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Armed Forces Retirement Home: Congress and Agency Management Should Take Actions to Improve Financial Sustainability

GAO-24-106171 Published: Dec 07, 2023. Publicly Released: Dec 07, 2023.
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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

Elderly person wearing a face mask sitting on an armchair in a lobby with a wheelchair to his right and a caregiver to this left.

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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

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:

  • Amending 37 U.S.C. § 1007(i) to require (1) an increase in the amount of the payroll deductions from eligible service members and (2) that such deductions be adjusted for inflation on a recurring basis.
  • Passing legislation to authorize withholding from National Guard and Reserve members eligible for residence at AFRH, similar to withholding currently authorized from armed forces on active duty.
  • Passing legislation to authorize AFRH to receive reimbursement from appropriate sources for relevant health and medical care services provided to AFRH's residents. (Matter for Consideration 1)
Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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)
Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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)
Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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)
Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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)
Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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)
Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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)
Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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)
Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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Armed forcesFinancial managementFinancial sustainabilityInternal controlsNursing homesPolicies and proceduresTrust fundsCompliance oversightHealth care standardsFund balance