Armed Forces Retirement Home: Congress and Agency Management Should Take Actions to Improve Financial Sustainability
Fast Facts
The Armed Forces Retirement Home is an independent federal entity that provides housing, health care, and other services to certain retired and disabled military personnel.
AFRH faces serious financial challenges as revenues decrease and costs increase over time. The trust fund that finances AFRH's operations is at risk of being exhausted in 20 years. AFRH has some proposals to address these challenges, but it needs help from Congress to implement them.
Congress should consider taking action to address AFRH's financial shortfalls. We also made 7 recommendations to AFRH, including that it develop more detailed plans for its proposals.
AFRH staff member assisting a resident at the Gulfport, MS facility
Highlights
What GAO Found
The Armed Forces Retirement Home (AFRH) prepares at least four financial projections yearly for varying purposes. However, GAO found that AFRH's processes for preparing these projections do not conform to actuarial standards and practices. Specifically, AFRH used inaccurate and inconsistent data, did not have sufficient supporting information for its assumptions of future events and values, and did not make trust fund projections based on reasonable assumptions of expected occupancy levels. Without policies and procedures for preparing financial projections to help ensure staff consistently apply relevant standards and consult with appropriate experts, such as actuaries, AFRH increases the risk that its projections will not be useful for decision-making.
AFRH has identified several proposals to generate revenue and address potential financial shortfalls. However, challenges affect its plans to implement them, including factors outside of AFRH's control. AFRH's planned proposals include a statutory increase in military withholdings, requiring all military service members who are currently eligible for AFRH residency to contribute, and obtaining health and medical care reimbursements from programs such as TRICARE and Medicare for services it provides. However, these proposals require actions from Congress for AFRH to effectively implement them.
GAO developed projections of AFRH's trust fund balance through fiscal year 2042 under two scenarios: AFRH continuing to operate as-is and AFRH operating with all quantifiable proposals implemented. GAO's analysis shows that whether AFRH continues to operate under its current scenario or implements all proposals, the trust fund will likely continue to decline without other significant efforts to bolster it (see figure). Additionally, AFRH is not projected to meet its goal for the trust fund balance.
GAO Projection of Armed Forces Retirement Home's Trust Fund Balance
AFRH has not achieved its goals to raise its declining occupancy or to implement its other proposals. Also, AFRH faces further financial risks from costly repairs to deteriorating facilities. AFRH has not developed plans to address these issues. Without further actions, AFRH may continue to face financial shortfalls that in the future could affect its ability to fulfill its mission.
Why GAO Did This Study
AFRH is an independent entity within the executive branch designed to provide housing, health care, and well-being assistance to eligible veterans. AFRH is financed through a dedicated trust fund. However, certain revenue sources for its funding have decreased or remained static over time while costs have increased. To address its financial challenges without cutting services to residents, AFRH has worked to identify new revenue sources to help rebuild its trust fund balance.
House Report 117-397 includes a provision for GAO to review the financial sustainability of AFRH. GAO examined the extent to which AFRH projected estimated revenues and expenses for its trust fund through 2042, and developed plans to address any potential financing shortfalls, among other objectives.
GAO reviewed relevant laws, federal guidance, audit reports, and agency guidance and policies; interviewed agency officials and actuarial experts; conducted site visits; and developed a projection to analyze AFRH's financial position.
Recommendations
Congress should consider taking action to address AFRH's financial shortfalls and may wish to consider actions proposed by AFRH management. GAO is also making seven recommendations to AFRH, including that it develop policies for financial projections and plans for revenue-generating proposals. AFRH agreed with four recommendations, partially agreed with one, and did not agree with two. GAO believes all recommendations are warranted.
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
Congress should consider taking action to address AFRH's financial shortfalls. This could include consideration of some level of continued General Fund transfers and the following proposals by AFRH management:
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As of March 2024, no action has been taken to address Armed Forces Retirement Home's financial shortfalls. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Armed Forces Retirement Home | AFRH's Chief Operating Officer should develop and implement policies and procedures for preparing financial projections, including consistent application of relevant standards and inclusion of individuals with the appropriate expertise, such as an actuary. (Recommendation 1) |
In comments on our draft report, the Armed Forces Retirement Home (AFRH) and DOD concurred with this recommendation. The AFRH and DOD stated that AFRH's financial management policies and procedures were being updated and AFRH will consult with the DOD Office of the Actuary to determine what expertise may be available to AFRH and the relevant financial models that may apply. We will continue to monitor AFRH's efforts to address this recommendation.
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| Armed Forces Retirement Home | AFRH's Chief Operating Officer, in coordination with the Secretary of Defense, should take steps to ensure that AFRH has an oversight body with the responsibilities and qualifications outlined in federal internal control standards, and consider whether the advisory council could be structured in a way to serve this role. (Recommendation 2) |
In comments on our draft report, the Armed Forces Retirement Home (AFRH) and DOD did not concur with this recommendation. However, in its comments, AFRH and DOD stated that various actions are being taken that seem to address parts of this recommendation. For example, the response noted that DOD is updating policy and guidance on AFRH oversight roles and responsibilities. The response also stated that AFRH has abundant oversight and control mechanisms and cited various congressional committees, OMB, and the Office of the Secretary of Defense, among others. Federal internal control standards states that federal government organizations may have key stakeholders for an entity, such as the White House and OMB. However, the roles and responsibilities of an oversight body differ from those of key stakeholders. The oversight body works with these key stakeholders to understand their expectations and help the federal entity fulfill these expectations if appropriate. The overall intent of this recommendation is to ensure that AFRH has an appropriately structured oversight body for its internal control system, and that the designated oversight body has documented roles and responsibilities to effectively oversee AFRH's development and performance of control activities. We continue to believe that this recommendations is warranted and will continue to follow-up with AFRH about efforts to address this recommendation.
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| Armed Forces Retirement Home | AFRH's Chief Operating Officer should develop a written plan for managing occupancy levels at both campuses that is consistent with management's goal and industry standards. (Recommendation 3) |
In comments on our draft report, the Armed Forces Retirement Home (AFRH) and DOD partially concurred with this recommendation and stated that goals and initiatives were laid out regarding occupancy in AFRH's strategic plans, budget submissions, and other documents. However, neither the strategic plan nor AFRH's budget submissions include detailed written plans for how it intends to execute initiatives to achieve its objectives and goals. Therefore, we continue to believe our recommendation is warranted and will follow-up with AFRH about efforts to address this recommendation.
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| Armed Forces Retirement Home | AFRH's Chief Operating Officer should develop and implement policies and procedures for estimating deferred maintenance costs and reporting fiscal exposures for all of its facilities. (Recommendation 4) |
In comments on our draft report, the Armed Forces Retirement Home (AFRH) and DOD concurred with this recommendation and stated that AFRH was updating its financial management policies and procedures and will review and update as appropriate its facility management and investment review policies and procedures with completion expected date of February 2024. We will continue to monitor AFRH's efforts to address this recommendation.
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| Armed Forces Retirement Home | AFRH's Chief Operating Officer should update its financial management policy to include specific implementing guidance (SOPs) for staff performing the daily procedures related to the financial management of its trust fund, and to reflect current processes. (Recommendation 5) |
In comments on our draft report, the Armed Forces Retirement Home (AFRH) and DOD concurred with this recommendation and stated that AFRH's financial management policies and procedures were being updated with completion dates expected between November 2023 and February 2024. We will continue to monitor AFRH's efforts to address this recommendation.
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| Armed Forces Retirement Home | AFRH's Chief Operating Officer should develop and document a process to periodically review existing financial management policies and procedures to ensure that they remain up to date. (Recommendation 6) |
In comments on our draft report, the Armed Forces Retirement Home (AFRH) and DOD concurred with this recommendation and stated that AFRH's financial management policies and procedures were being updated with completion dates expected between November 2023 and February 2024. We will continue to monitor AFRH's efforts to address this recommendation.
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| Armed Forces Retirement Home | AFRH's Chief Operating Officer, in coordination with the Secretary of Defense, should document, in a charter or other document, expected tasks for an oversight body as outlined in federal internal control standards. Such tasks should include providing oversight to AFRH management in developing and performing control activities and periodically updating policies and procedures as necessary. (Recommendation 7) |
In comments on our draft report, the Armed Forces Retirement Home (AFRH) and DOD did not concur with this recommendation. However, in its comments, AFRH and DOD stated that various actions are being taken that seem to address parts of this recommendation. For example, the response noted that DOD had issued a Federal Register notice to reestablish the AFRH Advisory Council with an approved charter and is updating policy and guidance on AFRH oversight roles and responsibilities. The overall intent of this recommendation is to ensure that AFRH has an appropriately structured oversight body for its internal control system, and that the designated oversight body has documented roles and responsibilities to effectively oversee AFRH's development and performance of control activities. We continue to believe that this recommendation is warranted and will continue to follow-up with AFRH about efforts to address this recommendation.
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