it is too early  gauge the extent to which the alternative procedures will play a role in the  USVI’s long-term recovery strategy.
We will continue to evaluate these identified challenges and any efforts to  address them, as well as other aspects of recovery efforts in the USVI  and Puerto Rico, and plan to report our findings in late 2019 and early  2020, respectively.
Thank you, Chairman Payne, Ranking Member King, and Members of the  Subcommittee. This concludes my prepared statement. I would be happy  to respond to any question you may have at this time.

	GAO Contact and Staff Acknowledgments

If you or your staff has any questions concerning this testimony, please  contact Christopher P. Currie at (404) 679-1875 or curriec@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this statement. Key contributors  to this statement were Joel Aldape (Assistant Director), Bryan Bourgault,  Aaron Gluck, Taylor Hadfield, Brian Lipman, and Amanda Prichard. In  addition, Eric Hauswirth, Susan Hsu, Tracey King, Taylor Matheson,  Amanda Miller, Heidi Nielson, and Kevin Reeves made contributions to  this statement. Key contributors for the previous work on which this  statement is based are listed in each product.

Appendix I: GAO Products Previously Issued on Emergency Management

2017 Disaster Relief Oversight: Strategy Needed to Ensure Agencies’  Internal Control Plans Provide Sufficient Information. GAO-19-479  (Washington, D.C.: June 28, 2019).
Emergency Management: FEMA Has Made Progress, but Challenges  and Future Risks Highlight Imperative for Further Improvements,  GAO-19-617T (Washington, D.C.: June 25, 2019).
Emergency Management: FEMA Has Made Progress, but Challenges  and Future Risks Highlight the Imperative for Further Improvements,  GAO-19-594T (Washington, D.C.: June 12, 2019).
Disaster Assistance: FEMA Action Needed to Better Support Individuals  Who Are Older or Have Disabilities. GAO-19-318 (Washington, D.C.: May  14, 2019).
Disaster Contracting: Actions Needed to Improve the Use of Post- Disaster Contracts to Support Response and Recovery. GAO-19-281  (Washington, D.C.: April 24, 2019).  2017 Hurricane Season: Federal Support for Electricity Grid Restoration  in the U.S. Virgin Islands and Puerto Rico. GAO-19-296 (Washington,  D.C.: April 18, 2019).
FEMA Grants Modernization: Improvements Needed to Strengthen  Program Management and Cybersecurity. GAO-19-164 (Washington,  D.C.: April 9, 2019).
Disaster Recovery: Better Monitoring of Block Grant Funds Is Needed.  GAO-19-232 (Washington, D.C.: March 25, 2019).
Puerto Rico Hurricanes: Status of FEMA Funding, Oversight, and  Recovery Challenges. GAO-19-256 (Washington, D.C.: March 14, 2019).
Huracanes de Puerto Rico: Estado de Financiamiento de FEMA,  Supervisión y Desafíos de Recuperación. GAO-19-331 (Washington,  D.C.: March 14, 2019).
High-Risk Series: Substantial Efforts Needed to Achieve Greater  Progress on High-Risk Areas. GAO-19-157SP (Washington, D.C.: March  6, 2019).
U.S. Virgin Islands Recovery: Status of FEMA Public Assistance Funding  and Implementation. GAO-19-253 (Washington, D.C.: February 25,  2019).  2017 Disaster Contracting: Action Needed to Better Ensure More  Effective Use and Management of Advance Contracts. GAO-19-93  (Washington, D.C.: December 6, 2018).
Continuity of Operations: Actions Needed to Strengthen FEMA’s  Oversight and Coordination of Executive Branch Readiness.  GAO-19-18SU (Washington, D.C.: November 26, 2018).
Homeland Security Grant Program: Additional Actions Could Further  Enhance FEMA’s Risk-Based Grant Assessment Model. GAO-18-354  (Washington, D.C.: September 6, 2018).  2017 Hurricanes and Wildfires: Initial Observations on the Federal  Response and Key Recovery Challenges. GAO-18-472 (Washington,  D.C.: September 4, 2018).
Federal Disaster Assistance: Individual Assistance Requests Often  Granted but FEMA Could Better Document Factors Considered.  GAO-18-366 (Washington, D.C.: May 31, 2018).  2017 Disaster Contracting: Observations on Federal Contracting for  Response and Recovery Efforts. GAO-18-335 (Washington, D.C.:  February 28, 2018).
Disaster Recovery: Additional Actions Would Improve Data Quality and  Timeliness of FEMA’s Public Assistance Appeals Processing.  GAO-18-143 (Washington, D.C.: December 15, 2017).
Disaster Assistance: Opportunities to Enhance Implementation of the  Redesigned Public Assistance Grant Program. GAO-18-30 (Washington,  D.C.: November 8, 2017).
Climate Change: Information on Potential Economic Effects Could Help  Guide Federal Efforts to Reduce Fiscal Exposure. GAO-17-720  (Washington, D.C.: September 28, 2017).
Federal Disaster Assistance: Federal Departments and Agencies  Obligated at Least $277.6 Billion during Fiscal Years 2005 through 2014.  GAO-16-797 (Washington, D.C.: September 22, 2016).
Disaster Recovery: FEMA Needs to Assess Its Effectiveness in  Implementing the National Disaster Recovery Framework. GAO-16-476  (Washington, D.C.: May 26, 2016).
Disaster Response: FEMA Has Made Progress Implementing Key  Programs, but Opportunities for Improvement Exist. GAO-16-87  (Washington, D.C.: February 5, 2016).
Hurricane Sandy: An Investment Strategy Could Help the Federal  Government Enhance National Resilience for Future Disasters.  GAO-15-515 (Washington, D.C.: July 30, 2015).
Budgeting for Disasters: Approaches to Budgeting for Disasters in  Selected States. GAO-15-424 (Washington, D.C.: March 26, 2015).
High-Risk Series: An Update. GAO-15-290 (Washington, D.C.: February  11, 2015).
Emergency Preparedness: Opportunities Exist to Strengthen Interagency  Assessments and Accountability for Closing Capability Gaps. GAO-15-20  (Washington, D.C.: December 4, 2014).
Fiscal Exposures: Improving Cost Recognition in the Federal Budget.  GAO-14-28 (Washington, D.C.: October 29, 2013).
Federal Disaster Assistance: Improved Criteria Needed to Assess a  Jurisdiction’s Capability to Respond and Recover on Its Own.  GAO-12-838 (Washington, D.C.: September 12, 2012).
Opportunities to Reduce Potential Duplication in Government Programs,  Save Tax Dollars, and Enhance Revenue. GAO-11-318SP (Washington,  D.C.: March 1, 2011).

Appendix II: Ongoing GAO Reviews on Emergency Management

1.  Review of U.S. Virgin Islands recovery planning and progress;  2.  Puerto Rico disaster recovery planning and progress;  3.  2017 wildfire response and recovery;  4.  Puerto Rico electricity grid recovery after the 2017 hurricane season;  5.  Mass care sheltering and feeding challenges during the 2017  6.  Department of Transportation highway and transit emergency relief  7.  Drinking water and wastewater utility resilience;  8.  Review of disaster death count information in selected states and  9.  Department of Health and Human Services disaster response efforts;  10. Disaster and climate change impacts on Superfund sites;  11. FEMA Public Assistance program fraud risk management efforts;  12. Wildland fire fuel reduction efforts;  13. Preparedness challenges and lessons learned from the 2017  14. FEMA workforce management and challenges;  15. Small Business Administration response to 2017 disasters;  16. Development of the GAO disaster resilience framework;  17. FEMA Individuals and Households Program operations and  18. National Flood Insurance Program post-flood enforcement;  19. Emergency alerting capabilities and progress;  20. National Flood Insurance Program buyouts and property acquisitions;  21. Economic costs of large-scale natural disasters and impacts on  22. Community Development Block Grants – disaster recovery; and  23. Disaster Housing Assistance Program.
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