Forest Service: Year-end Financial Reporting Significantly
Improved, but Certain Underlying Problems Remain (01-MAY-03,
GAO-03-538).
Since 1996, we have periodically reported on Forest Service
financial management problems that we, the U.S. Department of
Agriculture's (USDA) Office of the Inspector General, and other
independent auditors have identified. We have designated the
Forest Service financial management as a high-risk area since
1999. Because of these longstanding financial management
deficiencies, the House Committee on Resource's Subcommittee on
Forests and Forest Health asked GAO to report on the Forest
Service's progress in correcting its financial management
problems and on remaining challenges and actions underway to
address those challenges.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-538
ACCNO: A06799
TITLE: Forest Service: Year-end Financial Reporting
Significantly Improved, but Certain Underlying Problems Remain
DATE: 05/01/2003
SUBJECT: Financial management
Financial management systems
Financial statement audits
Internal controls
Strategic planning
Forest Service Foundation Financial
Information System
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GAO-03-538
A
Letter
May 1, 2003 The Honorable Scott McInnis Chairman The Honorable Jay Inslee
Ranking Minority Member Subcommittee on Forests and Forest Health
Committee on Resources House of Representatives Since December 1996, we
have periodically reported 1 on financial management problems identified
by the U. S. Department of Agriculture*s (USDA) Office of the Inspector
General (IG) in its annual audits of the Forest Service*s financial
statements. In prior reports and testimonies, we discussed (1) how the
lack of accountability raises concerns about the Forest Service*s
stewardship over billions of dollars of taxpayer money appropriated to it,
(2) how its autonomous field structure hampers efforts to achieve
financial accountability, and (3) its progress in correcting its financial
accounting and reporting deficiencies. This report responds to your
request that we continue to monitor the Forest Service*s efforts to
improve its financial management and determine whether the Forest
Service has made progress in resolving previously
reported financial management problems, challenges that the Forest
Service faces in achieving financial accountability, and actions
underway or planned by the Forest Service for resolving
remaining problems. 1 U. S. General Accounting Office, Financial
Management: Forest Service*s Efforts to Achieve Accountability, GAO/ AIMD-
99- 68R (Washington, D. C.: Feb. 8, 1999); Forest Service: Barriers to
Financial Accountability Remain, GAO/ AIMD- 99- 1 (Washington, D. C.: Oct.
2, 1998); Forest Service: Status of Progress Toward Financial
Accountability,
GAO/ AIMD- 98- 84 (Washington, D. C.: Feb. 27, 1998); Financial
Management: Forest Service*s Progress Toward Financial Accountability,
GAO/ AIMD- 97- 151R (Washington, D. C.: Aug. 29, 1997); and Letter to the
Chairman, House Committee on the Budget, GAO/ AIMD- 97- 11R (Washington,
D. C.: Dec. 20, 1996).
Results in Brief In fiscal year 2002, the Forest Service made significant
progress toward achieving financial accountability, receiving its first
unqualified or *clean*
audit opinion on its financial statements. To achieve this milestone, the
Forest Service*s top management dedicated considerable resources and
focused staff efforts to address accounting and reporting deficiencies
that had prevented a favorable opinion in the past. We consider this a
positive step toward achieving financial accountability. However,
sustaining this outcome and achieving financial accountability requires
more than
obtaining reliable onetime year- end numbers for financial statement
purposes. The Forest Service still must overcome several major challenges
before it
can routinely produce reliable and timely financial information to
effectively manage operations, monitor revenue and spending levels, and
make informed decisions about future funding needs for its programs. The
fiscal year 2002 financial statement audit report disclosed material
internal control weaknesses 2 in several areas, including its two major
asset accounts-- fund balance with the U. S. Department of the Treasury
(Treasury) and property, plant, and equipment-- certain estimated
liabilities, payroll processes, computer security controls, and
application software controls related to its procurement and personal
property systems. The
audit report also discussed areas in which the Forest Service*s financial
management systems are not in substantial compliance with Federal
Financial Management Improvement Act of 1996 (FFMIA) 3 requirements. These
relate primarily to the above internal control weaknesses.
2 A material weakness is a condition in which the design or operation of
one or more of the internal control components does not reduce to a
relatively low level the risk that errors, fraud, or noncompliance in
amounts material to the financial statements may occur and not be detected
promptly by employees in the normal course of performing their duties.
3 P. L. 104- 208, title VIII, 110 Stat. 3009- 389 (1996).
As discussed in our prior reports and testimonies, the agency faces the
challenge of replacing or enhancing certain antiquated financial
subsidiary systems* called feeder systems* that transfer data to the
Foundation Financial Information System (FFIS), its standard accounting
system, and implementing a financial management field organization that
supports
efficient and effective day- to- day financial operations. In 1999, we
designated Forest Service financial management as high risk on the basis
of serious financial and accounting weaknesses. 4 Again in our January
2003 report, 5 we reiterated our concerns due to the serious deficiencies
that remain.
The Forest Service has corrective actions underway or planned that are
intended to resolve these problems, including a financial management
strategic plan. If this plan is to serve as a *road map* toward financial
accountability, the Forest Service needs to make sure its strategic plan
is comprehensive-- integrating and prioritizing the various corrective
actions- and includes detailed steps for implementing these actions.
The independent auditor hired by the Forest Service made numerous
recommendations to improve the internal control weaknesses identified
during its audit of the fiscal year 2002 financial statements. We support
these recommendations. In addition, we are recommending to the Chief of
the Forest Service that the Budget and Finance Deputy Chief/ Chief
Financial Officer (CFO) develop a comprehensive financial management
strategic plan to effectively manage the improvement efforts underway and
planned. The Forest Service concurred with our recommendations and it is
developing a strategic plan.
Background The Forest Service, a component of the USDA is responsible for
maintaining the health, diversity, and productivity of the nation*s
forests
and grasslands to meet the needs of present and future generations. This
mission is carried out through the use of several programs, the largest
being the National Forest System. Through the National Forest System, the
Forest Service manages about 192 million acres, comprising about 8.5
4 U. S. General Accounting Office, High- Risk Series: An Update, GAO/ HR-
99- 1 (Washington, D. C.: January 1999). 5 U. S. General Accounting
Office, High- Risk Series: An Update, GAO- 03- 119 (Washington, D. C.:
January 2003).
percent of the total surface area of the United States. On these lands,
the Forest Service, among other things, supports recreation, sells timber,
provides rangeland for grazing, and maintains and protects watersheds,
wilderness, fish, and wildlife. In addition, the Forest Service provides
financial and program support for state and private forests and undertakes
research activities. The Forest Service, headed by a chief, conducts its
activities through 9 regional offices, 6 research offices, 1 state and
private forestry area office, the Forest Products Laboratory, and the
International Institute of Tropical Forestry. In addition, the National
Forest System has
155 national forest offices and more than 600 ranger district offices. The
Chief of the Forest Service manages from the national office,
headquartered in Washington, D. C., and provides national- level policy
and direction to the field offices. The Forest Service has approximately
30, 000 employees and a budget of over $5 billion to carry out its
mission. The Forest Service Budget and Finance Deputy Chief/ CFO is
responsible for the financial accountability of funds appropriated by the
Congress for Forest Service programs and reports to the Forest Service
Chief. The Chief Financial Officers Act of 1990 calls for CFO Act
agencies, such as USDA, to have financial management systems, including
internal control,
that provide complete, reliable, consistent and timely information. The
Government Management Reform Act of 1994 (GMRA) requires the CFO Act
agencies to prepare and have audits of annual financial statements. FFMIA
builds on the foundation laid by these acts by emphasizing the need for
agencies to have systems that routinely generate timely, accurate, and
useful information. Specifically, FFMIA requires that the auditor report
on
whether the agencies* financial management systems substantially comply
with (1) federal financial management systems requirements, (2) applicable
federal accounting standards, and (3) the U. S. Government Standard
General Ledger (SGL) at the transaction level 6 requirements. As
authorized by GMRA, the Office of Management and Budget is responsible for
identifying components of the designated CFO Act agencies that are
required to have audited financial statements. OMB requires that the
Forest Service, a major component of USDA, have audited financial
statements.
6 The SGL provides a standard chart of accounts and standardized
transactions that agencies are to use in all their financial systems.
Since its first financial statement audit for the fiscal year ended
September 30, 1991, the Forest Service has faced numerous serious
accounting and financial reporting weaknesses that have prevented it from
receiving a positive audit opinion. These are shown in table 1.
Tabl e 1: Forest Service History of Audit Opinions Fiscal year Opinion
Explanation
1991 Adverse Major inaccuracies in the financial statements. 1992 Adverse
Major inaccuracies in the financial statements. 1993 Qualified Pervasive
errors in the field- level data supporting 1994 Qualified
the land, buildings, equipment, accounts receivable, and accounts payable.
1995 Adverse Continuing pattern of unfavorable conclusions
about the Forest Service*s financial statements. Several shortcomings in
accounting and financial data and information systems were identified.
1996 No Audit 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. 1997 Disclaimer Unable to
reliably track and report on major assets
worth billions of dollars, including accounts receivable, real property,
and accounts payable. Also errors in records of fund balances with
Treasury. 1998 Disclaimer Lack of basic accountability for major assets
and liabilities; the inability to accurately track the cost of programs
and activities, and significant reporting errors in the Forest Service
financial statements and supporting records.
1999 Disclaimer Unable to determine accuracy of property, plant, and
equipment and unable to verify fiscal year fund balance with Treasury
because of lack of
reconciliations and unsupported balances remaining from its old accounting
system.
2000 Disclaimer Material internal control weaknesses existed in the 2001
Disclaimer
financial statement compilation process and in procedures for compiling
the balances for fund balances with Treasury and general property, plant,
and equipment. Because of these weaknesses, the agency was not able to
provide timely, sufficient, and competent evidential matter to support
amounts in the financial statements.
Source: GAO Analysis.
In the past, we have reported and testified that the Forest Service*s (1)
unreliable financial data hampers the agency*s and the Congress* decision-
making ability, (2) lack of accountability exposes the agency to
mismanagement and misuse of its assets, and (3) autonomous field structure
hampers efforts to achieve financial accountability. In January 1999, due
to the longstanding serious accounting and financial reporting problems,
we designated Forest Service financial management as a highrisk area. We
continued to designate financial management at Forest Service as high-
risk in our 2003 report. Since 1997, the IG and independent auditors have
continued to report instances of noncompliance with certain federal
financial accounting and information system requirements and internal
control weaknesses related to Forest Service financial computer systems.
The Forest Service, a component of USDA, uses and depends on many
financial management systems and services provided by USDA, including the
USDA National Finance Center (NFC). Therefore, efforts to improve controls
over certain financial management computer systems and internal controls
over accounting processes must be made in cooperation with USDA and NFC.
For example, the Forest Service uses the USDA
Foundation Financial Information System as its standard accounting system.
In addition, NFC maintains and controls entry of many Forest Service
transactions into FFIS. NFC also reports expenditures and collections it
processes on the Forest Service*s behalf to Treasury. FFIS also depends on
and receives data from feeder systems used by the Forest Service to record
its transactions. Many of the Forest Service*s longstanding problems with
regard to its accounting and information systems are a result of outdated
technology of the financial feeder systems that transfer accounting data
to FFIS. Scope and
To address each of our objectives, we analyzed prior IG, consultant, and
Methodology
independent auditor reports including the audit report on the Forest
Service*s fiscal year 2002 financial statements that described several
financial management weaknesses and their effect on the Forest Service*s
ability to properly account for assets worth billions of dollars entrusted
to
its care. Further, we examined the Forest Service*s financial management
policies, procedures, and processes, including completed, ongoing and
planned activities and related implementation schedules to determine the
Forest Service*s progress, plans, and milestones for addressing financial
management problems. We attended a Forest Service Budget and Finance
planning conference and a financial statement training session conducted
by the USDA CFO to gain a further understanding of Forest Service efforts
to improve its financial statement compilation processes and overcome
other financial management challenges. We analyzed reported financial
management problems against the corrective actions taken to determine the
remaining challenges. Further, we discussed the remaining challenges and
the status of improvement efforts with officials from USDA and the Forest
Service Office of the Chief Financial Officer, the USDA IG, and
independent contractors working for the Forest Service. We also visited
and interviewed financial management staff at five Forest
Service field locations. We visited the Intermountain Regional Office, the
largest of the National Forest regions, because it processes a wide
variety of financial accounting transactions. We also visited the Southern
Regional Office, National Forest of North Carolina Supervisor*s Office,
Mt. Pisgah District Ranger Office, and North Carolina Research Station,
each representing a different level of the financial management field
organization. At each location, we interviewed staff and performed
walkthroughs to obtain an understanding of accounting processes and
procedures for certain accounts material to the financial statements, such
as accounts receivable; property, plant, and equipment; other liabilities;
and certain collections/ revenues, such as timber sales. We performed our
fieldwork from July 2002 through March 2003 in
accordance with generally accepted government auditing standards. We
requested written comments on a draft of this report from the Chief of the
Forest Service or his designee. The Chief of the Forest Service provided
us with written comments, which are discussed in the *Agency Comments and
Our Evaluation* section and reprinted in appendix I.
The Forest Service Has The Forest Service has made significant progress
toward achieving
Made Significant financial accountability. For the first time since its
initial financial statement audit that covered fiscal year 1991, the
Forest Service received Progress toward
an unqualified or *clean* opinion on its fiscal year 2002 financial
Achieving Financial
statements. To achieve this milestone, the Forest Service*s top
Accountability
management dedicated considerable resources and focused staff efforts to
address accounting and reporting deficiencies that had prevented a
favorable opinion in the past. Historically the Forest Service*s financial
management systems have not
generated timely and accurate financial statements for its annual audit.
In addition, the Forest Service has had long- standing material weaknesses
with regard to its two major assets-- fund balance with Treasury and
property, plant, and equipment. In the past, such weaknesses prevented the
IG from validating these two line items on both the Forest Service and the
USDA departmentwide financial statements. In fiscal year 2002, the Forest
Service reorganized the Budget and Finance Deputy Chief/ CFO area and
focused staff efforts to address reporting and accounting deficiencies
identified in the fiscal year 2001 financial statement audit with the goal
that the fiscal year 2002 financial statements would pass audit tests. To
assist in these efforts, the Forest Service hired senior financial
management
officials, consultants and contractors and formed a financial reports team
and several reconciliation *strike* teams to improve (1) the financial
statement compilation process and (2) reconciliations of its major
accounts, including fund balance with Treasury and property, plant, and
equipment.
During fiscal year 2002, the financial reports team completed a number of
efforts to improve the compilation process. For example, the team held a
series of financial statement workshops for national office and field
staff, updated the methodology for preparing the fiscal year 2002
financial statements, and provided the necessary information to complete
the audit, such as account analyses and supporting documentation for
sample transactions selected for testing. Six reconciliation strike teams,
consisting of contractors with expertise in reconciliation procedures and
experienced Forest Service staff, performed
financial statement account reconciliations and reviews to help ensure the
accuracy and timeliness of recorded accounting data and that subsidiary
ledgers were reconciled to general ledger accounts. The strike teams
analyzed account data, identifying accounting errors and documenting
adjustments to key asset, liability, and budgetary accounts in order to
achieve accurate account balances. The fund balance with Treasury team
focused on reconciling material fiscal year 2002 and prior- year cash
transactions. The property, plant, and equipment reconciliation team
analyzed transaction data to identify inaccurate records and reconciled
the general ledger to its supporting detailed records. In addition, the
property, plant, and equipment strike team, in cooperation with the USDA
Office of
the Chief Financial Officer, the USDA IG, and consultants, worked to
ensure that property documentation supported property records, inventories
were complete, and property was valued correctly. Further, the property,
plant, and equipment reconciliation team, worked with USDA on
modifications and enhancements to certain property feeder
systems. For example, in September 2002, USDA completed an automated
interface with the Infrastructure Real Property Subsidiary System (INFRA)
and FFIS. INFRA was revised to improve security by implementing controls
such as user access restriction and password protection. Also, access to
key data elements in the Personal Property System (PROP) and the Equipment
Management Information System (EMIS) was restricted by September 2002 in
order to address security weaknesses. At the same time, certain automated
error checks were added to EMIS to help ensure data integrity. While the
primary focus of the reports and reconciliations teams was to
help attain a clean fiscal year 2002 audit opinion, the teams have been
institutionalized to work toward sustainable report compilation and
reconciliation processes. Through these established account
reconciliations and analyses, the teams are able to identify many of the
underlying causes of inaccurate data and out of balance conditions.
Specifically, according to the Forest Service CFO management, many of the
problems are caused by improper recording of transactions, FFIS system
problems, faulty interfaced and integrated feeder systems, lack of
consistent formal policies and procedures, lack of staff training and
manual accounting processes prone to human error. By understanding the
root causes, the Forest Service has resolved some of the problems
identified. For example, the strike teams coordinated with USDA to correct
several
programming errors 7 in FFIS that were causing inappropriate accounting.
For instance, the fund balance with Treasury team found that fund
transfers between Forest Service units for equipment usage, which are
noncash transactions, were incorrectly recorded and reported to Treasury
as cash collections. As result, the Forest Service*s fund balance account
at Treasury was being overstated by these amounts. During fiscal year
2002, the Forest Service CFO management also issued
new policies and procedures or revised existing ones to help ensure the
quality and integrity of the financial data in FFIS and the feeder
systems. To communicate these changes, the Forest Service CFO issued over
25 CFO bulletins to accounting staff as the need for accounting and
reporting controls were identified. For example, the CFO issued several
bulletins that provided guidance on the proper recording of transactions,
such as the
7 FFIS is programmed to debit or credit certain general ledger accounts
based on identifiers, such as job code and transaction identification
number and type, used to record the accounting event.
types of transaction codes to use when entering data into FFIS. The CFO
also issued bulletins (1) requiring analysis of delinquent bills to
determine their collectability and (2) to clarify documentation
requirements for personal and real property transactions.
Further, Forest Service management continued to emphasize the importance
of financial accountability to its line managers in the field. In April
2002, the Forest Service CFO implemented a set of financial
performance indicators to monitor progress of the field staff in
maintaining its accounts, including progress in clearing suspense account
8 items, monitoring collection of receivables, and compliance with CFO
accounting guidance.
Despite Progress Achieving financial accountability involves more than
obtaining a clean Made, Accountability
audit opinion by producing reliable onetime year- end numbers for
financial statement purposes. The Forest Service still must overcome many
Challenges Remain challenges to sustain this outcome and to reach the end
goal of routinely having timely, accurate, and useful financial
information. In its December 2002 report on the Forest Service*s fiscal
year 2002 financial statements, the auditor, KPMG Peat Marwick LLP (KPMG),
continued to identify serious material internal control weaknesses and
FFMIA noncompliance issues primarily related to weaknesses in controls
over financial management computer systems that could adversely affect the
Forest Service*s ability to record, process, summarize, and report
financial data in a timely manner.
The auditor attributed many of the deficiencies identified to lack of
adequately trained staff; lack of manual internal control procedures, such
as supervisory reviews; and poor automated controls, such as user access,
system edits and system interfaces, within the FFIS and certain feeder
systems that transfer the data to FFIS. As discussed in table 2, the
auditor
made several recommendations to address these conditions. We support these
recommendations and are not making any new recommendations in these areas.
8 Suspense accounts are used to temporarily hold collections and
disbursements until
disposition is determined and they can be properly classified in the
applicable receipt or expenditure budget accounts.
In addition, the IG, Forest Service contractors, and we have reported
longstanding problems regarding the Forest Service*s financial management
systems and its financial management organization. Many of the legacy
feeder systems that transfer data to FFIS are antiquated technology and
must be enhanced or replaced. The agency also faces the challenge of
implementing a financial management field organization that supports
effective and efficient day- to- day financial operations. Unless the
Forest Service addresses these issues and moves to sustainable financial
management processes, it will have to continue to undertake extraordinary,
costly efforts, outside of its normal business processes, to sustain clean
audit opinions. Further, management*s ability to routinely obtain reliable
financial information to effectively manage operations, monitor revenue
and spending levels, and make informed decisions about future funding
needs will continue to be hampered.
Remaining Internal Control Our Standards for Internal Control in the
Federal Government 9 requires
and FFMIA Compliance that agencies implement a strong internal control
system that provides the Deficiencies Need to Be
framework for the accomplishment of management objectives, accurate
Resolved
financial reporting, and compliance with laws and regulations. It contains
the specific internal control standards to be followed. These standards
define internal controls as the policies, procedures, techniques, and
mechanisms that enforce management*s directives. They help ensure that
actions are taken to address risks and are an integral part of an entity*s
accountability for stewardship of government resources. The lack of good
internal controls puts an agency at risk of mismanagement, waste, fraud,
and abuse. Further, without strong internal controls, an agency is unable
to generate the consistent, reliable financial information needed to
maintain ongoing accountability over its assets. In its fiscal year 2002
audit report on the Forest Service*s financial
statements, the auditor continued to report serious internal control
weaknesses with regard to the Forest Service*s two major asset accounts-
fund balance with Treasury and property, plant, and equipment. Also, KPMG
reported material deficiencies related to certain estimated
9 See U. S. General Accounting Office, Standards for Internal Control in
the Federal Government, GAO/ AIMD- 00- 21. 3.1 (Washington, D. C.:
November 1999), which contains the internal control standards to be
followed by executive agencies in establishing and maintaining systems of
internal controls as required by 31 U. S. C. Section 3512( c), (d),
commonly called the Federal Manager*s Financial Integrity Act of 1982.
liabilities, payroll processes, general controls and certain application
software computer controls. The following table provides a brief
description of each of the reported deficiencies and recommendations for
improvement.
Tabl e 2: Forest Service Material Internal Control Weaknesses Financial
management area Conditions and recommendations reported by auditor
Fund balance with the While the Forest Service has progressed in fiscal
years 2001 and 2002 in reconciling its fund balance with Tr ea s ur y
Treasury accounts, control deficiencies still exist in its reconciliation
processes. The Forest Service had a
large backlog of unreconciled items that needed to be researched and
resolved. In order to bring the Forest Service*s fund balance with
Treasury accounts into balance with Treasury records as of September 30,
2002, the Forest Service recorded an adjustment of $107 million. The
auditor recommended that the Forest Service document its reconciliation
processes, establish a point of contact at the National Finance Center to
assist in the reconciliation process, analyze and determine the proper
disposition of its budget and clearing accounts, and allocate the
necessary resources to complete monthly reconciliations in a timely
manner.
Property, plant, and Material deficiencies in the controls related to the
accurate recording of property, plant, and equipment equipment
transactions remain. For example, there were instances in which recorded
amounts did not agree with supporting documentation and inappropriate
payroll expenses were included in property values instead of being
recorded as expenses, resulting in an overstatement of property and an
understatement of expenses. Further, the Forest Service did not have
effective controls over the initial recording of acquisition costs,
inservice
date, and useful life of property items. Because the Forest Service did
not require reviews of data input for property transactions by a
supervisor, another independent person or by system checks within property
systems, certain property items were not recorded properly. The auditors
recommended that the Forest Service train personnel on accurate
transaction recording, require supervisory review of data input of
property transactions, and design and implement a control methodology that
verifies recording of acquisition costs, in- service date, and useful life
and other critical elements, to ensure proper depreciation of capital
assets.
Accrued liabilities The Forest Service*s proposed methodology for
estimating certain liabilities, such as grants, was not accurate and did
not substantially support the unpaid amount of services that had been
delivered as of year- end. In addition, the proposed methodology did not
consider payments to states, which are recorded as liabilities as of
September 30. If the Forest Service had used its proposed methodology,
both its accrued
liabilities and associated expenses would have been understated for fiscal
year 2002. As a result, sampling methodologies were used to project the
year- end balance. The auditor recommended that the Forest Service develop
a new methodology for estimating liabilities and maintain the supporting
documentation used to determine the estimate.
Payroll process Serious automated control deficiencies existed with the
Forest Service*s payroll time card entry system. For example, it allowed
the Forest Service users to submit their time sheets for approval to an
employee that was not the designated supervisor. In some locations, the
employee could send the time sheet to him/ herself for approval. In
addition, deficiencies in manual controls over the payroll process
existed, such
as missing employee and/ or supervisor signatures. The auditor recommended
that the Forest Service implement controls to ensure that employees*
supervisors appropriately review and approve their subordinates* time
sheets, reinforce the requirement for time sheets to be signed by both the
employee and supervisor, and reconcile and biweekly certify its payroll
registers to its personnel listing.
General and software The Forest Service had material deficiencies in its
general controls a environment. For example, controls for application
controls determining the trustworthiness of personnel, such as background
checks, and limiting access to
information systems needed improvement. Software application controls b
related to procurement, and real and personal property feeder systems also
needed improvement. Without sufficient application controls, the Forest
Service is exposed to the risk of its property records being corrupted,
lost, or altered, and errors and omissions not being prevented, detected,
and corrected. The auditor recommended several actions for improving
controls over user access, system interfaces, system edits, separation of
duties, and data accuracy and completeness. c
Source: GAO analysis.
a General controls include the structure, policies, and procedures that
apply to the agency*s overall computer operations, for example: security
management programs, access control, application software development and
change, system software control, segregation of duties, and service
continuity. b Application controls covers the structure, policies, and
procedures designed to help ensure the
accuracy, completeness, authorization and validity of all transactions
during the application process. Application controls play a crucial role
in the auditability of these feeder systems. c Due to the sensitive nature
of the issues identified, the auditor provided the Forest Service with a
separate limited- distribution report that contains the detailed findings
and specific recommendations.
Further the auditor reported that the Forest Service*s systems did not
substantially comply with the three requirements of the FFMIA-- federal
financial management systems requirements, applicable federal accounting
standards, and the U. S. Government Standard General Ledger at the
transaction level. One example of noncompliance with federal financial
management systems requirements was that the Forest Service did not have
required certification and accreditations of security controls performed
timely on its procurement and property systems. Further, the Forest
Service did not record revenue for certain collections, such as map sales
and camp site reservation fees, when they were collected, as required by
federal accounting standards. 10 Instead, collections and fees were
recorded in a suspense account and revenue was recognized when the money
was used for other operational needs instead of when the revenue was
actually earned. This practice could result in revenues and related costs
being misstated on the Forest Service*s financial reports.
Financial Management Weaknesses in the Forest Service*s financial
management systems continue Systems Remain an
to hamper its ability to achieve sustainable financial transaction
processing Obstacle to Achieving
and reporting. In the past, the IG and we have reported long- standing
Sustainable Accountability
problems with the feeder systems that process and transfer financial
information into FFIS. Several of the feeder systems that generate data
used to support the financial statements predate FFIS and have antiquated
technology. Because significant differences existed between the data in
the FFIS general ledger and its supporting detail in the feeder systems,
financial statements produced by FFIS could not be relied upon. For
example, the Forest Service uses several feeder systems to support its
multibillion dollar property, plant, and equipment line item in its
financial statements, including (1) Infrastructure Real Property
Subsidiary System (INFRA), (2) Personal Property System (PROP), and (3)
Equipment
10 Statement of Federal Financial Accounting Standard No. 7, Accounting
for Revenue and Other Financing Sources, requires collections be recorded
as revenue at the point of sale.
Management Information Systems (EMIS). These feeder systems also rely, in
some cases, on data transferred from other lower level (subsidiary) feeder
systems. In prior years, material internal control weaknesses in the
compilation of the property, plant, and equipment balance contributed to a
disclaimer of an opinion on the Forest Service*s financial statements.
In preparation for the fiscal year 2002 audit, the Forest Service engaged
a consultant to perform extensive procedures to arrive at an opening
(October 1, 2001) property, plant, and equipment balance using statistical
sampling of property records. The existing data was examined for erroneous
and duplicate records through a variety of means, including checks for
mathematical accuracy and comparisons with physical records
and inventories. During this process, the consultant discovered that the
lack of and/ or faulty interfaces between these feeder systems and FFIS
resulted in erroneous postings to the property, plant, and equipment
account. Although the Forest Service has made certain improvements to its
property feeder systems during fiscal year 2002, more needs to be done to
improve the quality and integrity of financial data in FFIS and the feeder
systems.
In its fiscal year 2002 report on Forest Service*s Information Technology,
11 the auditor reported certain weaknesses in internal controls related to
the feeder systems. For example, the auditor found duplicate and dropped
records after data was transferred between PROP, the Purchase Order Normal
Tracking and Inventory System, and the Purchase Order System. The auditor
also reported that system data validation and error detection controls
were ineffective in EMIS. Further, the auditor reported weaknesses related
to the Automated Timber Sales Accounting System (ASTA). Specifically,
there were no controls built into ASTA to prevent duplicate transactions
from being recorded. As a result, field unit staff had to manually review
the data to identify any transactions that were erroneously entered more
than once.
We visited and interviewed financial management staff at five Forest
Service field offices about the accounting processes and systems used to
obtain a *field* perspective on financial management problems and the
11 As part of the fiscal year 2002 financial statement audit of Forest
Service*s financial statements, the auditor conducted a review of the
Forest Service*s information and technology general and application
controls. Due to the sensitive nature of the findings, the auditors issued
a separate restricted report to Forest Service Management.
status of improvement efforts. At the field offices we visited, the
financial management staff told us that system issues affect their
operations. For example, one field office uses the Timber Information
Management (TIM) system, an upfront system used to record the initial
information and produce bills for timber sales and wood product permits.
Since the system does not interface with FFIS, users have to manually
enter the timber sale deposits and permit sales into FFIS. Lack of an
automated interface between the systems increases workload as well as the
risk of input errors. Problems with the financial management systems
continue to hamper the
Forest Service*s ability to move to sustainable processes. Until the
Forest Service resolves its systems problems, the financial statements
produced by FFIS cannot be relied upon without significant manual
intervention to reconcile differences between FFIS and the feeder-
systems. Resolving these differences consumes personnel and other
resources and limits the
Forest Service*s ability to have reliable financial information on an
ongoing basis for day- to- day management.
An Efficient and Among the other challenges that the Forest Service faces
is establishing an Effective Financial
efficient and effective organization to accomplish financial management
activities. The highly decentralized organizational structure of the
Forest Management
Service*s financial management presents significant challenges in
achieving Organization Is Key to
financial accountability. Under the current organization, financial
activities Achieving Financial
are performed and recorded at the Forest Service national office, nine
regional forest offices, six research stations and USDA NFC as well as at
Accountability hundreds of forest and district ranger offices where many
transactions
originate. The decentralized financial management organization presents a
significant challenge because the Forest Service*s national office
financial management team is tasked with ensuring that staff at hundreds
of field locations are routinely processing accounting transactions
accurately and consistently, in accordance with management directives.
Since February 1998, we have reported that the Forest Service*s autonomous
and decentralized organizational structure could hinder management*s
ability to achieve financial accountability. In March 1998, an independent
contractor, hired by the Forest Service to assess the agency*s financial
management and organization, also raised the issue of the
agency*s autonomous organizational structure. The contractor reported that
the Forest Service lacked a consistent structure for financial management
practices and that each field unit was operating independently. In
response to these concerns, the Forest Service
conducted a Financial Management Field Operation Assessment (FOA), which
was completed in March 2001. As part of the assessment, the FOA project
team evaluated the current level of accountability for financial
management and made six recommendations to strengthen lines of
responsibility and accountability. Specifically, the team recommended that
the Forest Service (1) ensure that appropriate delegation of authority is
in place, (2) finalize performance measures for financial management, (3)
appoint field directors as responsible financial accountability officers
for their respective units, (4) appoint deputy chiefs in the national
office as responsible financial accountability officers for their units,
(5) provide training and develop core competencies, and (6) establish
policies and guidelines addressing the development, implementation, and
financing arrangements for shared services agreements related to financial
activities.
The Forest Service has taken several actions to address the FOA
recommendations related to the autonomous field structure to improve
accountability for financial management in the field and throughout the
organization. For example, the agency restructured its national office
financial management team to create functional lines of accountability for
Budget and Finance management, under the leadership of the deputy CFO, who
reports directly to the Chief of the Forest Service. The Forest Service
also appointed field directors (regional foresters, research station
directors, etc.) to serve as the responsible financial accountability
officers for their units. Further, beginning in 2001, the Forest Service
began to restructure its regional offices to mirror the national office*s
financial
management structure. Currently, six of the nine regional offices have
consolidated budget and finance functions, under the direction of a
financial director who is responsible for financial management activities
in the region. Another regional office is in the process of restructuring
its financial management organization. The two remaining regional offices
have no definite plans to change their financial management structure.
While this is a good first step in resolving the autonomy of the Forest
Service field offices, the Forest Service has not determined how best to
structure the regions and related suboffices to create an efficient and
effective organization to accomplish financial management activities. At
the five field offices we visited, the financial management field staff
told us that, although progress is being made, more needs to be done to
move to sustainable financial transaction processing and reporting in the
field. For example, staff reported that they need more training on FFIS
and updated policy and procedure manuals. They also stated that the
national office needs to improve communication with the field to obtain
better
understanding of field business processes and to solicit more input from
the field staff in developing accounting and reporting policies and
procedures. The Forest Service CFO management acknowledges that creating
an
effective and efficient organizational structure is critical to
establishing sustainable processes and addressing many of the financial
management issues and challenges that Forest Service faces, including
improving internal controls over its accounting functions, such as
adequate supervisory review, and over other areas of weakness noted by the
auditors;
providing training programs and on the job training opportunities for
accounting field staff; and
providing adequate oversight to ensure accurate and consistent
processing of accounting transactions. In 1999, we designated financial
management at the Forest Service to be
high risk because of serious financial and accounting weaknesses that had
been identified and not corrected, in the agency*s financial statements
for a number of years. We continued to designate financial management at
Forest Service as high risk in our 2003 report. In order to be removed
from the high- risk list, the Forest Service, at a minimum, will need to
demonstrate sustained accountability over its assets on an ongoing basis.
Corrective Actions Are While the conditions discussed above present a
major challenge to Underway or Planned
achieving financial accountability, the Forest Service has several efforts
underway or planned, that if implemented, should help to resolve many of
to Resolve Remaining
its financial management problems and to move toward sustainable Problems
financial management business processes. Such efforts are designed to
address internal control and noncompliance issues identified in the fiscal
year 2002 audit report as well as address feeder system and organizational
issues. To assist in its efforts, the Forest Service CFO management is
developing a financial management strategic plan intended to provide
direction for continued improvement efforts and a mechanism to monitor and
evaluate performance. To be effective, this plan should be comprehensive--
providing a detailed road map of the steps, resources, and time frames for
achieving the end goal of sustainable financial management.
To address the fiscal year 2002 internal control and FFMIA audit findings,
the fund balance with Treasury reconciliation team has documented its
reconciliation procedures and is working with NFC to develop a fund
balance with Treasury reconciliation process to assist in timely research
and resolution of reconciling items related to fund balance with Treasury
activities that are processed by NFC on the Forest Service*s behalf.
According to Forest Service CFO management, the reconciliation process
should be in place by August 2003. The property, plant, and equipment
reconciliation team has started a project to update existing policies and
procedures and plans to issue revised property, plant, and equipment
manuals during fiscal year 2003. The property, plant, and equipment team
is also continuing to analyze property data files and reconcile data in
property feeder systems to data in FFIS monthly. In January 2003, CFO
management developed and implemented an automated system to track and
monitor the status of issues identified by the reconciliation teams to
help ensure timely resolution. They also hired a training coordinator to
develop standardized training programs and two additional staff to update
all financial policy and procedure manuals. The Forest Service is also
continuing to work with USDA to enhance or replace the feeder systems in
an effort to resolve data transfer problems between feeder systems and
FFIS. For example, it is currently exploring an option for replacing the
Forest Service*s three property feeder systems with a single USDA- wide
property system. A decision on the system will be
made by December 2003. The Forest Service expects to begin implementing
the system in fiscal year 2004. Also, the Forest Service is scheduled to
pilot the Integrated Acquisition System (IAS) by fiscal year 2004. IAS is
a procurement system that will replace the current purchase order system
and will link to FFIS. IAS will support three major procurement processes:
requisitioning, purchasing, and contracting.
In addition to the efforts mentioned above, the Forest Service is
evaluating options for a more efficient financial management organization.
In November 2002, it formed the Financial Management Efficiency Team to
assess financial management roles and responsibilities and evaluate models
for an efficient financial management organization. In January 2003, the
team submitted a draft proposal for financial management roles and
responsibilities throughout the organization and is scheduled to submit
its recommendation for a financial management organization in June 2003.
According to CFO management, the team is expected to make a detailed
recommendation for a consolidated accounting and fund control
organization either at each regional office or within multiregional shared
services centers located at selected regional offices. The Forest Service
has several strategic plans that include many of the financial management
improvement efforts. For example, the Forest Service prepares agencywide
strategic plans and annual performance plans as required by the Government
Performance and Results Act. Also, the Forest Service*s Budget and Finance
Deputy Chief units prepare annual project plans. However, the agencywide
strategic and performance plans are broad in scope and focus on high-
level goals and objectives. The annual project plans are narrowly focused
on specific short- term projects. These plans are not an adequate
substitute for a comprehensive financial management implementation
strategy because they do not integrate all the improvement efforts and do
not include the critical elements needed to
effectively manage an overall strategy that will succeed in achieving and
sustaining financial accountability. Forest Service CFO management is
developing a financial management
strategic plan intended to provide direction for continued improvement
efforts and a mechanism to monitor and evaluate performance. This plan is
designed as a working tool, evolving over 3 to 5 years, which will be
reviewed and updated annually. In January 2003, the plan was introduced at
the Forest Service*s Budget and Finance planning conference. According to
Forest Service CFO management the initial plan will be
completed by June 30, 2003. To be effective, the Forest Service*s plan
should combine all the financial management improvement efforts into an
overall comprehensive financial management implementation strategy. Such a
strategy is a critical tool for the Forest Service, serving as a road map
to help in resolving financial management problems. An effective plan
includes long- term and shortterm plans with clearly defined goals and
objectives and specific corrective actions, target dates, and resources
necessary to implement those actions. A comprehensive plan also
prioritizes projects and assigns accountability
by identifying responsible offices and staff responsible for carrying out
the corrective actions. Without such a plan, it will be difficult to fix
accountability for its many efforts and effectively monitor progress
against its end goals.
Conclusion The Forest Service has demonstrated strong leadership and
commitment to reach its goal of obtaining an unqualified opinion on its
fiscal year 2002
financial statements. At the same time, many of the financial management
improvement efforts implemented to date are outside of normal business
processes and focus mainly on obtaining reliable year- end numbers for
financial statement purposes. The Forest Service still must overcome
several major challenges before it can move to sustainable processes that
can routinely provide accurate, relevant, and timely information to
support program management and accountability. The Forest Service is at a
critical juncture. If the Forest Service is to achieve and sustain
financial accountability, it must fundamentally improve its underlying
internal
controls, including financial management computer system controls, and
financial management operations. The Forest Service has various efforts
underway or planned, that if successfully carried through, will be
important
steps toward addressing the financial management challenges it faces.
However, to date, several problems identified by the IG, KPMG, and us
remain. Some of Forest Service problems are deep- seated and therefore
will require sustained leadership and commitment of significant resources
and time to resolve. The number and significance of the issues still
facing the Forest Service emphasizes the need for a comprehensive strategy
to manage the various initiatives underway or planned.
Recommendations for To help ensure sustained commitment and timely
implementation of
Executive Action financial management improvement efforts, we recommend
that the Chief
of the Forest Service direct the Chief Financial Officer to develop a
comprehensive financial management strategic plan that
clearly defines long- term and short- term financial management goals
and objectives;
specifies corrective actions to address financial management challenges,
including internal control weaknesses, FFMIA compliance deficiencies,
system problems and organization issues;
includes target dates and resources necessary to implement corrective
actions; identifies the responsible parties for carrying out corrective
actions; and prioritizes and links the various improvement initiatives
underway and
planned, including USDA financial management systems enhancement efforts.
Agency Comments and In written comments on a draft of this report, the
Forest Service concurred
Our Evaluation with our recommendations to develop a comprehensive
financial management strategic plan that defines financial management
goals,
specifies corrective actions, identifies target dates and resources
needed, identifies responsible parties, prioritizes and links improvement
initiatives, and provides details on financial management systems
enhancements. Forest Service*s response (see appendix I) stated that
preparation of a
financial management strategic plan is in process. As agreed with your
office, unless you publicly announce its contents earlier, we will not
distribute this report for 30 days. At that time, copies of this report
will be sent to the congressional committees with jurisdiction over the
Forest Service and its activities; the Secretary of Agriculture; and the
Director of the Office of Management and Budget. We will also make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO web site at http:// www. gao. gov.
If you or your staff have any questions please contact me at (202) 512-
6906. Key contributors to this report were Alana Stanfield, Suzanne
Murphy, Martin Eble, and Lisa Willett.
McCoy Williams Director, Financial Management and Assurance
Appendi Appendi xes x I
Comments from the Forest Service (190066)
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Report to the Chairman and Ranking Minority Member, Subcommittee on
Forests and Forest Health, Committee on Resources, House of
Representatives
May 2003 FOREST SERVICE Year- end Financial Reporting Significantly
Improved, but Certain Underlying Problems Remain
GAO- 03- 538
Letter 1 Results in Brief 2 Background 3 Scope and Methodology 6 The
Forest Service Has Made Significant Progress toward Achieving
Financial Accountability 7 Despite Progress Made, Accountability
Challenges Remain 10 An Efficient and Effective Financial Management
Organization Is
Key to Achieving Financial Accountability 16 Corrective Actions Are
Underway or Planned to Resolve Remaining
Problems 18 Conclusion 20 Recommendations for Executive Action 21 Agency
Comments and Our Evaluation 22
Appendix
Appendix I: Comments from the Forest Service 23 Tables Table 1: Forest
Service History of Audit Opinions 5
Table 2: Forest Service Material Internal Control Weaknesses 13
This is a work of the U. S. Government and is not subject to copyright
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materials separately from GAO*s product.
a
GAO United States General Accounting Office
The Forest Service has made significant progress toward achieving
financial accountability, receiving its first *clean* or unqualified audit
opinion on its financial statements for fiscal year 2002. This was
attained because top management dedicated considerable resources to
address accounting and reporting deficiencies. We consider this a positive
step; however, sustaining this outcome and achieving financial
accountability will require more than
obtaining year- end numbers for financial statement purposes. The Forest
Service continues to face several major challenges, many of which resulted
in unfavorable audit opinions in the past. Specifically, the Forest
Service*s fiscal year 2002 financial statement audit report disclosed
material internal control weaknesses related to its two major asset
accounts* fund balance with the U. S. Department of the Treasury, and
property, plant, and equipment* as well as for certain estimated
liabilities, payroll processes, computer security controls, and software
application controls related to its procurement and property systems.
Further, the Forest Service has not addressed the challenges of replacing
or enhancing legacy feeder systems and implementing a financial management
field operation that supports efficient and effective day- to- day
financial operations and routinely produces reliable and timely financial
information. The Forest Service has corrective actions underway or planned
that are
intended to resolve these problems, including a financial management
strategic plan. If this plan is to serve as a *road map* toward financial
accountability, the Forest Service needs to ensure that its plan is
comprehensive, integrating and prioritizing the various corrective action
initiatives underway and planned.
History of Forest Service Audit Reports Fiscal year Opinion
Material internal control weaknesses Noncompliance with laws and
regulations 1991 Adverse X X 1992 Adverse X X 1993 Qualified X X 1994
Qualified X X 1995 Adverse X X 1996 No Audit a No audit No audit 1997
Disclaimer X X 1998 Disclaimer X X 1999 Disclaimer X X 2000 Disclaimer X X
2001 Disclaimer X X 2002 Unqualified X X Source: USDA Inspector General
and KPMG audit reports.
a The Forest Service chose not to prepare financial statements in an
effort to focus on correcting accounting and reporting weaknesses. FOREST
SERVICE
Year- end Financial Reporting Significantly Improved, but Certain
Underlying Problems Remain
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 538. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact McCoy Williams at (202) 512- 6906 or williamsm1@ gao.
gov. Highlights of GAO- 03- 538, a report to the
Chairman and Ranking Minority Member, Subcommittee on Forests and Forest
Health, Committee on Resources, House of Representatives.
May 2003
Since 1996, we have periodically reported on Forest Service financial
management problems that we, the U. S. Department of Agriculture*s Office
of the Inspector General, and other independent auditors have identified.
We have designated the Forest Service financial management as a high- risk
area since 1999. Because of these longstanding financial management
deficiencies, the Subcommittee asked GAO to report on the Forest
Service*s progress in correcting its financial management problems and on
remaining challenges and actions underway to address those challenges.
We recommend that the Forest Service develop a comprehensive financial
management strategy that
defines financial management goals and objectives,
specifies corrective actions,
identifies target dates and resources needed, identifies responsible
parties, and
prioritizes and links improvement initiatives, including USDA financial
management systems enhancements.
The Forest Service concurred with our recommendations and indicated that
it is developing a strategic plan.
Page i GAO- 03- 538 Forest Service
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Appendix I
United States General Accounting Office Washington, D. C. 20548- 0001
Official Business Penalty for Private Use $300 Address Service Requested
Presorted Standard Postage & Fees Paid
GAO Permit No. GI00
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