Questions concerning this policy chapter should be directed to:

1001 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies for VA’s Franchise Fund.

Key points covered in this chapter:

  • Established as a pilot program under P.L. 103-356, with permanent status conferred via P.L. 109-114. It is comprised of an administrative office, known as the Franchise Fund Oversight Office (FFO), and self-supporting business entities called enterprise centers (ECs).
  • The Franchise Fund is required to recover its full costs or spend from the Franchise Fund reserves (accrual-basis) on an annual basis (P.L. 109-114). In addition to recovering its full costs, the Franchise Fund charges an amount to establish or increase operating and/or capital reserves.
  • The Franchise Fund may only have Federal customers. Enterprise Centers (ECs) cannot form teaming agreements (joint ventures) with the private sector, or State Governments, in providing services to Federal agencies.
  • ECs are required to prepare and submit a business plan that includes rate structures to the Revolving Fund Board of Directors (RFBOD) for approval to be incorporated into the fund’s annual consolidated business plan.
  • A fully signed Service Level Agreement (SLA) must be in place before an EC can perform services for a VA or OGA customer.
  • ECs must maintain a level of operating reserves as determined by RFBOD on an annual basis.
  • All capital investment decisions for equipment and software must be approved by RFBOD before commitment of funds.
  • Each EC must develop performance metrics that tie to the fund’s strategic plan. Metrics will track customer service performance, operational performance, financial performance, and progress on EC initiatives.

1002 Revisions

SectionRevisionOfficeReason for ChangeEffective Date
VariousCompleted full review.OFP (047G)Reviewed, updated and reorganized.November 2023
100506 Added policy in reference to revised legislation.OFP (047G)Legislation was approved since last publication.November 2023
100507 Added a step in the business plan approval process.OFP (047G)To provide clarityNovember 2023
100507Added reference to ORF Business Plan TemplatesOFP (047G)To facilitate removal of the template housed as an appendix.November 2023
100509Edited system use references.OFP (047G)To reflect current processes.November 2023
Appendix DRemovedOFP (047G)All material is housed in ORF Sharepoint page.November 2023
Refer to Appendix A for the listing of previous revisions.

1003 Definitions

Business Plan – An annual budget that identifies the resource requirements, competition, marketing strategies, products, anticipated revenues, expenses, and reserve balance activity for the fund and each EC.

Capital Reserve – A component of the Franchise Fund’s budgetary resources (Allotments-Realized Resources) used to fund the acquisition of capital equipment.

Enterprise Center (EC) – A self-supporting business entity under the Franchise Fund.

Franchise Fund – A type of intra-governmental revolving fund that operates as a self-supporting entrepreneurial entity to provide common administrative services benefiting Federal entities. Franchise Funds are funded entirely from the fees charged for the services they provide consistent with their statutory authority. Franchise Funds do not receive an annual appropriation, but their expenditures must be authorized by law.

Nonseverable Service – A single undertaking that cannot feasibly be separated into components but will be performed as a single task to meet a need of the Government. If the services produce a single or unified outcome, product, or report, the services are considered non-severable (e.g., a consulting study conducted over several months culminating in a final report). The customer must obligate funds for non-severable services upfront, (i.e., in the fiscal year in which it enters into the agreement with the Franchise Fund).

Operating Reserve – A component of the Franchise Fund’s budgetary resources (Allotments-Realized Resources) and is available for use at the discretion of the RFBOD.

Rate – The fees charged are based upon each type of service being provided, (e.g., one hour of consulting or piece of mail processed). Rates are based on a full-cost methodology and include charges for capital and operating reserves.

Refund – A return of funds to the customer directly or via a credit to a customer’s bill (for the same fiscal year as the original obligated funds) that was previously disbursed as a result of a specifically identifiable erroneous overpayment, return of an advance, adjustment, or recovery of erroneous disbursement.

Revolving Fund – A fund established by Congress to finance a cycle of business-like operations through fees charged for goods or services provided.

Service Level Agreements (SLA) – Formal annual agreements between ECs and their customers (both VA and other government agencies (OGAs)), which define the service, performance measures, and the cost of the service. Agreements can be revised/modified throughout the year upon mutual agreement and approval by RFBOD.

Severable Services – Continuing and recurring in nature, such as lawn maintenance, janitorial services, or security services, and from which the agency realizes a benefit at the time services are provided even if the contract has not been performed to completion. Services are considered severable if they can be separated into components that independently provide value to meet an agency’s needs. Severable services are considered a bona fide need of the time period in which the services are rendered and can only be contracted for to the extent they will be performed during the time period of availability of the appropriation to be obligated unless authorized by statute. To comply with the bona fide needs rule, a Franchise Fund customer must obligate funds for severable services in each fiscal year in which the services are to be received.

1004 Roles and Responsibilities

Secretary of Veterans Affairs (SECVA) approves all additions and deletions of ECs to the fund.

Revolving Funds Board of Directors (RFBOD) approves activities to be included in the fund, reviews and approves budgets, identifies, and approves actions to resolve problems in the fund’s operations, and reviews studies of costs and service quality.

Principal Deputy Assistant Secretary for Management and the Deputy Executive Director, Office of Acquisition, Logistics, and Construction are co-chairs of RFBOD and oversee all financial management activities relating to the fund’s programs and operations.

Under Secretaries, Assistant Secretaries, Other Key Officials and Chief Financial Officers (CFO) are responsible for ensuring compliance with the policies outlined in this chapter.

Revolving Fund Executive Director (RFED) is accountable to RFBOD for the overall financial operations of the fund. The RFED shall report to the Chairpersons of the RFBOD. The RFED will be responsible for promoting the Franchise Fund at Government and public sector forums.

Franchise Fund Oversight Director (FFOD) reports to the RFED and is accountable for the overall financial operations of the Franchise fund.

Enterprise Center (EC) Directors are responsible for ensuring the orderly and business-like management of their activities within the framework of applicable laws and regulations, and for establishing and implementing such policies and procedures as may be necessary.

1005 Policies

100501 General Policies

  1. The Franchise Fund supports VA’s mission and other Federal agencies by providing common business services such as accounting, human resources, Information Technology (IT), and training on a fee-for-service basis.
  2. The Franchise Fund was established as a pilot program under P.L. 103-356, with permanent status conferred via P.L. 109-114.  
  3. The Franchise Fund is comprised of an administrative office known as the Franchise Fund Oversight Office (FFO) as well as 8 self-supporting lines of business called enterprise centers (ECs):
    • Center for Enterprise Human Resources Information Services;
    • Debt Management Center;
    • Financial Services Center;
    • Internal Controls Support Center;
    • IT Infrastructure Operations;
    • Human Capital Services Center;
    • Law Enforcement Training Center; and
    • Personnel Security Adjudication Center.
  4. The Franchise Fund is subject to the rules governing the use of appropriated funds (GAO-08-978SP).
  5. The Franchise Fund can only serve Federal customers.
  6. The Franchise Fund does not have the authority to lend money to customers.
  7. The Franchise Fund will comply with the Government Accountability Office’s (GAO) Business Operating Principles. For example, the enterprise should provide common administrative support services, the operation should be self-sustaining, and cost and performance benchmarks against other “competitors” should be maintained and evaluated. For additional information see Appendix A.
  8. The Franchise fund will recover its full costs (accrual basis) annually (P.L. 109-114), including authorized startup costs and charges to establish/increase operating and/or capital reserves. Provision of free services to customers is not permissible, as that would augment the appropriation funding of the VA or of a Federal customer and violate the Purpose Statute, 31 U.S.C. § 1301(a) (See Appendix B).
  9. The Franchise Fund is authorized to recover startup costs via the rates billed to customers.
  10. If a VA customer is buying an IT system from the Franchise Fund, then the development of the system needs to be funded by the VA Information Technology (IT) Systems account (even if the customer is then going to pay the Franchise Fund to operate and maintain the customer’s new system).
  11. The Franchise Fund and the IT Systems account may pool funds for an IT system. Each account must pay its pro rata share in accordance with the estimated benefit to be received.
  12. Franchise Fund receipts and outlays of revolving funds are recorded in the same account, rather than recording collections in a Treasury general fund receipt account.
  13. Only RFBOD-approved common administrative services can be provided by ECs.
  14. ECs can provide severable and non-severable services, when providing a non-severable service, the EC shall notify the Franchise Fund Oversight Office.
  15. In accordance with the Bona Fide Needs rule the Franchise Fund will:
    1. Ensure funds for non-severable services are fully obligated at the time an agreement is approved (i.e., in the fiscal year in which the customer enters into an agreement with the Franchise Fund);
    2. Not accept advance payment or obligation for severable services in a fiscal year prior to the fiscal year in which the Franchise Fund begins to provide the services to the customer.
      For more information on severable and non-severable agreements, see VA Policy Volume I Chapter 11B.
  16. ECs cannot form teaming agreements (joint ventures) with state/local governments or private sector entities to provide services to Federal agencies.
  17. An EC must make efforts to recover net losses within a timeframe determined by the RFBOD if that EC closes out the fiscal year at an operating net loss. Net losses may occur due to unexpected expenses or changes in demand, which result in the depletion of operating reserves.
  18. ECs are responsible for:
    • Tracking expenses used in the performance of services provided, including expenses paid by others, (e.g., unfunded Office of Personnel Management (OPM) costs, or minor or major construction appropriations used to benefit the fund);
    • Providing expense information to the Financial Services Center (FSC) to be recorded in the fund’s general ledger every month; and
    • Ensuring that income statements/financial reports/customer rates include the costs paid by other appropriations.
  19. A newly established EC will fully transition to activity-based costing after its first year in the fund.

100502 RFED, FFOD, and EC Director Duties and Responsibilities

  1. The Revolving Fund Executive Director (RFED) shall:
    • Promote the Franchise Fund at government and public-sector forums;
    • Inform the chairpersons of major events and plans affecting the Franchise Fund;
    • Amend the Franchise Fund charter as directed by RFBOD;
    • Approve and sign the annual financial statements; and
    • Advise RFBOD on the fiscal implications of policies.
  2. The Franchise Fund Oversight Director (FFOD) will:
    • Conduct day-to-day operations of the Franchise Fund, including the fund’s complete budget process;
    • Ensure that ECs follow VA financial and government-wide policies and aid in establishing Franchise Fund policy;
    • Assist with marketing efforts for the fund and its ECs while also serving as a consultant to customers of the Franchise Fund;
    • Manage the annual audit of the Franchise Fund by an independent certified public accountant;
    • Prepare the annual financial statements and annual report;
    • Analyze and evaluate business plans, budgets, and rates (prepared by ECs); and
    • Prepare the Franchise Fund business plan and review operating reports to ensure that:
      • costs are recovered and revenue is properly accounted for;
      • fund reserves are properly recorded and applied;
      • bills are issued timely to customers;
      • plans are developed to ensure that audit findings are resolved; and
      • written guidance is in place to assist organizations upon entering the fund and in submitting annual budgets and rates.

100503 Franchise Fund Operations

  1. Franchise Fund Oversight (FFO) Office costs will be allocated amongst all ECs based on the respective EC’s number of full-time equivalent (FTE) employees (regular FTEs plus contractor FTEs) from the previous fiscal year.
  2. FFO’s anticipated total costs will be agreed upon by all ECs and the FFOD before the start of the next fiscal year. To reimburse anticipated total costs, the FFO will:
    1. Prepare an SLA with each EC, to be signed by the EC Director the Undersecretary, Assistant Secretary, or office head of the customer entity, and funding officials.
      • The EC will establish the receivable and notify the vendor that future payments will be offset by this receivable, and
      • Provide the applicable contracting officer’s representative (COR) with documentation showing the amount to invoice for the contractor background investigations.
    2. Establish an obligation for the amount of the SLA.
    3. Convey the obligation information to the Franchise Fund accountant at the FSC who is responsible for collecting 1/12 of the annual SLA amount monthly from each EC.

100504 New Enterprise Centers

  1. The Administrations, Staff Offices, ECs, and/or RFBOD may propose the addition of a new EC.
  2. When a new EC is proposed, an analysis must be conducted to calculate the value that will be provided to future customers through an identified list of transactional activities, associated demand for proposed transactional activities, and projected estimates of full costs and revenues for two years. The proposal must detail the personnel and contracts that are required to support those specific activities.
  3. New EC proposals must be forwarded to the RFBOD for review and approval.
  4. Upon RFBOC approval of a proposal for a new EC, the FFOD will oversee the development of a business case. The business case must detail customer costs in the first fiscal year (can be per FTE) and include:
    1. an organizational chart;
    2. a listing of targeted customers;
    3. services to be provided to customers;
    4. costs associated with services; and
    5. a return on investment (ROI).
  5. The FFOD will deliver the business case to RFBOD for approval and a go/no-go decision on the new EC .
  6. The RFED must obtain SECVA or his designee’s approval, provide Congressional and Union notification, or seek Congressional approval as required, and notify OMB of the proposed action to add a new EC.
  7. New ECs and/or new EC lines of business may be funded out of reserves consistent with Franchise Fund reserve requirements. However, they must outline the plan for payback. With Congressional approval, VA may provide capitalization out of appropriated funds until the EC is officially transferred into the Franchise Fund. This enables operations to continue until the provider can operate independently on a fee-for-service basis. Appropriated funding cannot be utilized after EC entry into the fund.
  8. A new EC must have signed SLAs with its customers in order to fully authorize operations.
  9. New ECs must be approved by SECVA. SECVA may delegate this authority.
  10. Establishment of a new EC will not occur until the RFBOD presents the request to SECVA and SECVA approves the request.
  11. When establishing an EC, P.L. 104-204, as amended by P.L. 109-114, allows that any inventories, equipment, or other assets pertaining to the services to be provided by the fund, either on hand, or on order, less the related liabilities or unpaid obligations, and any appropriations made hereafter for the purpose of providing capital, shall be used to capitalize the fund.
  12. Agencies have authority via 40 U.S.C. § 524(b) to reassign property to another activity within the agency when the property is no longer required for the purposes of the appropriation used to make the purchase.

100505 Adding Services

  1. Common Administrative Services may be added to the Franchise Fund, with prior RFBOD approval:
    1. If an administrative service has not been formally assigned to a VA organization and the VA organization has been providing the function to VA Staff Offices/Administrations under an Economy Act reimbursable Inter-agency Agreement (IAA), then the function can be moved to the Franchise Fund and funded by the same customer appropriations that funded the Economy Act IAA; or
    2. If an administrative service has not been formally assigned to a VA organization, but the organization has been performing the function in the past without reimbursement, then the organization can move the function to the Franchise Fund. However, it must reimburse the Franchise Fund work with the organization’s funds.
  2. New business lines may be added to the ECs at the discretion and approval of the RFBOD.
  3. Outside of the annual business plan update cycle, ECs may propose new services as follows:
    1. Forward information, via email, on proposed new services to RFBOD through the FFOD;
    2. Document customer demand/agreement through a signed SLA, e-mail, or memorandum, stating that the customer will purchase the new service if approved by RFBOD;
    3. Brief RFBOD about the new proposed service(s) at the next scheduled meeting; and
    4. Obtain RFBOD approval.

100506 Enterprise Center IT Expense/Reporting Requirements

  1. OMB Circular No. A-11, Part 7 requires that all Federal agencies and their components (including non-appropriated funds) prepare OMB Exhibit 300(s) and Exhibit 53 (s) on an annual basis for their actual and planned IT expenses.
  2. The Franchise Fund will comply with the reporting requirements of “Department of Veterans Affairs Technology Reform Act of 2022,” which amended Chapter 81 of Title 38, United States Code (“VA IT Reform Act”), which placed IT activities of FSC under the purview of VA CIO, including the supervision of IT employees that are at the FSC as well as the oversight and operational authority over all information security practices at that location. Further, the Director, FSC, is prohibited by the Act from entering into any IT contract or agreement without the approval of VA CIO.
  3. Annually, before or on July 31, the Franchise Fund Oversight Office will contact each EC and request that IT system information be sent to the Franchise Fund on or before August 30 to facilitate review, consolidation, and reporting to OMB. Simultaneously, the Franchise Fund will ask Information Technology Infrastructure Operations (ITIO) to provide IT expenses incurred by ITIO for each EC.
  4. The information regarding IT systems (both operational and in-development), provided by ECs and ITIO, shall include:
    • Total spent during the prior fiscal year;
    • Total spent as of July 31 and the amount planned to be spent during the remainder of the current fiscal year;
    • Planned spending during the next fiscal year; and
    • Planned spending for the fiscal year after the next fiscal year.

100507 Business Plans

  1. ECs must prepare and submit a business plan to RFBOD for approval and inclusion in the Franchise Fund’s annual consolidated business plan.
  2. Guidance for EC business plan preparation will be provided by the FFOD, and can be found on the ORF Sharepoint page under Franchise Fund Business Plans Templates.
  3. EC business plans include, but are not limited to:
    1. Operations workforce, planned expenditures, costs, and revenue;
    2. Marketing;
    3. Planned strategic initiatives;
    4. Risks and mitigations;
    5. Service catalog;
    6. EC’s planned rate changes for the next two fiscal years, which must be shared with customers for review and comments.
    7. A Capital Reserve Analysis, and the amount designated for capital reserves shown as an attachment on each EC’s component of the fund’s annual business plan.
    8. A three-year projection of operational needs based on new customer projections, technology improvements, upgrades to support security compliance, and known upcoming legislative and regulatory requirements.
  4. EC directors will present their business plans annually to the RFBOD.
  5. RFBOD will formally approve business plans and rate structures at an RFBOD meeting.
  6. Changes in EC business plans that represent a greater than 10% modification in either expenses or revenues must be reviewed and approved by the RFBOD in advance of initiating the change.
  7. FTE count changes greater than 10% of the RFBOD-approved business plan number must be reviewed and approved by the RFBOD.
  8. Annually, ECs will prepare and submit a standardized service catalog of all fund services to be published along with their business plan. At minimum, the service catalog will include:
    1. Service name and description;
    2. Pricing for services;
    3. Proper unit of measure for services, if applicable; and
    4. Standard levels of service that can be expected and if applicable any relevant key performance indicators (KPIs).

100508 Removal of Enterprise Centers

  1. ECs may be removed from the Franchise Fund if its services are no longer needed.
  2. ECs may be removed from the Franchise Fund if they violate GAO’s business operating principles.
  3. Before an EC is removed from the fund, the following must occur:
    1. The decision must be approved by RFBOD and the VA Secretary.
    2. The Director from the exiting EC must determine and recommend to RFBOD the appropriate contracts and level of personnel required for business lines that will remain in the Franchise Fund, as well as develop a transfer plan for any leases or infrastructure that will be moving out of the Franchise Fund.
    3. The Director from the exiting EC must develop and recommend to RFBOD a service catalog based on the business lines remaining under the authority of the Franchise Fund.
    4. Any remaining cash or reserves from the exiting EC are legally required to remain with the Franchise Fund and may be leveraged as reserves for the rest of the Franchise Fund consistent with statutory capital reserve limits or returned to the Treasury. RFBOD will approve any amount of remaining cash from exiting EC that is returned to Treasury.

100509 Service Level Agreements

  1. A fully signed Service Level Agreement (SLA) must be in place before an EC can perform services for a VA or OGA customer.
  2. SLAs will include the name of the customer, agreement number, agreement amount, and any obligation information.
  3. An amendment to an SLA is required when estimates are changed from the original agreed-upon amount. An amendment is also required for changes in major terms and conditions, such as changes in the period of service.
  4. All SLAs and amendments will be signed by the EC Director, the Undersecretary, Assistant Secretary, or office head of the customer entity, and funding officials; signatory authorities may be designated using the Government-Invoicing (G-Inv) System.
  5. Signed SLAs and amendments must be provided to the FSC franchise fund accountant.
  6. SLAs must be reviewed by a contracting officer or a legal review if the agreement involves the purchase of information technology to provide a service. Refer to VA Directive 6008, Acquisition and Management of VA Information Technology Resources.
  7. OGA SLAs that pertain to assisted acquisitions only require the signature of a warranted contracting officer.
  8. All obligations made between Franchise Fund customers and an EC must comply with appropriation requirements for purpose, time and amount.
  9. Franchise Fund customers may elect to cease business with an EC and obtain services from an alternate source. Timeframes for termination of service will be dependent upon the size and amount of the SLA and will be established on a case-by-case basis as a negotiated agreement between the customer, EC, and RFBOD. This election must occur within a budget formulation cycle to address the impact on both the remaining customers and EC personnel.

100510 Rates and Reports

  1. The annual business plan includes a rate structure identifying the method and time period for recovery of the cost of operations. ECs must update their rate structures for the two upcoming fiscal years.
    1. ECs are not allowed to price services below their full cost.
    2. ECs may adjust unit rates outside of the annual Business Plan update cycle with RFBOD review and approval.
  2. Rates approved in the annual business plan may be adjusted due to unforeseen circumstances during the fiscal year, should the rate adjustment (upward or downward) result in a rate that differs from the last approved rate by more than 10% the EC must:
    1. Notify the FFOD in writing; and
    2. Receive approval from RFBOD before implementing the unit rate increase or decrease.
  3. If obligations need to be increased, ECs are required to contact their customers as well as convey additional obligation information to the FSC Franchise Fund accountant.

100511 Operating Reserves

  1. Earnings are generated when revenue exceeds expenses. Earnings are allocated first to operating reserve and then to capital reserve.
  2. Operating reserves are a component of the Franchise Fund’s budgetary resources (Allotments-Realized Resources, U.S. Standard General Ledger account 461000), and they are available for use at the discretion of the RFBOD.
  3. The FFOD will manage all reserves accrued to ensure funds are utilized in line with Franchise Fund policy.
  4. Reserve level and usage will be approved by the RFBOD.
    1.  ECs will submit a proposal to the RFBOD during the annual Franchise Fund business plan process.
    2. Each EC proposal will include an operating reserve analysis and the amount as an attachment.
  5. Acceptable uses of operating reserves include:
    1. Covering the cost of fluctuating workloads and unanticipated expenditures; and
    2. Continuation of Franchise Fund operations during appropriation lapses of fund customers, which are periods when the fund must cease performing work for customers who have not been deemed excepted or exempted during a Government shutdown.
    3. Surge capacity (planning for future customers) – The Franchise Fund’s governance process may add capacity to support new customers. For up to 5 years from the date of a production implementation, the migrating customer’s rates will include an operating reserve surcharge to replenish the Franchise Fund’s operating reserves.
    4. Anticipated future new starts (pilots and innovation) – These reserves provide support funding necessary to enter into a new line of business or offer additional services to current or future customers. Funds may be for activities necessary to provide additional information to potential customers and determine the customer fit with the provider (e.g., rough order of magnitude estimates and select IAAs).
    5. Non-capital investment-related costs associated with the start-up of a new line of business (e.g., acquiring supplies, equipment, IT that is capitalizable capital equipment, and training).
  6. ECs may only expend operating reserves up to the amount authorized in the approved annual business plan. Exceptions to the operating reserve amount and uses must be justified by the EC and approved by the RFBOD.
  7. Reserves used for start-up must be paid back within the timeframe established by the RFBOD.

100512 Capital Reserves

  1. P.L. 104-204, as amended by P.L. 109-114, provides that an amount not to exceed four (4) percent of the total annual income to a fund may be retained in the Franchise Fund for the fiscal year and each fiscal year thereafter until expended, to be used for:
    • acquisition of capital equipment; and
    • improvement and implementation of IT Departmental financial management, Automated Data Processing, and other support systems.
  2. Capital Reserves are a component of the Franchise Fund’s budgetary resources (Allotments-Realized Resources, U.S. Standard General Ledger account 461000). Capital reserves will be managed on an enterprise-wide basis.
  3. Each EC will report capital reserves by including a capital reserve analysis and amount as an attachment in its Franchise Fund annual business plan.
  4. ECs must submit a proposal for capital reserve expenditures in their annual business plan for approval by the RFBOD.
  5. ECs may only spend up to the authorized capital reserve amount by the end of the fiscal year for which they have been approved by the RFBOD.
  6. EC’s must request approval through the RFBOD for retention of capital reserves beyond a two-year planning horizon. As part of the request, the EC must demonstrate the benefit of retaining operating reserves for an extended period (rather than generating new operating reserve amounts through future surcharges).

100513 Overpayment Return Process

  1. Only excess reserves that qualify as “refunds” of specifically identifiable overpayments or mistaken payments can be returned to customers.
  2. Refunds must be credited to the original appropriation (for the proper fiscal year) from which the excess payments were made.
  3. Overpayments consisting of a customer’s prior-year overpayment toward a current fiscal year bill cannot be credited unless the overpayment was made using unexpired multi-year funds.
  4. The RFBOD must approve all returns of overpayments.

100514 Property, Plant, and Equipment

  1. The Franchise Fund follows the Department’s capitalization and lease policies as described in VA Financial Policy Volume V Chapter 9, General Property, Plant, and Equipment and VA Financial Policy Volume V Chapter 11, Real Property Leases.
  2. The Franchise Fund must directly fund, from its capital reserve, all capital equipment acquisitions. VA defines capital equipment as individual items and software projects that meet VA’s capitalization threshold.
  3. The Franchise Fund must recover the amount spent for capital equipment (including capitalizable IT) through its customer rates. Personal property and equipment not meeting the capitalization criteria are expensed upon being placed in service and cannot be funded from the capital reserve.
  4. Capital investment decisions for equipment and software must be approved by the RFBOD before funds are committed.
  5. ECs are not allowed to split acquisitions in order to stay under applicable thresholds.
  6. The RFBOD must approve capital investment decisions not related to equipment and software according to the following thresholds:
    1. If an EC’s gross annual revenue is greater than $100 million, investment decisions exceeding $500,000 must be approved by the RFBOD before commitment of funds.
    2. If an EC’s gross annual revenue is less than $100 million, investment decisions exceeding $250,000 must be approved by the RFBOD before commitment of funds.
  7. Before leasing or otherwise obtaining new or additional space, an EC must contact the FFOD and obtain approval from the RFBOD. Prior to approval, the FFOD and EC will work with the Office of Asset Enterprise Management to ensure compliance with Federal and VA leasing policies and guidance.
  8. The Franchise Fund must not make expenditures for building construction or renovation, including leasehold improvements. Doing so violates 41 U.S.C § 6303. Expenditures for construction and renovation, including leasehold improvements used by ECs, must be funded by either the Major or Minor Construction Projects appropriation accounts.
  9. The Franchise Fund has the legal authority (P.L. 103-356 and P.L. 104-204, as amended by P.L. 109-114) to pay for IT equipment and other IT expenses. In addition, the law allows the Franchise Fund to solely procure a Department-wide IT system, if that IT system is an integral component of a Franchise Fund business line.
  10. VA Directive 6008, Acquisition and Management of VA Information Technology Assets, details when the fund will solely, jointly, or not fund an IT system, systems development, modification, or enhancement. ECs will only develop IT systems/software as an ancillary aspect of providing an EC service. ECs will not develop or sell IT systems or software, except as an ancillary aspect of a service offering. The fund must comply with OMB Circular No. A-11, Part 7’s, IT reporting requirements.

100515 Metrics

  1. Each EC must develop performance metrics that tie to the fund’s strategic plan. Metrics will track customer service performance, operational performance, financial performance, and progress on EC initiatives. The FFOD will manage the collection and publication of performance metrics quarterly.
  2. ECs will benchmark their activities against similar Federal and/or private sector activities and they must be based on full cost.
  3. Operational performance metrics will be compiled quarterly by ECs and reported to the FFOD.
  4. Customer service metrics will be compiled by ECs through a quarterly customer survey and periodic customer interviews.
  5. Financial metrics will be measured by the FFOD monthly on behalf of ECs.
  6. Progress on initiatives will be measured against project plans published in the annual business plan.
  7. All metrics will be made available for customers to review and assess Franchise Fund performance.
  8. Metrics can be modified/added as necessary but require approval from the Franchise Fund Oversight Director.

1006 Authorities and References

1007 Rescissions

VA Financial Policy Volume II Chapter 10b, Franchise Fund, January 2022

1008 Policy Approval

This policy was approved by the VA Chief Financial Officers’ Council on November 16, 2023.

Appendix A:  Previous Revisions

SectionRevisionOfficeReason for ChangeEffective Date
1003 DefinitionsAdded definitions for Nonseverable Service, Refund, and Severable ServiceOFP (047G)Address frequently asked questions.January 2022
100501  Added language to address the Purpose Statute, 31 U.S.C. § 1301(a)OFP (047G)Address frequently asked questions.January 2022
100501  Added policy addressing Nonseverable Service, Refund, and Severable ServicesOFP (047G)Address frequently asked questions.January 2022
100505  Added language clarifying the addition of servicesOFP (047G)Address frequently asked questions.January 2022
Appendix BAdded Appendix B, Frequently Asked QuestionsOFP (047G)Address frequently asked questions.January 2022
VariousRemoved admin procedures related to revolving fund and put them in new chapterOFP (047)Creation of new revolving fund chapterSeptember 2020
VariousReformatted to new policy format and completed 5-year reviewOFP (047)Reorganized chapter formatSeptember 2020
  Various  Revised policyOFP (047)Policy was outdated and not reflective of current VA operationsSeptember 2020

Appendix B: Business Operating Principle Description

  1. Services – The enterprise should only provide common administrative support services.
  2. Organization – The organization would have a clearly defined organizational structure including readily identifiable delineation of responsibilities and functions and separately identifiable units for the purpose of accumulating and reporting revenues and costs. The funds of the organization must be separate and identifiable and not commingled with another organization.
  3. Competition – The provision of services should be on a fully competitive basis. The organization’s operation should not be “sheltered” or be a monopoly.
  4. Self-sustaining Full Cost Recovery – The operation should be self-sustaining. Fees will be established to recover “full cost,” as defined by standards issued in accordance with FASAB (the Federal Accounting Standards Advisory Board).
  5. Performance Measures – The organization must have a comprehensive set of performance measures to assess each service that is being offered.
  6. Benchmarks – Cost and performance benchmarks against other “competitors” are maintained and evaluated.
  7. Adjustments to Business Dynamics – The ability to adjust capacity and resources up or down as business rises or falls or as other conditions dictate, if necessary.
  8. Surge Capacity – Resources to provide for “surge” capacity and peak business periods, capital investments and new starts should be available.
  9. Cessation of Activity – The organization should specify that prior to curtailing or eliminating a service, the provider will give notice within a reasonable and mutually agreed time frame so the customer may obtain services elsewhere. Notice will also be given within a reasonable and mutually agreeable timeframe to the provider when the customer elects to obtain services elsewhere.
  10. Voluntary Exit – Customers should be able to “exit” and go elsewhere for services after appropriate notification to the service provider and be permitted to choose other providers to obtain needed service.
  11. FTE Accountability – Full Time Equivalents (FTEs) would be accounted for in a manner consistent with the Federal Workforce Restructuring Act and OMB requirements, such as Circular A-11.
  12. Initial Capitalization – Capitalization of Franchises, administrative service or other cross-servicing operations should include the appropriate FTE commensurate with the level of effort the operation has committed to perform.

Appendix C: Frequently Asked Questions (FAQs)

Franchise Fund Common Administrative Services

VA’s Franchise Fund is authorized to provide common administrative support services (e.g., financial management, human resources, and IT services) within VA and to other Federal Government agencies.

It depends.

  • No. If a particular function has formerly assigned to one VA organization by statute or other authority (e.g., Executive Order, OMB directive) or by the Secretary, then that office does not have authority to seek reimbursement for its work and therefore it could not use a Franchise Fund enterprise to sell its services.
  • Yes. If a particular function has not been formerly assigned to a VA organization and the VA organization has been providing the function to VA Staff Offices/Administrations under Economy Act reimbursable IAA, then the function can be moved to the Franchise Fund and funded by the same customer appropriations that funded the Economy Act IAA.
  • Yes. If a function that has not been formally assigned to a VA organization, but the organization has been performing the function in the past without reimbursement, then the organization could move the function to the Franchise Fund but must reimburse the Franchise Fund work with the organization’s funds. In the next annual Budget Submission, VA would notify Congress of its desire to change the funding mechanism from that VA organization to the other appropriation account. If Congress does not object to the switch, then the switch could be implemented in the fiscal year covered by that Budget Submission.

Yes. Notification shall be made to the Franchise Fund Oversight Office when providing a Nonseverable service.

Severable services are continuing and recurring in nature, such as lawn maintenance, janitorial services, or security services, and from which the agency realizes a benefit at the time services are provided even if the contract has not been performed to completion. Services are considered severable if they can be separated into components that independently provide value to meet an agency’s needs. Severable services are considered a bona fide need of the time period in which the services are rendered and can only be contracted for to the extent they will be performed during the time period of availability of the appropriation to be obligated, unless authorized by statute. To comply with the bona fide needs rule, a Franchise Fund customer must obligate funds for severable services in each fiscal year in which the services are to be received.

Nonseverable services represent a single undertaking that cannot feasibly be separated into components but will be performed as a single task to meet a need of the Government. If the services produce a single or unified outcome, product or report, the services are considered nonseverable (e.g., a consulting study conducted over several months culminating in a final report). The customer must obligate funds for nonseverable services upfront, i.e., in the fiscal year in which it enters into the agreement with the Franchise Fund.

No. All VA telecommunications costs must be funded out of the VA IT Systems account per language contained in its annual appropriation act. A legislative change would be required to fund from another source. However, if such legislative change were enacted, Congress could choose to reduce funding to the appropriation account (in this case, IT Systems account) from which the expense is being moved.

Franchise Fund Reserves

Yes. P.L. 104-204, as amended by P.L. 109-114, authorizes the Franchise Fund to retain a capital reserve and an operating reserve. The capital reserve and operating reserve are components of the Franchise Fund’s budgetary resources (Allotments-Realized Resources, U.S. Standard General Ledger account 461000).

Capital reserve – An amount not to exceed 4 percent of the total annual income to the Franchise Fund may be retained in the Franchise Fund for fiscal year 1997 and each fiscal year thereafter, to remain available until expended, to be used for the acquisition of capital equipment and for the improvement and implementation of Departmental financial management, Automatic Data Processing (ADP), and other support systems. VA defines capital equipment as individual items and software projects that meet VA’s capitalization threshold, currently $1 million, with a useful life of 2 or more years. The Franchise Fund is to recover the amount spent for capital equipment (including capitalizable IT) through its customer rates. Personal property and equipment not meeting the capitalization criteria is expensed upon being placed in service and not to be funded from the capital reserve.

Operating reserve -The Franchise Fund is authorized to maintain a reasonable operating reserve. The RFBOD determines authorized uses of the operating reserve.

Information Technology

Yes. The Franchise Fund must directly fund all IT expenses necessary for the maintenance and operation of the Franchise Fund’s administrative services in lieu of using the IT Systems account. P. L. 104-204, as amended by P. L. 109-114, authorizes the VA Franchise Fund to fund all expenses and equipment necessary for the maintenance and operation of the Franchise Fund’s administrative services, to include ADP software and systems. Because there is no clear indication in the current (or any prior) appropriations act that Congress intended to repeal, amend, or override the Franchise Fund authority and alter Franchise Fund operations with respect to ADP and other support systems, IT needed to operate and maintain the Franchise Fund should continue to be funded by the Franchise Fund in accordance with the Franchise Fund authorization statute (not the VA IT Systems account). This conclusion recognizes the statutory rule of construction that two statutes should be construed harmoniously to give effect to both however possible.

No. The Franchise Fund does not have the authority to bill in advance for “start-up costs” or any other costs incident to furnishing severable services in future fiscal years. The Franchise Fund must recover startup costs via the rates for the common administrative services billed to customers, not through advance payments.

No. If a VA customer is buying a system from the Franchise Fund, then the development of the system needs to be funded by the IT Systems account (even if the customer is then going to pay the Franchise Fund to operate and maintain the customer’s new system). On the other hand, if the Franchise Fund needs to build its own system so that it can provide common administrative support services to customers, then the Franchise Fund should pay for the development of the system with its capital reserve. When the Franchise Fund sells the services to the customers, it adds fees to recover its costs (which is required by law), including the IT (or other) costs that were incurred using the Franchise Fund reserves to develop the infrastructure needed to provide services. The fees are collected over time at rates approved by the RFBOD.

No. The Franchise Fund must use its own funds to provide Franchise Fund common administrative services. The IT Systems account must be used for IT expenses that are not necessary to provide Franchise Fund common administrative services.

Yes. The Franchise Fund and the IT Systems account may pool funds for an IT system, with each account paying its pro rata share in accordance with the estimated benefit to be received.

Yes. The VA IT Systems account is the specific account for the necessary expenses of IT systems, including developmental information systems. The plain meaning of the IT account language is that expenses necessary for IT systems must be charged to the IT Systems account. The expenses of planning and evaluation of IT systems and needs are necessary and incidental to the proper execution of the IT Systems account, and thus, clearly fall within the definition of “necessary expenses for information technology systems.” However, see FAQ #13 below regarding business requirements gathering expenses, which are non-IT.

  • The Project Management and Financial Management phases are non-IT because they are business requirements gathering and should be funded by each VA organization paying its pro rata share in accordance with the estimated benefit to be received.
  • The Technical Architecture phase is IT and should be funded by VA’s IT Systems account.
  • The Process Change Management, Communications, and Training phases are non-IT and should be funded by each VA organization paying its pro rata share in accordance with the estimated benefit to be received.

Yes. If the Franchise Fund is providing common administrative services, e.g., financial management services, it may use a system that was developed and funded by the