Forest Service: Barriers to Financial Accountability Remain (Letter
Report, 10/02/98, GAO/AIMD-99-1).

Pursuant to a congressional request, GAO reviewed the financial
management problems of the Forest Service identified in the Department
of Agriculture (USDA) Inspector General's (IG) audit report on the
Forest Service's fiscal year (FY) 1995 financial statements, focusing
on: (1) how the IG's adverse opinion raised concerns about the level of
stewardship over taxpayer money appropriated to the Forest Service; and
(2) the Forest Service's progress toward correcting its accounting and
financial reporting problems.

GAO noted that: (1) major weaknesses in the Forest Service's accounting
and financial reporting persist; (2) while the Forest Service has made
some progress in addressing financial management deficiencies, its
ability to produce financial reports has deteriorated because of
problems implementing the Foundation Financial Information System
(FFIS); (3) until the agency is able to: (a) correct its basic
accounting records; and (b) successfully implement FFIS to account for
and report on its activities, it will not be in a position to achieve
financial accountability; (4) the Forest Service's current autonomous
field structure may further hamper those efforts; (5) the IG's recently
completed audit of Forest Service FY 1997 financial statements disclosed
continuing major weaknesses in accounting and reporting, particularly
for real property, accounts receivable, and accounts payable; the IG
therefore issued a disclaimer of opinion; (6) errors were also detected
in the Forest Service's failure to reconcile its fund balance with
Department of the Treasury; (7) the IG reported that adjustments to
accounts receivable totalling about $166 million could not be verified
because the automated data files documenting the adjustments had been
recorded over and therefore were no longer available; (8) the Forest
Service continued to lack a system that provided detailed accounts
payable balances, and relied instead on its obligations system to
estimate accounts payable at year-end; (9) since January of this year,
GAO, the IG, and USDA's outside consultant have identified serious
problems with the FFIS implementation process; (10) these problems were
caused by: (a) not simplifying the Forest Service's business processes
before FFIS was implemented; (b) adding feeder systems to FFIS; (c)
implementing the system before it was fully tested; and (d) inadequate
oversight and management control over the project; (11) as a result of
these problems, the outside consultant recommended that implementation
of the system in the rest of the Forest Service not proceed on October
1, 1998, as planned; (12) the Forest Service has decided to defer full
implementation of the system until October 1, 1999; (13) although major
barriers to financial accountability still remain, the Forest Service
has begun or has completed several actions that, if successfully carried
through, represent important steps towards achieving financial
accountability; and (14) while the Forest Service has committed
considerable resources and progressed in addressing some of its
long-standing financial management deficiencies, much work remains.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-99-1
     TITLE:  Forest Service: Barriers to Financial Accountability Remain
      DATE:  10/02/98
   SUBJECT:  Financial statement audits
             Accounting procedures
             Federal agency accounting systems
             Accountability
             Systems conversions
             Data integrity
             Information resources management
             Financial management systems
             Internal controls
IDENTIFIER:  Forest Service Foundation Financial Information System
             Y2K
             
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Cover
================================================================ COVER


Report to Congressional Committees

October 1998

FOREST SERVICE - BARRIERS TO
FINANCIAL ACCOUNTABILITY REMAIN

GAO/AIMD-99-1

Forest Service Financial Accountability Barriers

(913838)


Abbreviations
=============================================================== ABBREV

  CAS -
  FFIS -
  IG -
  NFC -
  OCFO -
  USDA -

Letter
=============================================================== LETTER


B-281061

October 2, 1998

Congressional Committees

Since December 1996, we have periodically reported\1 on the financial
management problems of the Forest Service identified in the U.S. 
Department of Agriculture (USDA) Inspector General's (IG) audit
report on the Forest Service's fiscal year 1995 financial statements. 
Specifically, our past reports have (1) discussed how the IG's
adverse opinion raised concerns about the level of stewardship over
taxpayer money appropriated to the Forest Service and (2) assessed
the Forest Service's progress toward correcting its accounting and
financial reporting problems.  This, our fourth report, responds to
your requests that we continue monitoring the Forest Service's
progress in correcting its accounting and financial reporting
weaknesses. 


--------------------
\1 Forest Service:  Status of Progress Toward Financial
Accountability (GAO/AIMD-98-84, February 27, 1998); Financial
Management:  Forest Service's Progress Toward Financial
Accountability (GAO/AIMD-97-151R, August 29, 1997); Letter dated
December 20, 1996, to the Chairman, House Committee on the Budget
(GAO/AIMD-97-11R). 


   BACKGROUND
------------------------------------------------------------ Letter :1

Since its first audit of the Forest Service's financial statements,
which covered fiscal year 1991, the USDA IG has found serious
accounting and financial reporting weaknesses.  The IG issued an
adverse opinion on the 1991 financial statements and also on the
fiscal year 1992 financial statements, due to the overall
unreliability of the financial statements.  For fiscal years 1993 and
1994, the IG issued qualified audit opinions and reported that the
Forest Service's financial statements were unreliable due to
pervasive errors in the field-level data supporting the land,
buildings, equipment, accounts receivable, and accounts payable
accounts.  Thus, when the IG issued an adverse audit opinion in July
1996, concluding that the Forest Service's financial statements for
fiscal year 1995 were unreliable, the findings represented a
continuing pattern of unfavorable conclusions about the Forest
Service's financial statements.  Due to the severity of the
accounting and reporting deficiencies, the Forest Service did not
prepare financial statements for fiscal year 1996, but chose instead
to focus on resolving these problems. 

The Forest Service's goal was to correct some of the deficiencies
during fiscal year 1997 and to achieve financial
accountability--which the agency defines as an unqualified audit
opinion--by the end of fiscal year 1999.  In August 1997, we
reported\2 that it was doubtful that the Forest Service could achieve
financial accountability by the end of fiscal year 1999 if management
and staff commitment wavered, planned tasks were not accomplished,
and sufficient resources were not provided.  Our most recent report
in February 1998 concluded that while corrective measures were under
way, few of the problems reported by the IG in the fiscal year 1995
audit report had been fully resolved.  In addition, new hurdles with
implementing the Forest Service's new accounting system had to be
addressed.  Thus, we reported, it was not yet clear whether the
Forest Service would be successful in its efforts to resolve these
problems by the end of fiscal year 1999.  Much work still remained to
be done before this goal could be achieved. 

Many of the Forest Service's long-standing accounting problems are
the result of outdated accounting systems--a problem that exists
USDA-wide.  USDA's current financial accounting system, the Central
Accounting System (CAS), is not U.S.  Government Standard General
Ledger compliant,\3 not well integrated, and is generally outdated. 
On December 23, 1994, the Office of the Chief Financial Officer
(OCFO) purchased a new accounting system, the Foundation Financial
Information System (FFIS), to replace CAS USDA-wide.  The basic FFIS
system is a commercial off-the-shelf package developed by American
Management Systems and was acquired through the General Services
Administration's Financial Management System Software Multiple Award
Schedule.  This system has been implemented in and is being used by a
number of federal agencies.  Because of the reported financial
deficiencies at the Forest Service, it was decided that the Forest
Service would be one of the first USDA agencies to implement FFIS. 

The Forest Service implemented FFIS in three units, representing
about one-third of all Forest Service transactions, on October 1,
1997.  While the overall responsibility and oversight for
implementing FFIS rests with the USDA OCFO, implementation at the
Forest Service is a joint effort between the Forest Service and the
USDA OCFO.  In addition, OCFO uses Agriculture's National Finance
Center (NFC) to help carry out its FFIS responsibilities.  As a
result of serious implementation problems, in January 1998, USDA
retained an outside consultant\4 to independently review and assess
FFIS management and implementation and to report its findings to the
Office of the Chief Information Officer and the Office of the Chief
Financial Officer. 

In addition, the Forest Service acquired a consultant to evaluate its
financial management structure and workload requirements.  Such an
evaluation was needed to determine if its organizational structure
and resources were sufficient to accomplish the remaining tasks
required to achieve financial accountability. 


--------------------
\2 Financial Management:  Forest Service's Progress Toward Financial
Accountability (GAO/AIMD-97-151R, August 29, 1997). 

\3 The U.S.  Government Standard General Ledger provides a standard
chart of accounts and standardized transactions that agencies are to
use in all their financial systems. 

\4 Logistics Management Institute, Independent Assessment of USDA's
Foundation Financial Information System (AG801R1, March 1998). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Major weaknesses in the Forest Service's accounting and financial
reporting persist.  While the Forest Service has made some progress
in addressing financial management deficiencies, its ability to
produce financial reports has deteriorated because of problems
implementing FFIS.  Until the agency is able to (1) correct its basic
accounting records and (2) successfully implement FFIS to account for
and report on its activities, it will not be in a position to achieve
financial accountability.  Moreover, the Forest Service's current
autonomous field structure may further hamper those efforts. 

The IG's recently completed audit of Forest Service fiscal year 1997
financial statements disclosed continuing major weaknesses in
accounting and reporting, particularly for real property (land,
buildings, and roads), accounts receivable, and accounts payable. 
Errors were also detected in the Forest Service's failure to
reconcile its fund balance with the Department of the Treasury.  As a
result, the IG was unable to determine the reliability of the Forest
Service's fiscal year 1997 financial statements and therefore issued
a disclaimer of opinion. 

For example, the IG could not verify the balance for the Forest
Service's reported $8.2 billion in real property because inventories
and valuations of these assets had not been completed at the time of
the audit.  The IG also could not verify the accuracy of the reported
$119 million in accounts receivable because the Forest Service did
not maintain centralized records of individual accounts. 
Additionally, the IG reported that adjustments to accounts receivable
totaling about $166 million could not be verified because the
automated data files documenting the adjustments had been recorded
over and therefore were no longer available.  Similarly, the Forest
Service continued to lack a system that provided detailed accounts
payable balances, and relied instead on its obligations system to
estimate accounts payable at year-end.  This precluded the agency
from knowing costs it had incurred and amounts owed to others at any
given point throughout the year.  These weaknesses mean that Forest
Service managers' ability to effectively manage operations, monitor
revenue and spending levels, and make informed decisions about future
funding needs will continue to be hampered until corrective measures
are completed. 

The aforementioned problems are exacerbated by the Forest Service's
new financial accounting system's inability to produce certain
critical budgetary and accounting reports that track obligations,
assets, liabilities, revenues, and costs for the units that converted
to the new system.  Since January of this year, we, the IG, and
USDA's outside consultant have identified serious problems with the
FFIS implementation process.  These problems were caused by, among
other things, not simplifying the Forest Service's business processes
before FFIS was implemented, adding feeder systems to FFIS,
implementing the system before it was fully tested, and inadequate
oversight and management control over the project. 

As a result of these problems, the outside consultant recommended
that implementation of the system in the rest of the Forest Service
not proceed on October 1, 1998, as planned.  Instead, the consultant
advised USDA to reexamine some of the key decisions that have caused
problems experienced to date.  In addition, the Forest Service and
OCFO will face additional challenges to ensure that FFIS and related
feeder systems comply with Year 2000 requirements.  As a result, the
Forest Service has decided to defer full implementation of the system
until October 1, 1999.  We believe this action is reasonable under
the circumstances. 

In order to address concerns about its autonomous structure, the
Forest Service restructured its national office management team in
April 1998 by creating functional lines for accountability for
financial management that report directly to the Chief of the Forest
Service.  However, the agency has not mirrored this structure
throughout its field organization, thus raising concerns about
whether a sufficient linkage exists between the national office and
field units for financial accounting responsibilities. 

Although major barriers to financial accountability still remain, the
Forest Service has begun and/or completed several actions that, if
successfully carried through, represent important steps towards
achieving financial accountability.  For example, the Forest Service
has substantially completed equipment inventories and is in the
process of correcting the erroneous data recorded in its old
accounting system.  In addition, the Forest Service has issued an
accounting desk guide for all staff that provides uniform accounting
instructions.  This guide, if consistently used, should help improve
the accuracy of data entered into the new system.  Further, Forest
Service management continues to emphasize the importance of financial
accountability to its line managers, has established a team to
improve selected financial processes, and has obtained advice from
outside consultants on how to improve its financial operations. 

While the Forest Service has committed considerable resources and
progressed in addressing some of its long-standing financial
management deficiencies, much work remains.  Also, the problems
encountered in implementing FFIS have been a major setback.  Thus,
the Forest Service's current goal of achieving financial
accountability by fiscal year 1999 does not appear feasible. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Our objectives were to monitor and report on the Forest Service's
efforts to achieve financial accountability, including any barriers
to successfully resolving its financial and reporting weaknesses, and
to analyze the USDA IG's audit report on the Forest Service's fiscal
year 1997 financial statements.  We focused on the critical tasks
that we previously reported were necessary for the Forest Service to
achieve financial accountability.  Specifically, we examined the
agency's progress in (1) correcting certain accounting deficiencies,
(2) implementing its new financial accounting system, and (3)
improving its financial management structure since we last reported
on these issues on February 27, 1998. 

To assess the agency's progress in correcting certain accounting
deficiencies, we analyzed the IG's fiscal year 1997 financial
statement audit of the Forest Service to identify accounting problems
and their effect on the users of the financial statements; namely,
the Congress, agency decisionmakers, and taxpayers.  Further, we
reviewed the IG's working papers from the fiscal year 1997 financial
statement audit and determined the specific nature and cause of the
cited accounting deficiencies.  In addition, we interviewed the
cognizant IG personnel responsible for monitoring the Forest
Service's improvement efforts and obtained their perspective on the
Forest Service's progress in correcting its accounting weaknesses. 
We also reviewed the IG's monitoring plan for assessing the Forest
Service's progress in implementing its corrective action plan, and we
interviewed Forest Service personnel about the status of the Forest
Service's corrective actions. 

To ascertain the Forest Service's progress in implementing its new
financial accounting system, we reviewed a USDA consultant
report--Independent Assessment of USDA's Foundation Financial
Information System, Logistics Management Institute (AG801R1, March
1998)--which evaluated the management and implementation of FFIS. 
Further, we reviewed two IG audit reports--Material Control
Weaknesses Will Continue to Impact Departmental Financial Operations
Because of Delayed FFIS Implementation (50801-5-FM, June 1998) and
Implementation of the Foundation Financial Information System -
Changes Need to be Made (50801-4-FM, March 1998)--which evaluated
implementation of FFIS.  In addition, we interviewed Forest Service,
OCFO, NFC, and IG personnel in the region, at headquarters, and at
NFC about FFIS implementation problems and the project plan to
implement FFIS. 

To evaluate the Forest Service's progress in improving its financial
management structure, we reviewed a consultant report--Modernizing
Financial Management at the Forest Service-Financial Management &
Organizational Analysis, Coopers & Lybrand L.L.P.  (#43-3187-7-0325,
March 18, 1998)--and discussed pertinent findings and recommendations
with Forest Service and IG officials. 

We performed our review from May through September 1998 in accordance
with generally accepted government auditing standards.  We requested
comments on a draft of this report from the Secretary of Agriculture
and the Chief of the Forest Service.  The Chief Financial Officer,
USDA, and the Chief Financial Officer, Forest Service, provided us
with oral comments on September 21, 1998, and September 18, 1998,
respectively. 


   MAJOR ACCOUNTING AND REPORTING
   DEFICIENCIES REMAIN
------------------------------------------------------------ Letter :4

The IG recently concluded that because of continuing accounting and
financial reporting weaknesses, he was unable to determine the
reliability of the Forest Service's fiscal year 1997 financial
statements--the first statements the Forest Service has prepared
since those covering fiscal year 1995.  As a result, the IG issued a
disclaimer of opinion on these statements.  The primary reasons for
the IG's disclaimer were that the Forest Service

  -- lacked an integrated general ledger and supporting records
     (subsidiary records) without which a financial system is not
     readily auditable and

  -- had significant reporting errors in its financial statements and
     the supporting records involving its asset, liability, equity,
     revenue, and expense accounts. 

These weaknesses mean that Forest Service managers' ability to
effectively manage operations, monitor revenue and spending levels,
and make informed decisions about future funding needs will continue
to be hampered until corrective measures are completed. 

The IG's report and the notes to the financial statements identified
numerous financial reporting errors, including the following
examples. 

  -- Reliable account balances for the reported $8.2 billion in land,
     buildings, and roads (real property) could not be established. 
     This reported deficiency means that the Forest Service did not
     fully know what property it owned or its value.  The inventory
     and valuation of these real property assets, which represent
     approximately 94 percent of the reported $8.7 billion in total
     property, plant, and equipment and 69 percent of the Forest
     Service's reported $11.8 billion in total assets, were scheduled
     for completion by July 31, 1998--past the July 13, 1998,
     completion date of the IG's audit.  The Forest Service provided
     us with confirmation that 8 of 16 units\5 had completed the
     inventories and the valuations by the scheduled date.  Two
     additional units subsequently completed these tasks.  The Forest
     Service could not provide us with confirmation of completion for
     the remaining 6 units.  Forest Service units had until September
     30, 1998, to reaffirm the accuracy, completeness, and
     consistency of the inventory information.  This information will
     then be reviewed by the IG as part of the audit of the fiscal
     year 1998 financial statements. 

  -- The Forest Service's Fund Balance accounts with the U.S. 
     Treasury, maintained by NFC, were not in balance with the
     amounts reported by Treasury.  The Forest Service records its
     budget spending authority in asset accounts called Fund Balance
     with Treasury, and increases or decreases these accounts as it
     collects or disburses funds.  A net adjustment of approximately
     $826 million to Fund Balance with Treasury was made by NFC to
     balance these accounts for all of USDA, of which a portion
     pertains to the Forest Service.  This net adjustment consisted
     of approximately $1 billion in gross disbursements and $174
     million in gross receipts.  Because USDA's true balances were
     not known, NFC adjusted its records for the difference without
     establishing or analyzing the causes of the difference or
     determining which one was correct.\6 Because most assets,
     liabilities, revenues, and expenses stem from or result in cash
     transactions, errors in the receipt or disbursement data affect
     the accuracy of various Forest Service financial reports,
     including budget execution reports and information reported to
     the Congress. 

  -- The IG could not verify the accuracy of the reported $119
     million in accounts receivable because the Forest Service did
     not maintain centralized records of individual accounts.  Also,
     the IG reported that adjustments to accounts receivable totaling
     about $166 million could not be verified because the automated
     data files documenting the adjustments had been recorded over
     and therefore were no longer available.  Inaccuracies in
     accounts receivable mean the Forest Service (1) may not collect
     all monies due the agency or (2) may anticipate receipt of funds
     that are not legitimately owed. 

  -- Similar to its lack of an adequate system for accounts
     receivables, the Forest Service also continues to lack a system
     that provides detailed records of the reported $263 million in
     accounts payable.  The Forest Service relies on its obligations
     system as a basis to estimate accounts payable.  However, there
     were numerous errors throughout the year in classifying
     obligations as accounts payable.  As a result, Forest Service
     managers estimated the year-end accounts payable balance based
     on a statistical sample of year-end unliquidated obligations. 
     Based on this testing, the Forest Service concluded that
     accounts payable were understated by about $25 million and
     adjusted its records accordingly.  As we have reported in the
     past, while this system deficiency is not indicative of whether
     or not the Forest Service overobligated funds, it precludes the
     agency from readily knowing costs it has incurred and amounts it
     owes on projects at any given point. 


--------------------
\5 The 16 units are comprised of 9 regions and 7 research stations. 

\6 USDA has informed us that it recently determined that a large
portion of the difference related to the misclassification of certain
receipts as "negative disbursements." This misclassification has now
been corrected, according to USDA officials. 


   SERIOUS PROBLEMS PLAGUE FFIS
   IMPLEMENTATION
------------------------------------------------------------ Letter :5

In reports issued since January of this year, we, the IG, and the
USDA's outside consultant have identified serious problems with the
FFIS implementation process.  Specifically, problems have been
encountered transferring data between FFIS and related feeder
systems, maintaining oversight and management control, simplifying
business processes prior to implementation, and fully testing the
system before implementation.  As a result of these problems, the
outside consultant recommended that implementation of the system in
the rest of the Forest Service not proceed on October 1, 1998, as
planned.  The consultant advised USDA to reexamine some of the key
decisions that have caused problems.  In addition, as discussed
below, the Forest Service and OCFO will face additional challenges to
ensure that FFIS and all feeder systems comply with Year 2000
requirements.  The Forest Service has decided to defer implementation
of the system in the remaining Forest Service units until October 1,
1999. 


      IMPLEMENTATION PROCESS HAS
      BEEN FLAWED
---------------------------------------------------------- Letter :5.1

In our February 1998 report, we noted problems with FFIS processing
data and transferring data between FFIS and its feeder systems that
raised questions about the FFIS implementation process.  In that
report, we also noted that the three units where FFIS was implemented
were unable to produce certain critical budgetary and accounting
reports that track the Forest Service's obligations, assets,
liabilities, revenues, and costs, in part, because ending balances
could not be converted from the old accounting system, which is no
longer functional for the implementation units, to the new accounting
system. 

The USDA consultant also identified numerous problems with the FFIS
implementation process.  For example the consultant reported that: 

  -- The program has suffered from insufficient oversight,
     undisciplined management control, conflicting goals, and a lack
     of clear lines of authority and accountability.  This
     fragmentation of responsibility among OCFO, the Forest Service,
     and NFC left no one with an overall view of all the efforts
     needed to make the program succeed.  The recent consolidation of
     NFC FFIS project staff under one senior executive in NFC is a
     good first step to regaining control of project cost, schedule,
     and performance, but it is occurring 3 years into
     implementation. 

  -- Failure of the Forest Service to simplify its business processes
     had a significant negative impact on the successful
     implementation of FFIS.  Although USDA is now modernizing or
     replacing many of its administrative processes and systems, the
     development of FFIS would have been markedly simpler if this
     process had taken place earlier.  One major problem is the
     onerous process the agency uses to classify and allocate costs
     in its accounting records for work performed, which has led to
     greater operational costs.\7 Further, the process is virtually
     impossible to perform because of its demands on computer
     capacity. 

Based on a consultant's\8 recommendation, the USDA OCFO subsequently
established an FFIS Project Management Office that is responsible for
managing the full implementation of FFIS across all USDA agencies. 
This office, which reports directly to OCFO, has FFIS implementation
as its only objective and has been charged with developing a
strategic plan for implementing FFIS and managing the execution of
the plan.  These actions, if accomplished, should provide the focused
attention and independence that is needed to help successfully
implement FFIS. 

The Forest Service also established a team to review its budget and
accounting activities and to recommend how to simplify and improve
its business operations.  This team submitted a report to the Chief
of the Forest Service in July 1998 and made recommendations that were
included in the agency's Financial Management and Accountability
Plan.  These recommendations included

  -- designing a new budget structure,

  -- designing a new structure for management and work codes,

  -- designing specific replacement procedures for retroactive
     redistribution,

  -- designing a specific set of financial management reports, and

  -- creating numerous other proposals to simplify business
     management. 

The Forest Service has completed work on the design of a proposed new
budget structure.  According to the Forest Service, this proposed
structure would reduce the number of budget line items (which contain
funding specified for particular uses) and would allow for better
tracking of expenditures and reporting on performance.  With regard
to the structure of management and work codes, the Forest Service
proposes reducing the number of codes by more than 50 percent.  The
Forest Service believes this reduction would simplify the tracking of
expenditures and would standardize codes throughout the agency. 


--------------------
\7 The Forest Service uses a process called
distribution/redistribution to change accounting codes, object
classes, and other accounting data after the data have been initially
entered and processed.  The agency uses over 100,000 management codes
agencywide, most unique to the local levels.  Each management code
may consist of up to 99 lines of accounting data and may be changed
at any time without specific authorization, approval, or
justification. 

\8 PricewaterhouseCoopers, USDA Framework for the FFIS Project
Management Office (Draft, July 29, 1998). 


      INSUFFICIENT SYSTEM TESTING
      CONTRIBUTED TO FFIS
      IMPLEMENTATION PROBLEMS
---------------------------------------------------------- Letter :5.2

As we reported in February 1998, the overall problems with the system
implementation are due in large part to the lack of complete
integrated testing of the system prior to implementation.  The IG and
a USDA consultant have similarly concluded that inadequate integrated
system testing contributed to extensive problems.  Our prior work\9
at other agencies has shown that lack of adequate testing of systems
before implementation is one of the primary causes of new system
implementation failures. 

The three units where the system has been implemented are continuing
to encounter problems with the new system.  For example, the units
are experiencing reporting problems, data rejects, duplicate
accounting entries, and poor internal controls over access to FFIS. 
In particular, the inability to produce certain critical budgetary
and accounting reports for units that implemented FFIS erodes the
integrity of the Forest Service's financial data.  The units
currently under FFIS represent about one-third of all Forest Service
transactions.  These reports, which have not been generated for
fiscal year 1998, are essential to tracking the Forest Service's
obligations, assets, liabilities, revenues, and costs.\10 Without
them, the Forest Service increases the risk of over-obligation of
budgetary funds and lacks accountability for funds spent to carry out
these units' operations during fiscal year 1998.  Also, the agency's
ability to manage and track its financial activities in these units
is seriously impaired, further complicating the existing problems in
these areas. 

As we noted in our February report,\11 the Forest Service revised the
scheduled completion of FFIS implementation in the three initial
units, including correction of identified reporting deficiencies,
from February 23, 1998, to March 30, 1998.  The scheduled completion
was further revised such that the Forest Service expected the reports
to be available by mid-June.  However, as of September 23, 1998, the
Forest Service was still unable to produce such reports.  According
to a Forest Service official, the agency recently provided the units
currently under FFIS with some examples of internal reports showing
how the financial data would be formatted.  These reports, which were
generated by the new system, did not contain complete accounting data
because the Forest Service was not able to bring balances forward
from the old accounting system, which is no longer functional for the
units where FFIS has been implemented.  On September 23, 1998, a
Forest Service official told us that the agency expected to have the
needed balances and reports that contain complete accounting data by
September 30, 1998. 

USDA's consultant concluded that the rush to implement FFIS at the
Forest Service in October 1997 resulted in bringing the system on
line before adequate integrated testing of the system was completed. 
The consultant also concluded that most of the additional work
required to bring the system on-line has come from the decision to
add more feeder systems to FFIS, the underestimation of the
complexity of this process, and the magnitude of work needed to
transfer the data from the old system to FFIS. 


--------------------
\9 Defense IRM:  Critical Risks Facing New Material Management
Strategy (GAO/AIMD-96-109, September 6, 1996); Department of Energy: 
Poor Management of Nuclear Materials Tracking System Makes Success
Unlikely (GAO/AIMD-95-165, August 3, 1995); and Executive Guide: 
Improving Mission Performance Through Strategic Information
Management and Technology (GAO/AIMD-94-115, May 1994). 

\10 Forest Service officials told us that informal records for these
units were maintained at the field level during fiscal year 1998 in
order to monitor spending levels. 

\11 Forest Service:  Status of Progress Toward Financial
Accountability (GAO/AIMD-98-84, February 27, 1998). 


      ENSURING YEAR 2000
      COMPLIANCE IS AN ADDITIONAL
      CHALLENGE
---------------------------------------------------------- Letter :5.3

Another critical issue that needs to be addressed is ensuring that
FFIS and its feeder systems, as well as all the Forest Service's
other mission-critical computer systems, are Year 2000 compliant. 
The Year 2000 problem is rooted in the way dates are recorded and
calculated in many computer systems.  For the past several decades,
systems have typically used two digits to represent the year in order
to conserve electronic data storage and reduce operating costs.  With
this two-digit format, however, the year 2000 is indistinguishable
from the year 1900.  As a result, system or application programs that
use dates to perform calculations, comparisons, or sorting may
generate incorrect results when working with years after 1999. 

The version of FFIS purchased in 1994 and implemented in the three
units in October 1997 was not Year 2000 compliant.\12 OCFO/NFC
recently installed a Year 2000 compliant version of FFIS and is
renovating related feeder systems that reside within NFC.  OCFO is
currently testing these systems to make sure they function as
intended.  A Forest Service official told us that the agency plans to
have all FFIS feeder systems that reside within the Forest Service
Year 2000 compliant by March 1999.  Complete and thorough Year 2000
testing is essential to provide reasonable assurance that new or
modified systems process dates correctly and will not jeopardize an
organization's ability to perform core business operations after the
millennium. 


--------------------
\12 According to USDA's Acting CFO, at the time the system was
purchased from the General Services Administration's Financial
Management Software Multiple Award Schedule, no Year 2000 compliant
version was available. 


      FFIS IS NOT READY TO BE
      IMPLEMENTED AGENCYWIDE
---------------------------------------------------------- Letter :5.4

Given the nature and magnitude of the aforementioned problems, the IG
and USDA's consultant opposed implementation of FFIS in additional
Forest Service units until system implementation issues are resolved
and recommended that implementation of FFIS throughout the Forest
Service be postponed from October 1, 1998.  The consultant advised
USDA to reexamine some of the key decisions that have caused
problems.  According to the consultant, to correct fundamental flaws
in its current implementation strategy for FFIS, USDA must establish
a plan for modernizing its computer operations, make certain business
process improvements, and improve its methods for setting schedules,
testing systems, and collecting cost data.  In spite of the
identified flaws, however, the consultant agreed that FFIS is the key
to an effective financial management system. 

In April 1998, the Forest Service announced that FFIS implementation
in the remainder of the Forest Service had been delayed another year
to October 1, 1999.  FFIS operations for the units where the system
has been implemented will continue, with emphasis on correcting
implementation problems and getting the system running smoothly.  We
concur that this delay is necessary to ensure that implementation
issues are adequately addressed before proceeding further.  However,
this delay represents a serious setback in the Forest Service's
efforts to achieve financial accountability by the end of fiscal year
1999. 


   CURRENT FIELD STRUCTURE HAMPERS
   ACCOUNTABILITY
------------------------------------------------------------ Letter :6

In our February 1998 report, we stated that the Forest Service's
autonomous organization may hinder top management's ability to gain
full participation of all regional fiscal directors in efforts to
achieve financial accountability.  An independent contractor's report
issued in March 1998, which addressed financial management and
organizational analysis at the Forest Service, also raised the issue
of the agency's autonomous structure.\13 Specifically, the contractor
noted that the Forest Service lacked a consistent structure for
financial management practices.  Further, the contractor reported
that whether the subject is budget execution, financial plan
development, accounting for reimbursable agreements, or creating
management codes, each unit operates independently.  The consultant
characterized it as a "chaotic financial environment" and stated that
it creates inconsistent practices and credibility problems. 

The contractor recommended that the Forest Service establish a new
position of Deputy Chief, Chief Financial Officer, at the national
office in Washington, D.C.  In addition, the contractor stated that
the creation of a Chief Financial Officer and a consolidated
financial management organization in the Washington, D.C., office
needed to be mirrored throughout the field organization and
recommended that a Deputy Regional Forester for Financial
Management/Chief Financial Officer be established within each region. 
The contractor based this recommendation on the need to ensure clear
lines of responsibility and accountability by having a single
executive within each region who is in charge of financial
management, including all accounting, budgeting, financial planning
and analysis, and strategic planning. 

The Forest Service restructured its national office management team
in April 1998 to create functional lines of accountability for fiscal
management that report directly to the Chief of the Forest Service. 
Three new management positions were created:  a Chief Operating
Officer, Deputy Chief/Chief Financial Officer, and Deputy Chief for
Business Operations.  A Forest Service official told us that a
decision about hiring chief financial officers at the regional level
will be made in fiscal year 1999. 

The national office restructuring addresses some of the concerns we
have previously raised regarding management structure.  However, the
key issue regarding the autonomous field structure, as it relates to
financial management, remains unresolved. 


--------------------
\13 Coopers & Lybrand L.L.P., Modernizing Financial Management at the
Forest Service - Financial Management & Organizational Analysis (Job
Order #43-3187-7-0325, March 18, 1998). 


   CORRECTIVE MEASURES ARE
   UNDERWAY
------------------------------------------------------------ Letter :7

While several of the conditions discussed in this report pose a major
challenge to achieving financial accountability, the Forest Service
has taken some positive steps toward resolving some of its
long-standing financial management problems.  For example, the agency
has substantially completed its equipment inventories and is
correcting the erroneous data recorded in its old accounting system
in all units, such as amounts other agencies owe the Forest Service
for work performed on a reimbursable basis.  Further, the Forest
Service issued an accounting desk guide for all staff that provides
uniform accounting instructions for accounts receivable, accounts
payable, real and personal property, and various other types of
transactions.  The Forest Service has also continued to emphasize the
importance of financial accountability to its line managers. 
However, until functional lines of accountability are established in
the regional as well as in the field units, where most of the
transactions originate, there is no assurance that these new
procedures and the desk guide will be consistently followed. 

In addition to those actions mentioned above, the Forest Service and
OCFO have used consultants to help the agency address some of the
barriers it must overcome before it can achieve financial
accountability and has implemented some of the consultants'
recommendations.  Revising the national office's financial management
organizational structure, delaying full implementation of the new
accounting system, and establishing an FFIS project management
structure are three examples of consultants' recommendations that
have been adopted by the Forest Service or USDA.  Further, the Forest
Service and USDA are developing a strategic plan to complete FFIS
implementation in the Forest Service, which addresses the
deficiencies reported by a contractor.  Moreover, the Forest Service
has decided to discontinue its practice of retroactively
redistributing costs from one fund code to another in the three units
where FFIS has been implemented.  The agency has also instructed
units using CAS to curtail this practice. 


   CONCLUSIONS
------------------------------------------------------------ Letter :8

The Forest Service has committed considerable resources, including
extensive use of consultants, to resolving its long-standing
financial management deficiencies.  However, while progress has been
made, the Forest Service's financial management problems are deep
seated, and therefore require significant time and effort to resolve. 
Also, the problems encountered in implementing FFIS have been a major
setback.  Thus, the Forest Service's current goal of achieving
financial accountability by the end of fiscal year 1999 does not
appear feasible. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :9

We requested comments on a draft of this report from the Secretary of
Agriculture and the Chief of the Forest Service.  On September 21,
1998, and September 18, 1998, respectively, we received oral comments
from the Chief Financial Officer, USDA, and the Chief Financial
Officer, Forest Service.  They generally agreed with the findings and
conclusions in this report.  They also provided clarifying comments
that we have incorporated into our report as appropriate. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Secretary of Agriculture;
the Chief of the Forest Service; USDA's Chief Financial Officer; the
Director of the Office of Management and Budget; and other interested
parties.  Copies will also be made available to others upon request. 
Major contributors to this report are listed in appendix I.  If you
or your staffs need further information, please contact me at (202)
512-8341. 

Linda M.  Calbom
Director, Resources, Community,
 and Economic Development, Accounting
 and Financial Management Issues

List of Requesters

The Honorable John R.  Kasich
Chairman
The Honorable John M.  Spratt, Jr.
Ranking Minority Member
Committee on the Budget
House of Representatives

The Honorable Robert F.  Smith
Chairman
The Honorable Charles W.  Stenholm
Ranking Minority Member
Committee on Agriculture
House of Representatives

The Honorable Ralph Regula
Chairman
The Honorable Sidney R.  Yates
Ranking Minority Member
 Subcommittee on Interior and
 Related Agencies
Committee on Appropriations
House of Representatives


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

McCoy Williams, Assistant Director
Meg Mills, Communications Analyst
Carol Langelier, Assistant Director/EDP Specialist

KANSAS CITY REGIONAL OFFICE

Anita Lenoir, Auditor-in-Charge
Maria Rodriguez, Auditor

DALLAS REGIONAL OFFICE

Shannon Cross, Systems Auditor


*** End of document. ***