Forest Service Reforestation Funding: Financial Sources, Uses, and
Condition of Knutson-Vandenberg Fund (Chapter Report, 06/21/96,
GAO/RCED-96-15).

Pursuant to a congressional request, GAO reviewed the Forest Service's
Knutson-Vandenberg Trust Fund, focusing on: (1) how the Service obtains
and uses reforestation funds; and (2) the trust fund's ability to fund
all planned projects.

GAO found that: (1) the Knutson-Vandenberg (K-V) Trust Fund, which is
funded from timber sales receipts, provides over 70 percent of the
Forest Service's total funding for reforestation and appropriations and
the Reforestation Trust Fund provide the other 30 percent; (2) in fiscal
year (FY) 1994, the Service obligated over $163 million for
reforestation activities, but program support costs accounted for about
6 percent of these funds; (3) as of September 30, 1995, the K-V fund had
an unobligated balance of about $338 million; (4) the K-V fund will not
be able to provide the approximately $942 million needed for planned
reforestation projects, since the Service transferred $420 million from
the K-V fund for emergency firefighting during the 1990s and there is no
legal obligation to restore these funds; (5) the Department of
Agriculture (USDA) did not request supplemental appropriations to
restore these funds until March 1996, but the Forest Service continued
to operate the reforestation program as if the funds had never been
transferred; (6) the Forest Service has not informed Congress of the
funding shortfall or planned how to reallocate the remaining funds to
the highest-priority projects; (7) the Service lacks reliable financial
management information and effective controls to ensure that K-V
expenditures do not exceed collections on individual sale areas; and (8)
the Service's main accounting systems are not able to provide
sale-specific information on expenditures.

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

 REPORTNUM:  RCED-96-15
     TITLE:  Forest Service Reforestation Funding: Financial Sources, 
             Uses, and Condition of Knutson-Vandenberg Fund
      DATE:  06/21/96
   SUBJECT:  National forests
             Forest conservation
             Timber sales
             Government collections
             Forest management
             Federal agency accounting systems
             Trust revolving funds
             Internal controls
             Funds management
             Federal interfund transactions
IDENTIFIER:  Knutson-Vandenberg Trust Fund
             Reforestation Trust Fund
             Targhee National Forest (ID)
             Winema National Forest (OR)
             Black Hills National Forest (SD)
             Ouachita National Forest (AR)
             Forest Service Automated Stand Record System
             Forest Service Timber Sale Information Reporting System
             Emergency Forest Service Firefighting Fund
             
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Cover
================================================================ COVER


Report to the Honorable
Dale Bumpers, U.S.  Senate

June 1996

FOREST SERVICE'S REFORESTATION
FUNDING - FINANCIAL SOURCES, USES,
AND CONDITION OF THE
KNUTSON-VANDENBERG FUND

GAO/RCED-96-15

Forest Service's Reforestation Funding

(140523)


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

  BLM - Bureau of Land Management
  GAO - General Accounting Office
  K-V - Knutson-Vandenberg
  O&C - Oregon and California lands
  SAI - sale area improvement

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


B-271089

June 21, 1996

The Honorable Dale Bumpers
United States Senate

Dear Senator Bumpers: 

In response to your request, we are reporting on the sources, uses,
and condition of the Forest Service's Knutson-Vandenberg Trust Fund. 
We are making recommendations to the Secretary of Agriculture that
are designed to improve the controls necessary to more fully comply
with the enabling legislation and to inform the Congress of the
limitations on the Forest Service's ability to carry out all planned
projects as a result of transfers from the Knutson-Vandenberg fund
for emergency firefighting. 

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 10 days after the date of this letter.  At that time, we will
send copies of this report to the appropriate congressional
committees; the Secretary of Agriculture and the Department of
Agriculture's Chief Financial Officer; the Secretary of the Interior;
the Chief of the Forest Service; the Director, Bureau of Land
Management; and the Director, Office of Management and Budget.  We
will also make copies available to others upon request. 

Please call me on (202) 512-3841 if you or your staff have any
questions on this report.  Major contributors to this report are
listed in appendix V. 

Sincerely yours,

Victor S.  Rezendes
Director, Energy, Resources,
 and Science Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

Reforestation--the planting and care of young trees--contributes to
the long-term viability of millions of acres of national forests.  As
part of its management activities, the Forest Service, within the
U.S.  Department of Agriculture, is responsible for reforesting the
areas harvested for timber or destroyed by natural causes.  The
Forest Service, which is charged with managing 191 million acres that
include forestlands, rangelands, and grasslands, obligated about $163
million for reforestation activities during fiscal year 1994. 

Concerned about the Forest Service's management of reforestation
funds, the former Chairman, Subcommittee on Public Lands, National
Parks and Forests, Senate Committee on Energy and Natural Resources,
asked GAO to review the Forest Service's largest reforestation fund,
the Knutson-Vandenberg Trust Fund.  GAO has addressed this issue in
two reports.  The first report described the process by which the
Forest Service plans and accomplishes projects funded by the
Knutson-Vandenberg Trust Fund.\1 For this, the second report, GAO's
objectives were to (1) examine how the Forest Service obtains and
uses reforestation funds and (2) assess the Knutson-Vandenberg Trust
Fund's ability to fund all currently planned projects. 


--------------------
\1 Forest Service:  Management of Reforestation Program Has Improved,
but Problems Continue (GAO/RCED-94-257, Sept.  15, 1994). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

To fulfill its reforestation responsibilities, the Forest Service
uses both congressionally funded appropriations and moneys from trust
funds, the largest being the Knutson-Vandenberg Trust Fund.  The
Knutson-
Vandenberg Act of 1930 (16 U.S.C.  576-576b) established a special
trust fund to collect a portion of timber sale receipts to pay for
reforesting the area from which the timber was cut.  The act was
amended in 1976 to allow the Forest Service to use these funds for
other activities, such as creating wildlife habitat or improving
recreation facilities on the sale-area lands.  The Knutson-Vandenberg
Act, however, prohibits spending more trust funds for reforestation
and other related activities on a sale area than had been collected
from that sale area. 

Reforestation is needed where timber harvests or natural disasters
have depleted the existing timber stands.  The reforestation projects
eligible for Knutson-Vandenberg funding include such activities as
growing trees for planting, planting trees, sowing seeds, removing
weeds and other competing vegetation, and preventing animals from
damaging new trees.  On average, during fiscal years 1990 through
1994, the Forest Service reforested about 472,000 acres annually. 

The Forest Service's oversight and management of the Knutson-
Vandenberg Trust Fund and the reforestation program is decentralized. 
Forest Service headquarters and nine regional offices establish
policy and provide technical direction to the 155 forest offices. 
The forest offices, in turn, provide general oversight to 632
district offices and help the districts plan Knutson-Vandenberg
projects.  The district ranger is ultimately responsible for
overseeing the planning and implementing of Knutson-Vandenberg
projects. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

The Forest Service receives reforestation funds through trust funds
and annual appropriations.  Over 70 percent of the total funding is
provided by the Knutson-Vandenberg Trust Fund, and the remaining
funds come from the Reforestation Trust Fund and from appropriations. 
In fiscal year 1994, the Forest Service obligated about $163 million
to reforest 441,000 acres through the planting, seeding, or natural
regeneration of timber sale areas. 

Although the Knutson-Vandenberg Trust Fund had a reported unobligated
balance of about $338 million as of September 30, 1995, sufficient
funds will not be available to pay for all of the planned projects;
their cost is currently estimated at $942 million.  A shortfall in
the projects' funding has occurred because during the 1990s the
Forest Service transferred $420 million from the fund for emergency
firefighting.  However, until March 1996, the Department of
Agriculture had not submitted a request to the Office of Management
and Budget for supplemental appropriations to restore these funds,
and the Forest Service continues to operate the program as if the
transfers had not occurred.  In addition, the Forest Service lacks
reliable financial management information and effective controls to
ensure compliance with the Knutson-Vandenberg Act's prohibition
against expending more trust funds on an individual sale area than
had been collected from that sale area.  Specifically, the Forest
Service's two main accounting systems that track Knutson-Vandenberg
funds are not able to provide sale-specific information on
expenditures. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      REFORESTATION SOURCES AND
      USES
-------------------------------------------------------- Chapter 0:4.1

In fiscal year 1994, the latest year for which complete data were
available during GAO's review, the Forest Service received about $911
million in timber sale receipts and deposited about $215 million of
this amount into the Knutson-Vandenberg Trust Fund.  During fiscal
year 1994, the Forest Service obligated over $163 million for
reforestation activities,\2 including $110 million from the
Knutson-Vandenberg fund and $53 million from appropriations and the
Reforestation Trust Fund.  These appropriated funds were used to
reforest areas where timber had been destroyed by natural
causes--such as fire or insect infestation--and where no trust fund
moneys had been collected.  In addition to the direct reforestation
obligations, the Knutson-Vandenberg Trust Fund and the annual
appropriations pay for the program's support costs--such as rent and
utilities--at all organizational levels.  Of the total of $163
million obligated for reforestation activities during fiscal year
1994, the agency's headquarters and its nine regional offices used
about $10 million, or 6 percent, for the program's support
activities.  The forest and district offices used the remaining $153
million for reforestation on 441,000 acres of federal forestlands. 


--------------------
\2 The total Knutson-Vandenberg obligations for fiscal year 1994,
including funds not specifically for reforestation activities, were
$232 million. 


      ABILITY OF THE
      KNUTSON-VANDENBERG TRUST
      FUND TO FUND PLANNED
      PROJECTS
-------------------------------------------------------- Chapter 0:4.2

Sufficient funds are not currently available for all of the planned
Knutson-Vandenberg projects because of transfers that have been made
for emergency firefighting since fiscal year 1990.  About $420
million--more than the fund's current reported unobligated balance of
$338 million--has been transferred in accordance with 16 U.S.C. 
556d, and there is no legal obligation for the money to be restored
to the fund.  Previously, when such transfers were made, the
Department of Agriculture requested and received supplemental
appropriations, generally within 2 years of the original transfer. 
While the Forest Service acknowledges that not restoring this amount
will be potentially disruptive to the Knutson-Vandenberg program, the
forest and district offices continue to operate and plan for future
reforestation projects as if the transfers had not occurred. 
According to headquarters program officials, each forest and district
would need to severely curtail its reforestation-related
activities--such as improvements to timber stands or other renewable
resource projects--if the $420 million is not restored.  Despite this
situation, the Department of Agriculture did not submit a request to
the Office of Management and Budget for a supplemental appropriation
until March 1996, nor has the Forest Service informed the Congress of
the impact the funding shortfall would have on reforestation
activities or developed a plan or strategy for reallocating the
remaining funds to the highest-priority projects.  The Office of
Management and Budget has not yet acted on the Department's request. 

Furthermore, the Forest Service cannot ensure compliance with the
Knutson-Vandenberg Act's requirement that the expenditures in any
sale area not exceed the amounts collected in that sale area.  The
Forest Service's systems lack reliable financial management
information and effective controls at the individual sale area to
ensure that trust fund expenditures do not exceed collections.  For
the most part, the Forest Service's current information systems do
not have the capability to produce sale-by-sale information on
obligations and expenditures, and agency officials believe it would
be difficult and costly to develop this capability. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

To provide the Congress with the information it needs to consider any
future requests for appropriations to restore previously transferred
funds, GAO recommends that the Secretary of Agriculture report to the
Congress on the financial status of the Knutson-Vandenberg fund and
the number and types of Knutson-Vandenberg projects that will not be
completed if the funds transferred to the Emergency Forest Service
Firefighting Fund are not restored. 

Additionally, to help ensure that the most critical planned projects
can be completed within the limits of the existing fund balance, GAO
recommends that the Secretary of Agriculture direct the Chief of the
Forest Service to take the following steps: 

  -- In the event that the administration decides not to forward to
     the Congress the Department's request for the restoration of the
     funds transferred for firefighting or the Congress decides not
     to restore these funds during its consideration of the fiscal
     year 1997 budget, revise, by the end of fiscal year 1997, the
     list of planned Knutson-Vandenberg projects to take into account
     the actual balance in the Knutson-Vandenberg fund. 

  -- Perform, in consultation with the Chief Financial Officer, an
     analysis of the alternatives (including the costs and benefits
     of each alternative) to obtain the financial data necessary to
     ensure that the expenditures from the Knutson-Vandenberg Trust
     Fund in one sale area would be limited to the amounts collected
     from that area, as required by the Knutson-Vandenberg Act. 

GAO is also making an additional recommendation to ensure better
control over the expenditures for program support. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

GAO provided a draft of this report to the Department of Agriculture
and the Forest Service for comment.  Overall, the agencies disagreed
with three of GAO's four recommendations.  The Department and the
Forest Service agreed that a standardized methodology for assessing
and withholding program support costs should be used.  However, the
agencies believe that the Congress already is aware of the status of
the Knutson-Vandenberg fund and of the implications of transferring
funds for emergency firefighting.  As a result, the agencies believe
that providing such information to the Congress is unnecessary.  In
addition, the agencies continue to believe that the Congress will
restore the entire amount of funds transferred.  As a result, the
agencies believe that revising the list of projects would be an
unnecessary use of their resources.  Finally, the agencies disagree
that the Forest Service's financial information and controls are
insufficient to ensure that expenditures in a sale area do not exceed
the collections from that area, as required by the law; therefore,
they do not believe that it is necessary for the Forest Service to
perform an analysis of the alternatives to obtain the necessary
financial data as recommended. 

GAO disagrees with the Department and the Forest Service.  GAO
continues to recommend that the Congress should be provided detailed
information upon which informed decisions can be made as to whether,
when, and to what extent transferred funds should be restored. 
Because some of these funds were transferred as long ago as 1990, GAO
believes that the probability of their being restored is
questionable.  If such funds are not restored, GAO believes that it
is inappropriate for the Forest Service to continue to plan for and
complete all projects--both higher- and lower-priority projects--as
if the entire $420 million were still available for expenditure. 
However, in light of the Department's recent action to seek the
restoration of the transferred funds, GAO has modified its
recommendation to provide the administration and the Congress an
opportunity to decide whether to restore any or all of the funds
before the Forest Service would need to revise its list of planned
projects.  Finally, GAO disagrees that the Forest Service's current
information systems and controls provide assurance that the
expenditures in one sale area do not exceed the collections from that
sale area as required by law, because the current systems are not
capable of tracking expenditures on a sale-by-sale basis.  GAO
therefore continues to recommend that alternatives must be explored
to develop this critical information.  Because of the far-reaching
consequences of GAO's recommendations and the Department's and Forest
Service's reluctance to accept them, GAO has provided a detailed
evaluation of the agencies' comments in chapter 4.  The full text of
the Department of Agriculture's comments is reproduced as appendix
III, while the Forest Service's comments are included as appendix IV. 


INTRODUCTION
============================================================ Chapter 1

Of the over 200 million acres of federal forests, over 57 million
acres are suitable for timber production.  When timber is harvested,
the cut areas must be reforested to maintain the vitality and
viability of the forests.  Most of the nation's timberlands and the
reforestation activities on those lands are managed by two federal
agencies:  the Forest Service, within the Department of Agriculture,
and the Bureau of Land Management, within the Department of the
Interior.  Comparatively, however, the Forest Service's timber
management and reforestation programs are about six times larger than
the Bureau of Land Management's programs.\3


--------------------
\3 This report focuses on the Forest Service's reforestation program. 
We have included an overview of the Bureau of Land Management's
program as appendix I.  The Bureau manages 8 of the 57 million acres
of suitable timberlands (that is, land suitable for timber
production). 


   REFORESTATION IS NECESSARY
   WHERE TREES HAVE BEEN HARVESTED
   OR DESTROYED
---------------------------------------------------------- Chapter 1:1

Reforestation is needed where trees have been either commercially
harvested or destroyed by natural causes, such as fire or disease. 
In some parts of the country, new trees will naturally grow on the
harvested or destroyed areas; however, artificial techniques
accelerate this process.  Furthermore, these techniques allow forest
managers to decide what types of trees should be planted in an area,
thereby contributing to better forest management. 

Natural regeneration is commonly achieved by first clearing unwanted
vegetation and surface debris, which allows seeds from seed trees
left on the site or neighboring trees to germinate and grow.  More
commonly, regeneration is achieved artificially by seeding or
planting seedlings grown in forest tree nurseries and transplanting
them to the site when conditions are favorable for them to grow. 
Generally, this method includes (1) removing surface debris and
unwanted vegetation (sometimes coupled with tilling the soil); (2)
planting seedlings and protecting them from animals and harsh
environmental conditions; and (3) removing unwanted plants that
compete with the seedlings for nutrients, sunlight, and water.  Good
seedling survival is dependent on this sequence of activities. 

Establishing a stand of trees takes years, yet it is only part of the
long-term life of the stand.  Generally, a new stand is considered to
be viable when the seedlings are big enough to grow without
protection--usually within 5 to 15 years.  After the trees are
viable, some timber stand improvement work--such as removing
individual trees so that the remaining trees will grow faster and
fertilizing the soil to increase the stand's resistance to insects
and disease--may be necessary to enhance the growth of the trees. 
Although a stand is established within 5 to 15 years of planting, the
harvesting of commercial products generally does not occur for 30 to
100 years. 


   FOREST SERVICE HAS
   REFORESTATION RESPONSIBILITIES
---------------------------------------------------------- Chapter 1:2

Because of the critical role it plays in sustaining the nation's
forest resources, reforestation has long been a focus of the
legislation governing federal land management activities.  Beginning
with the Organic Administration Act of 1897 (16 U.S.C.  473-478), the
Forest Service has been authorized to furnish a continuous supply of
timber for the public's use.  Half a century later, the
Anderson-Mansfield Reforestation and Revegetation Act of 1949 (16
U.S.C.  581j-k) provided for the continuing reforestation of national
forest lands.  Under the Multiple-Use Sustained Yield Act of 1960 (16
U.S.C.  528-531), the Congress directed the Secretary of Agriculture
to manage forest lands for multiple purposes and for the sustained
yield of natural resource products, such as timber.  Finally, the
Forest and Rangeland Renewable Resources Planning Act of 1974 (16
U.S.C.  1601(d)(1)), as amended by the National Forest Management Act
of 1976, provided: 

     "It is the policy of the Congress that all forested lands in the
     National Forest System be maintained in appropriate forest cover
     with species of trees, degree of stocking, rate of growth, and
     conditions of stand designed to secure the maximum benefits of
     multiple use sustained yield management .  .  .  ."

As a result, the Forest Service manages 191 million acres that
include forestlands, rangelands, and grasslands.  Of this total,
about 49 million acres are considered suitable timberland.  Figure
1.1 shows the Forest Service's suitable timberland as a percentage of
total acres managed. 

   Figure 1.1:  Percentage of
   Total Forest System Lands
   Suitable for Timber Harvest

   (See figure in printed
   edition.)

Note:  The National Forest System includes grasslands, wilderness
areas, research lands, and forest lands that will not support tree
production for timber harvests. 

Source:  GAO's presentation of the Forest Service's data. 

Organizationally, the Forest Service is decentralized, and its
oversight and management of its reforestation program occurs at four
different levels.  Its headquarters (Washington Office) and nine
regional offices establish policy and provide technical direction to
the 155 forest offices on various aspects of the reforestation
program.  The forest offices, in turn, provide general oversight to
632 district offices.  The district offices plan and manage the work
needed to accomplish reforestation.\4


--------------------
\4 The Forest Service, in an effort to address the effects of recent
downsizing and to achieve cost efficiencies, has begun performing
many functions previously performed at the district level at some
forest levels or on a shared, or "zoned," basis.  For ease of
presentation, however, we will continue to use the term "district
office" to reflect the traditional means of accomplishing the work. 


   REFORESTATION IS FUNDED IN
   VARIOUS WAYS
---------------------------------------------------------- Chapter 1:3

The Forest Service receives reforestation funds through trust funds
and annual appropriations.  Over 70 percent of the total funding is
provided by the Knutson-Vandenberg (K-V) Trust Fund, and the
remaining funds come from the Reforestation Trust Fund and from
appropriations. 

The Knutson-Vandenberg Act of 1930 (16 U.S.C.  576-576b) provided
that funds be collected from timber sales and used to reforest those
harvested lands.  These K-V funds thus provide the Forest Service
with a constant source of funding for reforestation.  Additionally,
the Reforestation Trust Fund, established in 1980, is another,
smaller source of reforestation funding.  This fund was originally
meant to eliminate the backlog of reforestation and timber stand
improvement work identified by the Forest Service.  When the backlog
was eliminated, however, the Congress extended the fund indefinitely
to provide money for general reforestation and for activities to
improve timber stands.  Finally, in areas destroyed by natural
causes, for which K-V funds have not been collected, reforestation is
funded through appropriations. 

While it is a large source of reforestation funding, the K-V Trust
Fund can also fund other, nonreforestation work, according to the
1976 amendment to the K-V Act.  Through the National Forest
Management Act of 1976, the Congress expanded the approved use of K-V
funds to include the protection and improvement of nontimber
resources such as fish, wildlife habitat, and outdoor recreation. 
The K-V Act, however, prohibits spending more trust fund moneys on
reforestation and related activities on a sale area than had been
collected for that sale area. 

In fiscal year 1994, timber purchasers harvested 4.8 billion board
feet of timber.  In that same year, the Forest Service used about
$163 million to reforest 441,070 acres.  From fiscal year 1990 to
fiscal year 1994, the Forest Service certified\5 as reforested about
2 million acres through planting, seeding, and natural regeneration,
as shown on figure 1.2. 

   Figure 1.2:  Acres Certified as
   Reforested by Reforestation
   Type, Fiscal Years 1990-94

   (See figure in printed
   edition.)

Source:  GAO's presentation of the Forest Service's data. 


--------------------
\5 National forest lands are certified as successfully reforested
when seedlings can compete with adjacent vegetation for moisture,
nutrients, and sunlight. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:4

Concerned about the Forest Service's management of reforestation
funds, the former Chairman, Subcommittee on Public Lands, National
Parks and Forests, Senate Committee on Energy and Natural Resources,
asked us to review the Forest Service's largest source of
reforestation funding, the Knutson-Vandenberg Trust Fund.  We have
addressed this in two reports.  The first report described the
process by which the Forest Service plans and accomplishes projects
funded by the trust fund.\6 This second report addresses the sources,
uses, and condition of the K-V fund. 

Both the Forest Service and the Bureau of Land Management obtain and
use reforestation funds.  As agreed with your office, we limited our
review to the Forest Service because it manages the bulk of the
nation's federal timberlands and its reforestation activities are
financed primarily by trust funds.  Accordingly, we (1) obtained
information on how the Forest Service obtains and uses funds from its
reforestation accounts and (2) assessed the K-V Trust Fund's ability
to fund all currently planned projects. 

Primarily, we conducted our work at the Forest Service's Washington
Office and at units within four Forest Service regions.  We selected
the regions to obtain a range of total regional reforestation
needs--from the region with the highest number of acres to be
reforested to a region with a moderate number of acres to be
reforested--as reported in fiscal year 1993 (the most recent year for
which such data were available).  For example, the Pacific Northwest
Region had the greatest reforestation needs at 260,136 acres, and the
Rocky Mountain Region, Intermountain Region, and Southern Region had
moderate amounts of reforestation needs at 103,328 acres, 93,112
acres, and 77,966 acres, respectively.  In total, the four regions we
visited had reforestation needs of 534,542 acres--almost 55 percent
of the Forest Service's total needs.  We also chose the regions for
geographic coverage; we selected regions from both the East and the
West coasts and from the northern and southern portions of the
nation. 

Within each of the four regions, we visited one forest and one ranger
district.  We selected the forests on the basis of three criteria. 
First, we selected forests that use an automated tracking system for
K-V-funded reforestation projects so that we could assess whether the
tracking systems facilitated the management of the program.  Second,
we chose forests with reforestation needs that were large in
comparison to other forests within their respective regions so that
we would be covering a large program within a region.  For example,
both the Black Hills National Forest and the Winema National Forest
had the greatest reforestation needs of the forests within the Rocky
Mountain Region and the Pacific Northwest Region, respectively.  The
four forests' reforestation needs ranged from 54,074 acres (Black
Hills National Forest) to 7,399 acres (Ouachita National Forest). 
Finally, we chose the forests because they represented a wide range
of projected K-V fund balances in fiscal year 1993 so that we could
evaluate how the forests addressed different fund situations.  The
balances ranged from a projected fund surplus of over $2.8 million in
the Winema National Forest to a projected fund deficit of over $1.1
million in the Ouachita National Forest.  One of the selected
forests, the Targhee National Forest, had a projected fund balance of
zero. 

Within each of the four forests we visited, we selected one district
to review.  We selected districts that (1) had staff who were
involved in formulating the 1994 reforestation budget, which
generally occurred in 1992; (2) had obtained K-V funding for
reforestation planting projects in fiscal year 1994; and (3) were
geographically close to the forest office.  Table 1.1 shows the units
visited and their locations. 



                               Table 1.1
                
                    Forest Service Locations Visited

Region/forest/ranger district
visited                             Office location
----------------------------------  ----------------------------------
Intermountain Region                Ogden, Utah

Targhee National Forest             St. Anthony, Idaho

Island Park Ranger District         Island Park, Idaho

Pacific Northwest Region            Portland, Oregon

Winema National Forest              Klamath Falls, Oregon

Chemult Ranger District             Chemult, Oregon

Rocky Mountain Region               Lakewood, Colorado

Black Hills National Forest         Custer, South Dakota

Custer Ranger District              Custer, South Dakota

Southern Region                     Atlanta, Georgia

Ouachita National Forest            Hot Springs, Arkansas

Oden Ranger District                Oden, Arkansas
----------------------------------------------------------------------
To determine how the Forest Service obtains and uses reforestation
funds, we interviewed officials familiar with the reforestation
program, the budget process, and the K-V automated tracking systems
at all levels of the Forest Service's organization--the Washington
Office and the regional, forest, and ranger district offices.  We
reviewed (1) documents concerning the development and allocation of
the reforestation budget, (2) the plans that detail how the
reforestation funds will be spent, and (3) documents describing the
amount of reforestation accomplished with the funds.  We reviewed
laws and regulations, as well as memorandums from the Department of
Agriculture's General Counsel, pertinent to reforestation funding and
activities.  We also reviewed the policies and procedures guiding (1)
budget development, (2) accounting for program expenses, and (3) the
K-V program. 

We limited the scope of our work to fiscal year 1994, as this was the
budget year most recently completed at the time of our evaluation. 
However, we obtained information from the Forest Service on the
unobligated balance of the K-V fund and firefighting transfers as of
September 30, 1995.  At each district office, we reviewed projects
involved with the planting of seedlings funded with K-V funds to
identify controls over the K-V funds collected for those projects. 
At the four offices, we reviewed a total of 17 projects; these were
all of the districts' K-V planting projects scheduled for 1994. 

We used the Forest Service's fiscal year 1994 data on obligations and
expenditures, data from the K-V Trust Fund, reforestation
appropriations, and the Reforestation Trust Fund to calculate the
reforestation obligations for the Washington Office and for the nine
regional offices.  The Forest Service accounts for reforestation and
program support obligations separately, and therefore we estimated
program support obligations for the reforestation program. 
Specifically, for the K-V fund and the Reforestation Trust Fund, we
included a share of the program support obligations equal to the
percentage of reforestation funds obligated from the trust funds.  We
prepared similar estimates of obligation information from the four
forests that we visited.  In conducting our analysis, we did not
independently verify or test the reliability of the data provided by
the Forest Service.  However, the Forest Service's financial
statement audit reports for fiscal year 1994 revealed significant
internal control weaknesses in various accounting subsystems that
resulted in unreliable accounting data, including timber-related
data.  Furthermore, due to fiscal year 1994 firefighting priorities,
the Forest Service was unable to enter all obligations data in the
accounting system.  As a result, the accounting data for fiscal year
1994 are incomplete and reforestation obligations may be understated. 

To assess the Forest Service's ability to complete all planned K-V
projects, we reviewed the financial management controls used during
planning, budget execution, and program implementation and identified
the conditions that potentially affect the Forest Service's ability
to complete all planned projects.  We spoke to Forest Service and
Department officials knowledgeable of the reforestation program and
financial activity. 

As for our Bureau of Land Management work, we limited our review to
the lands covered by the Oregon and California Act of 1937 because
they are the forest lands with the greatest amounts of timber
harvested and, subsequently, the greatest reforestation needs.  We
interviewed officials familiar with the Bureau of Land Management's
reforestation program and the budget process, reviewed documents on
the development and allocation of the reforestation budget and the
operating plans detailing how reforestation funds would be spent, and
reviewed the policies and procedures guiding budget development.  We
provided the Bureau of Land Management with a draft of appendix I for
review, and they agreed with the accuracy of the information
presented. 

We conducted our review from August 1994 through March 1996 in
accordance with generally accepted government auditing standards. 


--------------------
\6 Forest Service:  Management of Reforestation Program Has Improved,
but Problems Continue (GAO/RCED-94-257, Sept.  15, 1994). 


HOW THE FOREST SERVICE OBTAINS AND
USES REFORESTATION FUNDS
============================================================ Chapter 2

The Forest Service derives the bulk of its reforestation funding from
timber sales receipts; the remainder of its funding comes from annual
appropriations and the Reforestation Trust Fund.  Annually, an
average of more than $200 million in timber sales receipts is
deposited in the K-V Trust Fund and used to reforest the harvested
lands and for other reforestation-related projects.\7 In addition to
direct reforestation expenditures, both of the trust funds and the
annual appropriations pay for the costs of supporting the program at
all organizational levels.  During fiscal year 1994, we estimated
that the Forest Service obligated over $163 million for reforestation
activities,\8 including $110 million from the K-V fund and $53
million from appropriations and the Reforestation Trust Fund.  Of the
$163 million, the program's support obligations for the Washington
and regional offices totaled about $10 million, or 6 percent. 


--------------------
\7 For the remainder of this chapter, when we discuss K-V funds and
projects, we refer only to reforestation projects, not to nontimber
activities. 

\8 Total K-V obligations for fiscal year 1994 were $232 million. 


   TIMBER SALE RECEIPTS PROVIDE
   PRIMARY SOURCE OF REFORESTATION
   FUNDING
---------------------------------------------------------- Chapter 2:1

During a timber harvest, which may take 1 to 5 years or longer, the
Forest Service designates a portion of the timber receipts for the
K-V fund; the designated portion is based in part on the estimated
costs of reforesting the sale areas.  When collected, these funds are
deposited in the K-V fund and held in the U.S.  Treasury.  The
process of estimating reforestation needs and associated costs begins
at least 2 years before the actual work is funded and accomplished,
and since changes to reforestation activities can occur over that
period, the reforestation plans and cost estimates may be revised. 

The Forest Service informs the Congress in its annual budget request
how much it plans to spend from the K-V fund in that fiscal year. 
The amount is based on the extent of reforestation, improvements to
timber stands, and other work on renewable resources for the sale
areas anticipated for that year.  The Congress has, on occasion,
passed legislation establishing a ceiling on the amount the Forest
Service may spend. 


      K-V FUNDS ARE COLLECTED FOR
      REFORESTATION PROJECTS
-------------------------------------------------------- Chapter 2:1.1

The amount retained from each timber sale is based, in part, on the
reforestation work needed in the sale area.\9

To determine the amount of K-V collections that are needed for each
sale, district staff prepare a sale area improvement plan (SAI plan). 
This plan describes the projects needed in the sale area and the
projects' estimated costs, including the costs to support the
reforestation program at all organizational levels.  Each project is
supported in an environmental analysis and is approved by the
district ranger or the forest supervisor.  The initial SAI plan can
be revised until the sale is completed and the contract is closed. 

When a timber sale contract has been awarded, the price for the
timber in the sale area is established.  Throughout the term of a
sale contract, which may take several years, the Forest Service's
guidance requires district officials to annually update the
corresponding SAI plan to reflect the project's current estimated
costs and to adjust the amount of money collected for the K-V fund
accordingly.\10

For example, on one sale in the Ouachita National Forest, the amount
of K-V funds needed on the sale's 1992 SAI plan totaled $102,213; by
1993, the amount of K-V funds needed for this sale had increased to
$122,760.  Thus, of the timber receipts collected, up to $122,760
could be deposited in the K-V Trust Fund. 

Once a contract is closed, no more K-V collections can be made, thus
creating the funding limit for work on the sale area's SAI plan. 
From this point onward, the Forest Service generally has up to 5
years to spend the K-V funds collected.  If special circumstances
warrant and the Regional Forester approves, however, forests may have
up to 10 years after the sale closure date to spend the K-V funds. 


--------------------
\9 For sales of healthy living trees, the minimum sale price must
cover the cost to complete the K-V reforestation projects needed in
that area.  For salvage sales (sales of dead or dying trees),
however, the collection of K-V funds is not required if the material
is of low value.  Forest Service officials encourage the collection
of K-V funds on salvage sales if the sales generate enough funding. 

\10 The Forest Service's guidance requires an annual review of the
SAI plan.  However, as we reported in 1994, almost half of the 50
sales we examined had no documentation to show that the plans had
been reviewed annually.  The Forest Service has revised its guidance
to respond to the problems noted in our earlier report. 


      SAI PLANS DETERMINE
      REFORESTATION FUNDING NEEDS
-------------------------------------------------------- Chapter 2:1.2

In developing the annual budget request, districts, and sometimes
forests, determine each year their overall reforestation funding
needs by consolidating the needs identified on individual SAI
plans.\11 These needs, plus the estimated support costs of the
program, then serve as the basis for the Forest Service's
consolidated request to the Secretary of Agriculture.  The Secretary
then submits a K-V budget to the Office of Management and Budget for
approval.  Subsequently, the Congress is informed of the amount the
Forest Service has requested. 

On the basis of congressional action and the Office of Management and
Budget's approved apportionments, the Forest Service allocates these
funds to its various organizational levels according to their
requests.  According to a Washington Office budget official,
historically, the Forest Service generally has received approval from
the Office of Management and Budget to spend the same amount of K-V
funds that it requested.  However, in fiscal year 1994, the Forest
Service requested $234 million but was authorized to spend a total of
$226 million, of which the Forest Service allocated $125 million to
reforestation work and $101 million to timber stand improvement and
other renewable resources activities. 


--------------------
\11 To facilitate this process, the K-V handbook recommends that
forests and districts use, if available, an automated stand record
system that contains information about the stands, such as the age of
the trees and the date of last harvest.  The handbook further states,
however, that other systems may be needed to plan for and monitor K-V
projects. 


   OTHER REFORESTATION FUNDING
   SOURCES
---------------------------------------------------------- Chapter 2:2

For areas in which K-V funds are not collected, such as areas
destroyed by natural causes, reforestation is funded through
appropriations and the Reforestation Trust Fund.  These funding
sources are also used when K-V funds are not sufficient to pay for
all needed reforestation in timber sale areas.  About one-third of
total reforestation funding is provided by these two sources. 

The Forest Service requests reforestation appropriations through the
annual budget process.  In lieu of SAI plans, which do not have to be
prepared for areas that do not receive K-V funding, the forests and
districts can use the automated stand record system to help determine
the level of appropriations needed for reforestation.  As in the K-V
budget development process, districts, and sometimes forests, develop
a proposed reforestation appropriation request based on needs, which
is eventually incorporated in the agency's overall budget request. 

The Reforestation Trust Fund, established in 1980 with funds
generated from import tariffs on wood products, was created to
supplement congressional appropriations for reforestation and timber
stand improvement on national forests.  Each year, approximately $30
million is made available to the Forest Service from the
Reforestation Trust Fund.  After the Forest Service determines its
needs for appropriations for reforestation, it then applies
Reforestation Trust Fund moneys toward this amount, in essence
reducing the amount needed through appropriations. 

Figure 2.1 compares the amount of funding provided by appropriations
and the Reforestation Trust Fund to the amount of funds provided
through the K-V Trust Fund. 

   Figure 2.1:  Forest Service's
   Reforestation Funding, Fiscal
   Years 1990-94

   (See figure in printed
   edition.)

Note:  All dollars are in constant 1994 dollars. 

Source:  GAO's presentation of the Forest Service's data. 


   REFORESTATION NEEDS CAN CHANGE
---------------------------------------------------------- Chapter 2:3

Generally, reforestation funds are allocated to the field offices in
the amount requested, unless individual reforestation workloads have
changed.  For example, harvests may be delayed or court injunctions
may prohibit work from being done in an area.  Changes in
reforestation needs after the budget has been requested may affect
the amount of reforestation funds that are used for reforestation
work. 

For example, in 1992 a district in the Targhee National Forest
planned its reforestation program for fiscal year 1994.  Then, about
a year later, the district staff determined that two more planting
projects needed to be done during fiscal year 1994.  The staff
requested an increase in its reforestation funding allocation during
fiscal year 1994 to pay for the additional reforestation work.  Thus,
the changes in the district's reforestation needs affected the amount
of funding that the district required in fiscal year 1994. 


   REFORESTATION FUNDS PAY FOR
   PROGRAM COSTS AT ALL
   ORGANIZATIONAL LEVELS
---------------------------------------------------------- Chapter 2:4

During fiscal year 1994, of the about $163 million obligated for
reforestation and related support costs for the program, $109.5
million came from the K-V fund and the remaining $53.5 million came
from appropriations and the Reforestation Trust Fund.  The majority
of reforestation funds--about $153 million in fiscal year 1994--were
used by the district--and sometimes forest--offices for direct
reforestation activities.  These include such things as the cost to
produce seedlings, to prepare the site for planting, and to pay for
the salaries of district reforestation staff and for equipment. 

In addition to the direct reforestation costs, a smaller percentage
of funds is used for other program costs incurred to support and
manage the reforestation program, such as rents, utilities, or the
salaries of support staff.  Of the $163 million in obligations for
reforestation activities, about $10 million, or 6 percent of the
reforestation funds, was used by the Washington Office and regional
offices to pay for support costs.  Specifically, the Washington
Office obligated almost $3 million for the costs of supporting the
reforestation program, while the regional offices obligated about $7
million. 

Appendix II provides a further breakdown of the reforestation
obligations and support costs for the program for all of the Forest
Service's regions and for the four forests and districts we visited. 


ABILITY OF K-V FUND TO FINANCE ALL
PLANNED K-V PROJECTS IS IN
JEOPARDY
============================================================ Chapter 3

Sufficient funds are not available to pay for all planned K-V
projects because $420 million was transferred from the K-V fund for
emergency firefighting purposes during 1990, 1992, and 1995.  In the
past, when such transfers were made, the Department of Agriculture
requested and received supplemental appropriations to restore the
transferred moneys generally within 2 years of the original transfer. 
However, until recently, the Department of Agriculture has not
submitted a request for a supplemental appropriation to the Congress. 
While the Forest Service acknowledges that failure to restore this
amount will be potentially disruptive to the K-V program, forest and
district offices continue to operate and plan for future
reforestation projects as if the transfers had not occurred. 
Furthermore, the Forest Service has not informed the Congress of the
impact the funding shortfall would have on the agency's reforestation
activities or developed a plan or strategy for reallocating the
remaining funds to the highest-priority projects.  In addition, the
Forest Service lacks reliable financial management information and
effective controls to ensure compliance with the K-V Act's
prohibition against expending more trust fund moneys on an individual
sale area than had been collected from the sale area. 


   UNRESTORED FIREFIGHTING
   TRANSFERS JEOPARDIZE SOME
   PLANNED PROJECTS
---------------------------------------------------------- Chapter 3:1

As of September 30, 1995, the Forest Service reported a K-V
unobligated fund balance of $338 million.  Although timber receipts
amounting to about $200 million are added to the fund annually, the
Forest Service will not be able to pay for all of its planned
projects, currently estimated at about $942 million, unless the $420
million transferred from the K-V fund in fiscal years 1990, 1992, and
1995 for firefighting purposes is restored.  Historically, most
transfers have been restored through the supplemental appropriations
process.  However, it was not until March 15, 1996, that the
Department of Agriculture submitted a request for supplemental
appropriations to the Office of Management and Budget for the $420
million transferred during fiscal years 1990, 1992, and 1995.  As of
May 1996, no request for a supplemental or annual appropriation to
restore this amount had been submitted to the Congress.\12

Despite this situation, the forests and districts have not adjusted
their plans to reflect the transfers.  The Forest Service has not
developed a plan or strategy to reduce its planned projects to make
them commensurate with the fund's actual balance.  As a result, the
Forest Service has not determined the impact that the transfers will
have on the agency's K-V program. 

Federal law permits the Forest Service to transfer amounts from the
K-V fund, as well as other Forest Service appropriations, to
supplement the Forest Service's firefighting funds when emergencies
arise.  According to 16 U.S.C.  556d, the Forest Service is
authorized to advance money from any of its appropriations and trust
funds to pay for fighting forest fires.  The law does not authorize
the Forest Service to restore amounts so transferred.  Congressional
action is required to restore such funds.  In the past, the Forest
Service generally has asked the Department of Agriculture to submit a
request for supplemental appropriations to the Office of Management
and Budget to restore these funds, and the Congress appropriated
almost $1.1 billion for this purpose as of the beginning of fiscal
year 1996.  Supplemental appropriations generally have been provided
within 2 years of the original transfer of moneys.  However, the law
does not require that transfers for firefighting purposes be
restored. 

During fiscal years 1988 through 1995, the Forest Service transferred
almost $1.5 billion of K-V funds to help pay for about $3 billion in
firefighting costs.  In fiscal years 1988 and 1989, the Forest
Service transferred a total of $723 million from the K-V fund for
emergency firefighting, which was fully restored through supplemental
appropriations by fiscal year 1990.  In fiscal years 1990 and 1992,
the Forest Service again used K-V funds--$295 million in total--for
firefighting purposes.  In fiscal year 1994, the Forest Service
transferred $350 million of K-V funds for firefighting, which was
restored to the fund at the beginning of fiscal year 1995 after the
agency had requested and received supplemental appropriations for
that purpose.  In fiscal year 1995, the Forest Service transferred
$125 million from the K-V fund to the firefighting fund. 

To summarize these annual transfers, figure 3.1 shows the annual
balance of the K-V fund with the net amount of K-V funds transferred
to firefighting at the end of each fiscal year. 

   Figure 3.1:  K-V Fund's Balance
   and Funds Transferred to
   Firefighting, Fiscal Years
   1988-95

   (See figure in printed
   edition.)

Note:  Funds transferred for firefighting are net of funds
transferred and repaid to the k-v fund. 

Source:  GAO's presentation of the Forest Service's data. 

We attempted to determine whether the Forest Service ever formally
advised the Congress of the impact of the unrestored firefighting
transfers on the fund's balance and the implications that the
transfers would have on the agency's ability to complete all planned
projects.  We found that during the fiscal year 1996 appropriations
hearings, the Forest Service provided the Congress with general
information for the record about the amount of money needed to ensure
that reforestation and timber stand improvement projects could be
accomplished as planned.  However, this information did not fully
describe the implications for not completing the planned other
renewable resources projects if the transferred funds were not
restored.  Furthermore, we asked if a more detailed report had ever
been provided to the Congress.  According to the Reforestation
Manager, he was unaware whether such analyses had been prepared for
the Congress but believed that he would have been involved had such
analyses been completed.  He did indicate, however, that to reduce
the planned K-V projects by $420 million, each individual forest
would have to absorb a portion of the unrestored amount.  However,
the effect of eliminating the $420 million worth of projects would
not be spread evenly among the forests because the forests with
greater reforestation needs will retain more K-V funds than those
with fewer reforestation needs.  The Forest Service does not know the
specific implications of cutting $420 million worth of planned
projects because no contingency plans have been developed. 

To help demonstrate the potential impact on the K-V program, figure
3.2 provides an overview of how K-V expenditures were distributed
during fiscal year 1995. 

   Figure 3.2:  Accrued K-V
   Expenditures, by Type of Work,
   Fiscal Year 1995

   (See figure in printed
   edition.)

Note:  Other renewable resources include watershed, range, and soil
resources. 

Note:  Percentages do not total 100 percent due to rounding. 

Note:  Accrued expenditures are net of transfers to firefighting. 

Source:  GAO's presentation of the Forest Service's data. 

As can be seen, essential reforestation comprises about 35 percent of
overall K-V expenditures.  Given that the unobligated K-V balance
totaled $338 million as of September 1995 and that about $200 million
is collected annually for the K-V projects, it appears likely that
the fund will be adequate to cover the costs of essential
reforestation.  Yet because the Forest Service currently estimates
that $942 million will be needed to cover all planned K-V projects,
shortfalls may occur in the future if the $420 million that was
transferred is not restored.  For example, some timber stand
improvement projects and most, if not all, other renewable resources
projects will need to be dropped from K-V funding to ensure that
sufficient funds will be available to pay for all reforestation
projects. 


--------------------
\12 At the time we prepared this report, the Office of Management and
Budget had not acted on this request. 


   FOREST SERVICE CANNOT ENSURE
   COMPLIANCE WITH THE K-V ACT'S
   REQUIREMENT
---------------------------------------------------------- Chapter 3:2

The K-V Act requires that trust fund expenditures in any one sale
area not exceed the amounts collected in that sale area.  The Forest
Service's information systems, however, do not provide the financial
information and controls at the individual sale-area level to ensure
that K-V expenditures do not exceed collections on individual sale
areas.  Moreover, the way the Forest Service allocates the K-V
program's support costs reduces the available funds for project
expenditures on sale areas.  As a result, the Forest Service
generally does not know whether it is allocating and spending more or
less on any individual sale area than it has collected. 


      OVEREXPENDITURE OF K-V FUNDS
      IN SOME SALE AREAS MAY BE
      OCCURRING
-------------------------------------------------------- Chapter 3:2.1

The K-V Act requires that the trust fund expenditures in any one sale
area not exceed the amount collected in that sale area.  To
facilitate the management of K-V projects and the accounting for K-V
funds, however, the Forest Service allows each forest to pool its K-V
collections for each timber sale into a forest-level fund, commonly
called a K-V pool.  At the end of each fiscal year, each forest is
required to create a balance sheet showing the cash available for its
K-V projects, the projected collections from ongoing sales, and the
estimated costs for planned projects.  The Forest Service's policy
requires that each forest's projected K-V pool balance be positive or
zero. 

When insufficient funds are projected for a forest's K-V pool
balance, the Forest Service's guidance provides two ways to address
the situation.  First, if the sales are still ongoing, the forests
and districts can update K-V plans to reflect the current costs of
planned K-V work.  They can then increase the amount of timber sales
receipts going to the K-V fund to recognize these updated costs.\13

Second, if the sales are closed, the forests and districts can
eliminate planned projects from K-V funding or seek appropriations or
other funding for the work.  The Forest Service's guidance requires
that first priority for the use of K-V funds be given to
reforestation work. 

Our review of the K-V balance sheets showed that many forests had
projected deficits, which may indicate potential future
overexpenditures of K-V funds.  For example, for fiscal years 1992
and 1993, over one-third of the forests projected negative balances
in their funds, which means that they projected insufficient funds
for completing planned projects.  According to Forest Service
officials, the forests likely revised or adjusted their plans--for
example, by eliminating planned projects--to make them consistent
with the funds' balances.  However, in fiscal year 1994, 14 percent
of the forests still were projecting insufficient balances in their
funds.  Table 3.1 shows, by fiscal year, the number of forests
projecting sufficient and insufficient funds. 



                                        Table 3.1
                         
                            Forests' K-V Pool Funds' Balances

                                  (Dollars in millions)

                            Number of                 Number of
                                pools                     pools
           Total number    projecting    Value of    projecting      Value of  Percent of
Fiscal        of forest    sufficient     surplus  insufficient  insufficient  insufficie
year            pools\a         funds       funds         funds         funds    nt pools
---------  ------------  ------------  ----------  ------------  ------------  ----------
1992                154            97         $19            57         ($73)          37
1993                158           102         $21            56         ($37)          35
1994                157           135         $17            22         ($15)          14
-----------------------------------------------------------------------------------------
Note:  While funds can be pooled at the forest level, surplus funds
in one forest cannot be used to offset deficits in another forest. 

\a Differences in the totals occur from year to year because the
number of forest pools can change and because some forests did not
submit a pool balance analysis each year. 

Source:  GAO's analysis of the Forest Service's data. 

Because the Forest Service's financial systems do not provide
information at the individual sale-area level, we could not identify
specific instances of the actual overexpenditures.  However,
according to the forests' annual estimates of the costs for all
planned projects during the time frame for completing all of the
projects, some forests determined that they will have surpluses (that
is, costs may not have increased as much as originally estimated, or
the number or types of projects needed in a sale area may have
decreased), and some forests determined that they will not have
sufficient trust funds to pay for all planned projects compared to
the amounts that had been collected for those projects. 

The Forest Service attributes these projected deficits to
overspending of funds (that is, the forests used more of their K-V
funds for completing projects than they had collected for completing
those projects) or to K-V plans not being updated to reflect current
costs that would enable the forests to collect more funds on the open
sales and deposit those additional funds in the K-V fund.  However,
according to a Washington Office program official, no information
exists as to how much collections were increased or how many projects
were dropped to correct projected deficits.  In the one forest that
we visited that had a projected deficit in its fiscal year 1994
balance sheet summary, the staff dropped projects to correct for a
projected negative balance.  While dropping projects helps to
eliminate the projected deficits in the K-V fund, unless the Forest
Service consistently applies this control, it cannot ensure that
potential future overspending by forests and districts on individual
sale areas will not occur. 


--------------------
\13 Our September 1994 report on the K-V Trust Fund discussed how
districts create and update K-V plans. 


      FOREST SERVICE SYSTEMS DO
      NOT PROVIDE RELIABLE
      FINANCIAL INFORMATION AND
      EFFECTIVE CONTROLS NEEDED TO
      MANAGE K-V EXPENDITURES
-------------------------------------------------------- Chapter 3:2.2

The Forest Service does not have the financial management information
and controls needed to ensure compliance with the K-V act prohibition
that limits K-V expenditures on individual sale areas to the
collections from those sale areas.  Collections are recorded for
individual sales, whereas expenditures are managed and recorded in
total at the district level rather than by individual sales.  By
allowing each forest to pool K-V collections without adequate
financial controls and information, the Forest Service cannot ensure
that the trust fund expenditures do not exceed collections for a
given sale area. 

Because the K-V Act requires that the Forest Service not spend more
trust funds on an individual sale area than were collected for that
sale, adequate financial information is needed to manage the
expenditures of funds for each sale area.  Accordingly, district
staff need expenditures information available in sufficient detail so
that, before requesting funding allocations for additional K-V work,
they are aware of what has already been spent on each sale area and
what funds remain available to spend.  For example, on a closed sale,
if the K-V collections for a sale area were $100,000 and the
expenditures for prior projects were $80,000, then only $20,000 of
K-V funds would be available to spend for the sale area's remaining
K-V work. 

The Forest Service uses two main accounting systems that provide
information on K-V expenditures.  Neither system, however, is able to
provide sale-specific information on expenditures.  For example, the
Forest Service uses the Department of Agriculture's Central
Accounting System as its primary financial reporting system.  The
Central Accounting System can report total K-V expenditures only down
to the district level, and according to Washington Office financial
officials, the system is incapable of handling the extra coding
necessary to track expenditures by sale area over a multiyear period. 
Similarly, the Forest Service's primary cost accounting system--the
Timber Sale Program Information Reporting System--cannot provide
expenditures information at the sale level. 

In the absence of an accounting system that provides the necessary
information on both K-V collections and expenditures, some forest
offices have developed ad hoc automated systems to help manage the
K-V fund.  Of the four forests we reviewed, only the Black Hills
National Forest could use its automated system to track information
on K-V expenditures for individual sale areas.  This system tracked
the amount of K-V funds that had been spent on a sale area and how
much was left to spend on the area's remaining projects.  District
officials used the system's information to manage their program as
well as to limit their budget requests for K-V funding. 

We discussed with Washington Office program officials the feasibility
of establishing a standardized tracking system nationwide.  According
to the reforestation manager, a standardized system that could track
information on individual sale areas would be beneficial for the
district offices, but the manager believed it would be costly to
create a new system or to redesign the current system, including the
time and labor involved in maintaining and updating the system daily. 

The Department of Agriculture is currently updating its departmental
accounting system.  Although the new system is intended to replace a
portion of the Central Accounting System, it will not have the
capability, unless it is modified, to provide information on K-V
collections and expenditures for each sale area.  Because the Forest
Service did not have any estimates of the cost or time involved to
develop and implement a sale-area capability in the new system, we
are not in a position to assess the cost implications of doing so. 


      FOREST SERVICE LACKS
      EFFECTIVE METHOD FOR
      CALCULATING AND LIMITING
      PROGRAM SUPPORT COSTS
-------------------------------------------------------- Chapter 3:2.3

The agency collects a certain amount of K-V funds on each sale area
plan to pay for the costs of supporting the program at all
organizational levels.  The regions and forests issue guidance that
specifies the percentage of K-V funds that should be collected from
individual sale areas to support the program at the forest, regional,
and Washington offices.  The agency's overall guidance, however, does
not explain how individual regions or forests should calculate and
limit the amounts for program support.  If the allocations for
support costs are not limited to the amount collected, however, funds
available for project expenditures in sales areas could be
insufficient. 

Only one forest we visited limited its use of K-V funds for program
support to the amounts collected for that purpose.  For three of the
forests, the regions did not restrict their expenditures for program
support to the amounts that had been collected, nor did the forests
limit the amount spent for program support at the forest level.  For
example, if a project costs $100, the forest might instruct the
district to collect an additional 20 percent of the project's cost,
or $20, to cover the cost of supporting the program.  When the forest
allocates funds for a project to the district, it withholds funds to
cover the forest's support costs.  However, rather than limiting
these withholdings--to continue our example--to 20 percent of the
project's cost, or $20, the forest would withhold 20 percent of the
total cost ($120) or $24.  This method of determining support costs
would reduce the amount available for project work to $96, $4 less
than the projected need.  This amount represents 24 percent of the
project's cost and results in withholding a larger amount for program
support--$24--than was collected for that purpose--$20. 

One of the four forests that we reviewed was limiting its use of K-V
funds to the amounts collected.  At the Black Hills National Forest,
the staff limited the forest office's K-V spending for program
support to the amount collected.  We believe that to prevent
overspending project support funds on individual sales, the Forest
Service needs to have a standardized method to limit expenditures for
program support to the amounts collected. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 3:3

Although the Forest Service's overall K-V fund has a reported
unobligated balance of $338 million, and about $200 million in new
moneys are deposited annually from timber sales, the fund does not
currently have sufficient moneys to complete all planned projects for
which the K-V funds were originally collected.  Despite this funding
shortfall, neither the Department of Agriculture nor the Forest
Service has informed the Congress of the balance in the fund.  In
addition, it was not until March 1996 that the Department of
Agriculture submitted a request for the Office of Management and
Budget to seek appropriations from the Congress to restore the
transferred funds.  Moreover, the Forest Service has continued to
operate the program as if the transfers had not occurred.  In
addition, the Forest Service lacks effective financial management
controls to ensure compliance with the K-V Act's limitation on
expending more K-V funds on an individual sale area than were
collected for that area.  These problems, if left unresolved, will
lead to program disruptions and the failure of the reforestation
program to accomplish projects for which funds already have been
collected. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 3:4

To provide the Congress with the information it needs to consider any
future requests for appropriations to restore previously transferred
funds, we recommend that the Secretary of Agriculture report to the
Congress on the financial status of the Knutson-Vandenberg fund and
the amount and type of Knutson-Vandenberg projects that will not be
completed if the funds transferred to the Emergency Forest Service
Firefighting Fund are not restored. 

Additionally, to help ensure that the most critical planned projects
can be completed within existing fund limits, we recommend that the
Secretary of Agriculture direct the Chief of the Forest Service to
take the following actions: 

  -- In the event that the administration decides not to forward to
     the Congress the Department's request for restoration of the
     funds transferred for firefighting purposes, or the Congress
     decides not to restore these funds during the fiscal year 1997
     budget considerations, the Forest Service, by the end of fiscal
     year 1997, should revise the list of planned Knutson-Vandenberg
     projects to take into account the actual balance in the
     Knutson-Vandenberg fund. 

  -- Perform, in consultation with the Chief Financial Officer, an
     analysis of alternatives (including the costs and benefits of
     each alternative) to obtain the financial data necessary to
     ensure that Knutson-Vandenberg Trust Fund expenditures in one
     sale area would be limited to the amounts collected from that
     area, as required by the Knutson-Vandenberg Act. 

  -- Require all organizational levels to use a standardized national
     methodology for assessing and withholding the support costs for
     the Knutson-Vandenberg program that will limit the expenditures
     for program support to the amounts collected for such purposes. 


AGENCIES' COMMENTS AND GAO'S
EVALUATIONS
============================================================ Chapter 4

We provided a draft of this report to the Department of
Agriculture--including the Office of the Chief Financial Officer--and
the Forest Service for comment.  The Department's comments are
reproduced as appendix III and the Forest Service's as appendix IV. 
The following is a summary of the agencies' comments and our
evaluations. 


      RECOMMENDATION 1
-------------------------------------------------------- Chapter 4:0.1

To provide the Congress with the information it needs to consider any
future requests for appropriations to restore the previously
transferred funds, GAO recommends that the Secretary of Agriculture
report to the Congress on the financial status of the
Knutson-Vandenberg fund and the amount and types of
Knutson-Vandenberg projects that will not be completed if the funds
transferred to the Emergency Forest Service Firefighting Fund are not
restored. 

The Department's comment:  The Department disagreed with the
recommendation because it believes that the Congress is already
adequately informed of the balance of the K-V fund through the Forest
Service's Explanatory Notes to the President's annual budget.  The
Department indicated that the Explanatory Notes display the
unobligated balances at the beginning of the fiscal year, the
anticipated receipts, and the anticipated obligations for the year
and that this information permits a fairly straightforward analysis
of the effects, if any, that the advances for firefighting will have
on the ability of the Forest Service to accomplish its planned K-V
program for the year.  The Department further indicated that it
believed that the issue of restoring the advances from the K-V fund
has been well understood for some time and cited a 1991 GAO report as
alerting the Congress that reforestation could be adversely affected
if the advances were not repaid.  Finally, the Department believed
that this type of information would not be useful for policy
decisions. 

The Office of the Chief Financial Officer concurred with the
Department's view that no extraordinary actions need to be taken at
this time and that no additional information needs to be furnished to
the Congress until or unless it is requested. 

The Forest Service's comment:  The Forest Service disagreed with
GAO's recommendation and indicated that compiling this information is
unnecessary.  The Forest Service pointed out that previous
supplemental appropriations have been authorized without the need for
such information. 

GAO's evaluation:  GAO disagrees with both the Department and the
Forest Service that this information is unnecessary and would not be
useful for policy decisions.  Although we agree that historically,
additional appropriations have been approved without an
identification of the amount and types of projects that may not be
completed, we believe that because of the current large unrestored
amount, the Congress should be fully informed of the implications
that not restoring the funds would have on completing all of the
planned projects.  We believe that because of the size of the
unrestored transfers--$420 million--and the length of time that the
funds have remained unrestored--some transfers occurred as early as
1990--the Congress needs to be informed of the situation so that it
can decide on the appropriate action that is warranted, in light of
the program's objectives and budgetary constraints. 

We also disagree that the President's Budget and the accompanying
Explanatory Notes provide adequate information on the transfers made
from the fund or the impact that the unrestored transfers would have
on completing all of the planned projects.  While the Explanatory
Notes provide a general description of the program, the objectives of
the program for fiscal year 1997, the estimated number of acres to be
accomplished, and the anticipated cost of such work for that fund
year, the Notes do not disclose that the estimated total cost to
complete all of the planned projects is $942 million and that large
sums of money have been transferred from this fund for the purposes
of fighting fires and had not been restored since 1990. 

Although the Department cited a 1991 GAO report as evidence that the
issue of restoring the advances from the K-V fund has been well
understood for some time, we do not believe that the 1991 report
alone fully apprises the Congress of the current financial condition
of the fund.  Because of the age of that report and the fact that
sizeable transfers were also made in fiscal years 1992 and 1995 and
not restored, we continue to believe that the Congress should be made
aware of the extent of the transfers that have been made and the
implications of the transfers for the program should the Congress
decide not to restore all or part of the funds.  Moreover, we believe
that the agency should begin contingency planning to determine which
types of projects would need to be eliminated if the Congress does
not restore these funds. 

While we recognize that identifying the potential projects that may
need to be eliminated may be time-consuming, we believe that the
Congress needs to be informed of the amount and types of projects
that would be affected by transferred funds that may not be restored. 
While the President's Budget reflects that over $300 million remains
in the K-V fund, it does not fully describe the types and locations
of where improvements to timber stands or other renewable resources
would need to be eliminated because of the fund's current financial
condition.  Without such information, and without an explanation of
the potential impact of not completing the planned projects on the
nation's forests, the Congress cannot make an informed decision on
the extent to which the transferred funds should be restored. 
Instead, the transfers may remain outstanding, the Forest Service
will continue to operate as if the funds were still available, and
potentially lower-priority projects may be completed in the near term
to the later detriment of higher-priority projects in other
geographical locations. 


      RECOMMENDATION 2
-------------------------------------------------------- Chapter 4:0.2

Additionally, to help ensure that the most critical planned projects
can be completed within the existing limits of the fund, GAO
recommended that the Secretary of Agriculture direct the Chief of the
Forest Service to revise the list of planned Knutson-Vandenberg
projects to take into account the actual balance in the
Knutson-Vandenberg fund. 

The Department's comment:  The Department disagreed with this
recommendation and questioned GAO's presumption that the funds
advanced for firefighting will not be restored and, as a result,
linked this possibility to the need to reduce the number of K-V
projects.  In its response, the Department referred to the prompt
repayment of the fiscal year 1994 advance and the fact that "[s]o
long as there are adequate unobligated balances and receipts to
finance the year's plan of work, there is no need to 'reduce planned
projects' .  .  .  [s]ufficient balances were maintained in the
account to accomplish the work that needed to be done" as its basis
for not wanting to revise the list of current K-V projects.  The
Department also questioned the need to continually revise the
notification to the Congress as projects were accomplished or when
new advances were made or repaid. 

The Office of the Chief Financial Officer also did not believe that
project planning needs to be altered as a result of the firefighting
advances, since they are valid receivables that the Congress has the
responsibility to restore. 

The Forest Service's comment:  The Forest Service disagreed with the
recommendation and indicated that it believes that revising the
current list of planned K-V projects to take into consideration the
actual balance of the K-V fund is unnecessary, undesirable, and would
violate the statutory language contained in the K-V Act.  The Forest
Service stated that writing off the projects would violate the
purpose for which the trust fund was established and would likely
involve the agency in costly litigation.  In addition, the Forest
Service considers as speculative our recommendation that supplemental
appropriations will not be forthcoming and stated that it will not
revise the current lists unless directed by the Secretary or by an
act of Congress.  As with the Department, the Forest Service
interpreted our recommendation as one suggesting the need for
continual revision of its plans whenever transfers are made from the
K-V fund in the future. 

GAO's evaluation:  We continue to believe that the Forest Service
needs to bring individual project plans in line with existing fund
balances.  However, in light of the recent actions by the Department
to formally submit a request for the restoration of the total
transferred amount of K-V funds, we have modified our recommendation
to provide the administration and the Congress an opportunity to
decide whether to restore any or all of the funds before the Forest
Service needs to eliminate planned projects from the existing sale
area improvement plans.  Yet should either the administration decide
not to submit the request to the Congress or the Congress decide
during its consideration of the fiscal year 1997 budget not to
restore the entire amount of the funds transferred, we continue to
recommend that the planned projects be revised in fiscal year 1997 to
reflect the actual balance in the fund. 

Historically, the Congress has restored all transfers within 2 years
after the transfer occurred.  However, in the case of the 1990
transfer, more than 6 years have elapsed, while more than 4 years
have elapsed since the 1992 transfer.  During this period, the
Department of Agriculture did not formally submit a request to the
Office of Management and Budget for supplemental appropriations to
restore the moneys transferred.  Only because the fiscal year 1994
fires were extraordinarily costly did the Department of Agriculture
request, and the Congress ultimately approve, a supplemental
appropriation in early fiscal year 1995 to restore the funds
transferred in fiscal year 1994.  Yet that request did not ask for
funds to replace the 1990 or the 1992 transfers.  It was not until we
discussed a preliminary draft of our report and our potential
recommendations that the Department of Agriculture formally requested
the Office of Management and Budget to propose the restoration of the
moneys transferred in all 3 fiscal years. 

While we agree that the current reported unobligated balance of the
K-V fund at the beginning of fiscal year 1996, plus the expected
collections from ongoing timber sales, may be adequate to cover the
costs of the current year's projected expenditures, the program
cannot continue to operate in the long term as if the $420 million in
transfers had not occurred.  We believe that in light of the
uncertainty about whether the transferred funds will be restored, the
Forest Service should focus its available resources on ensuring that
the highest-priority projects--that is, essential reforestation
activities--are accomplished before expenditures are made for
improving timber stands or other renewable resources.  Because the
Forest Service's guidance permits expenditures for other than
reforestation activities as long as the agency "collect[s] at least
one payment for material cut," we are concerned that sufficient funds
may not be available from the collections from that sale area to
complete the essential reforestation projects that must take place
after the timber purchaser completes the harvest. 

Additionally, we disagree that eliminating planned projects would
violate the K-V Act.  The Congress authorized the Forest Service to
transfer and use any appropriated funds, including K-V funds, to
fight forest fires in emergency situations.  These funds can only be
restored by the Congress.  Consequently, the revision of planned
projects when it becomes clear that the Congress will not restore the
funds transferred would not violate the K-V Act.  The principle
involved here is the same in connection with the Forest Service's
other reforestation responsibilities.  While the federal statutes,
including the Multiple-Use and Sustained Yield Act of 1960 and the
National Forest Management Act of 1976, assign the Forest Service the
responsibility for reforestation efforts in the national forests,
such efforts can only be carried out within the amounts the Congress
appropriates.  Furthermore, we do not know now whether eliminating
projects would lead to costly litigation. 

Our recommendation did not envision a continual revision to the list
of planned projects each time a new sale area improvement plan was
developed, when individual projects are completed, or when transfers
are made or restored.  Rather, we believe that once the current
project plans are brought in line with the available fund balances,
the Forest Service should consider revising the individual plans when
additional transfers are made in the future and not restored within a
reasonable period of time.  This action will allow the Forest Service
to redirect its remaining resources to the highest-priority projects
existing at that time. 

Finally, we disagree with the Chief Financial Officer that a valid
receivable has been established or that the Congress has the
responsibility to restore the funds transferred.  When such a
transfer occurs, the Forest Service records a transfer, not an
advance, and appropriately does not record a receivable.  The law
that authorizes the Forest Service to advance the moneys does not
require that the funds be restored to the account from which they
were transferred.  Because, in our opinion, the Department has not
requested additional funding from or adequately informed the Congress
of the impact on the program if the funds are not restored, we do not
believe that a basis exists to expect the funds to be restored. 


      RECOMMENDATION 3
-------------------------------------------------------- Chapter 4:0.3

Additionally, to help ensure that the most critical planned projects
can be completed within the existing limits of the fund, GAO
recommended that the Secretary of Agriculture direct the Chief of the
Forest Service to perform, in consultation with the Chief Financial
Officer, an analysis of alternatives (including the costs and
benefits of each alternative) to obtain the financial data necessary
to ensure that the expenditures from the Knutson-Vandenberg Trust
Fund in one sale area would be limited to the amounts collected from
that area, as required by the Knutson-Vandenberg Act. 

The Department's comment:  The Department disagreed with GAO's
recommendation and the implications that the Forest Service's
financial information and controls at the individual sale-area level
is insufficient to ensure that expenditures not exceed collections on
individual sale areas.  The Department cited a 1991 opinion, and a
more recent 1996 one by the Department of Agriculture's Office of
General Counsel, which emphasized that "while the requirement that
collections from one sale area not be spent on another sale area was
a matter of law, the precise accounting systems and administrative
controls to comply with the law are 'properly within the realm of the
Forest Service.'"

The Forest Service's comment:  The Forest Service disagreed with the
recommendation because it believed that the current procedures for
accounting for K-V collections and expenditures, and the process
currently used to annually determine the amount of excess K-V funding
to return to the U.S.  Treasury, are in full compliance with the
statutory requirements of the K-V Act.  The Forest Service cited the
development and review of the sale area improvement plan as a means
to determine the need for adjustments in the cost estimates and/or
work activities to bring the planned K-V activities in line with the
K-V collections on each timber sale. 

Additionally, the Forest Service did not agree that a need exists to
develop and analyze alternative procedures for obtaining the
financial data necessary to ensure that the expenditures in one sale
area would be limited to the amounts collected in that area.  The
Forest Service did, however, agree to investigate ways to improve the
efficiency and consistency of applying its current procedures for
managing the K-V funds. 

GAO's evaluation:  We disagree with both the Department and the
Forest Service on the adequacy of the Forest Service's management
information systems and controls to provide sale-area data and
accountability.  While we agree that at the national, regional,
forest, and district level, the Forest Service's information system
provides sufficient information to ensure that expenditures do not
exceed collections, we disagree that the current information systems
and controls provide that level of adequate assurance that funds from
a sale area are spent on projects in that sale area as required by
law.  While the current information systems can account for the
collections at the sale level--since this information is necessary to
compute the required payments to the states--as we point out in
chapter 3, comparable expenditure information is not available for a
sale area.  For example, a forest or a district may award a planting
contract that covers multiple sales areas and, in some cases, sale
areas in different districts.  This expenditure would be accounted
for at the district or forest level but would not identify how much
of that expenditure applied to sale area "A" compared to the amount
for sale area "B."

In addition, during the budget development process, the district uses
a computed amount for a specified number of acres anticipated to be
planted 2 to 3 years forward, that is, how many acres from all of the
sale areas need to be planted.  While the district may review the
individual sale area improvement plans to determine how many
anticipated acres may be expected to be planted in the next fiscal
year's increment of the plan, generally no consideration is given as
to whether the remaining collections from the individual sale areas
will cover the amount of funds being requested for those sale areas. 
For example, we found that one district, in developing its annual
budget, requested $106,326 to complete a planting project on 179
acres.  Yet that district had collected only $87,298 for 233 acres,
or 50 acres more than what that year's budget request was expected to
accomplish.  Because budget dollars are allocated to the district
level as a whole rather than by sale area, we could not specifically
determine whether in fact this additional $19,000 had been provided
to the district.  However, in discussing these situations with
district and forest personnel, we were told that they generally
receive the amounts that they request.  Thus, the likelihood exists
that the districts receive and spend the money requested whether or
not the amount exceeds their collections and that they are
potentially overspending K-V funds. 

In its 1992 revision to the K-V handbook, the Forest Service
correctly pointed out that collections on one sale area should not be
expended on another sale area and specified a requirement for an
annual reconciliation of the expected expenditures and collections
from each sale area.  However, a reconciliation is an after-the-fact
control that may result in adjustments for accounting errors but
would not ensure that expenditures did not exceed collections on
individual sale areas.  Furthermore, this reconciliation does not
match collections and expenditures on individual sale areas; rather,
it matches them on a forestwide basis.  Therefore, this
reconciliation does not provide the level of control required to
ensure compliance with the K-V Act. 

The Forest Service also points out that the annual reconciliation is
used to determine the amount of excess K-V collections that must be
returned to the U.S.  Treasury.  However, the Forest Service has not
returned these excess collections to the Treasury since the late
1980s.  Instead, the Forest Service is currently retaining about $49
million of excess collections as an offset until such time as
supplemental appropriations are provided to restore the moneys
advanced for firefighting.  During this current review, however, we
did not assess the appropriateness of retaining the excess K-V moneys
until a supplemental appropriation is provided, but we plan to
subsequently address this issue. 

Finally, our recommendation was not directed to requiring the
modification of the Forest Service's current or the Department's
proposed accounting systems to require sale-by-sale accounting. 
Rather, we recommended that the Forest Service perform an analysis of
alternatives, including the costs and benefits, as a basis for
determining how it will meet the requirements of the K-V Act.  While
sale-by-sale accounting may provide the highest assurance that the
expenditures on one sale area do not exceed the collections for that
sale area, we recognize that modifying these systems may be costly
and time consuming.  However, as stated earlier, neither GAO nor the
Forest Service has explored the potential cost of making these
modifications or what other systems--such as the tracking system used
in the Black Hills Forest--could be instituted to provide assurance
that the Forest Service is complying with the legislative
accountability requirements.  Therefore, we continue to believe that
the Forest Service should explore alternatives with the Office of the
Chief Financial Officer to correct the weaknesses identified in the
K-V program and to better ensure overall improved financial
management and accountability in the Forest Service. 


      RECOMMENDATION 4
-------------------------------------------------------- Chapter 4:0.4

Additionally, to help ensure that the most critical planned projects
can be completed within the limits of the existing funds, GAO
recommended that the Secretary of Agriculture direct the Chief of the
Forest Service to require all organizational levels to use a
standardized national methodology for assessing and withholding the
support costs for the Knutson-Vandenberg program that will limit the
expenditures for program support to the amounts collected for such
purposes. 

The Department's and Forest Service's comments:  The Department, its
Chief Financial Officer, and the Forest Service agreed with GAO's
recommendation, and the Forest Service agreed to develop a national
direction to achieve this purpose. 


-------------------------------------------------------- Chapter 4:0.5

In addition to commenting on specific recommendations, both the
Department and the Forest Service provided comments related to other
material presented in the report.  Their comments and our evaluations
follow. 

The Department's comment:  Concerned that GAO made statements that
the Department had not requested appropriations from the Congress,
the Department pointed out that it is the President who submits
budget proposals to the Congress and that the Department can make a
request only to the Office of Management and Budget. 

GAO's evaluation:  While GAO recognizes that it is the President who
submits budget proposals to the Congress, our point was that the
Department had not, until March 15, 1996, formally requested the
Office of Management and Budget to request the President to submit a
proposal to the Congress asking for supplemental appropriations to
restore the moneys transferred from the K-V fund for firefighting
purposes in fiscal years 1990, 1992, and 1995.  For ease of
reporting, we used the terms, "the Department of Agriculture has not
submitted a request for a supplemental from the Congress." Page 24
accurately reflects the fact that the Department of Agriculture had
submitted a request to the Office of Management and Budget but that
at the time of our report, the Office of Management and Budget had
not taken action on the request.  As of May 20, 1996, the Office of
Management and Budget still had not taken action on the request and
stated that it would still be several more weeks before the matter
was even considered. 

The Department's comment:  The Department was concerned with the use
of the term "transfer" as it relates to the moneys used from the K-V
fund for firefighting purposes.  The Department pointed out that the
administrative provision authorizing the use of the funds uses the
word "advance." Furthermore, the Department believed that the word
"transfer" implies the permanent movement of budgetary resources from
one account to another, while "advance" has the connotation that
there is a responsibility to restore budgetary resources to the
donating account. 

GAO's evaluation:  We disagree.  While 16 U.S.C.  556d uses the word
"advance," the funds advanced are not required to be restored. 
Therefore, we believe that it is more appropriate to refer to these
advances as transfers.  Furthermore, we chose to use the term
"transferred" since the Forest Service in its reports to the
Department of the Treasury (as required by Office of Management and
Budget Circular A-34) reflects these moneys as transfers from the K-V
fund to the firefighting fund.  While the Forest Service established
a "Liability for Fire Fighting Advances" (note 15) as part of its
"Future Financing Sources" (note 20) in its financial statement audit
for the year ended September 30, 1994, the Forest Service indicated
that it had "not recognized this amount [not restored] as a
receivable in the financial statements and will not until such time
as Congress authorizes supplemental funding to repay the trust fund
loan." Thus, since no supplemental appropriation had been made for
the moneys and no receivable created, we chose to use the term
"transferred from the K-V fund" to reflect that the money is no
longer in the K-V fund and to demonstrate our uncertainty that a
supplemental appropriation--
particularly for the 1990 and the 1992 transfers--would ever be
provided. 

The Forest Service's comment:  The Forest Service did not agree with
the basic premise in the draft report that the K-V Act requires
expenditures to be accounted for on a sale-by-sale basis.  The Forest
Service believed that this premise had shaped the audit findings and
had led to recommended actions that are costly, burdensome,
impractical, and unnecessary to meet the requirements of the K-V Act. 

GAO's evaluation:  The Forest Service misstates a basic premise of
our report:  that the Forest Service lacks the reliable financial
information and adequate controls necessary to ensure that K-V
expenditures on one sale area do not exceed the collections from that
sale area as required by the K-V Act.  We are not saying that the act
requires the Forest Service to establish an accounting system;
rather, our recommendation addresses the need for the Forest Service
to have a mechanism to ensure that expenditures do not exceed
collections on a sale area. 

The Forest Service's comment:  The Forest Service disagreed with the
statements that conveyed the impression that they had not actively
sought to get the advanced K-V funds repaid. 

GAO's evaluation:  We did not intend to infer that no attempts had
been made to seek the restoration of the transferred funds.  We
intended only to point out that sizeable amounts of the K-V fund had
been transferred in 1990, 1992, and 1995 and that no formal
departmental actions had been taken until March 1996 to request that
these transfers be restored.  In fact, when the opportunity arose in
1994 to request the restoration of the 1990 and 1992 transfers, the
Department did not submit a request for all of the transferred moneys
but instead limited the request to the amount transferred for the
1994 fires.  While, historically, transferred funds had been restored
within 2 years of such transfer, we believe that waiting until March
1996 to request restoration of the 1990 and 1992 transfers exceeds a
reasonable period of time. 


BUREAU OF LAND MANAGEMENT'S
REFORESTATION PROGRAM
=========================================================== Appendix I

The Bureau of Land Management (BLM) manages more federal acreage than
any other federal agency, including a small amount of timberlands. 
When timber is harvested on BLM's lands, the areas cut must be
reforested to maintain the forest's desired structure, diversity, and
sustained future growth.  BLM's reforestation activities are funded
through appropriated and nonappropriated dollars. 


      BLM'S REFORESTATION
      RESPONSIBILITIES
------------------------------------------------------- Appendix I:0.1

Although commercial forest lands represent approximately 3 percent of
BLM's total acreage and noncommercial forests and woodlands represent
approximately 15 percent, sales of timber accounted for more than 95
percent of the agency's receipts in fiscal year 1993.  The
reforestation of harvested lands is an integral part of BLM's forest
management and is required by legislative mandate.  The
responsibility for the agency's reforestation program on the Oregon &
California (O&C) lands is divided among the four different
organizational levels. 

BLM manages about 268 million acres of public land, including grazing
and forest lands, in 28 states.  The majority of this acreage is
located in Alaska and 11 western states.  BLM manages, develops, and
protects approximately 8 million acres of productive timberland, of
which the 2.6 million acres in western Oregon are generally
recognized to be one of the nation's most productive and valuable
commercial forest properties.  BLM also manages, develops, and
protects 40 million acres of woodlands that supply a number of forest
products.  Figure I.1 shows BLM's commercial timberland and
noncommercial forests and woodlands as a percentage of total acres
managed. 

   Figure I.1:  BLM's Timberlands,
   Forests, and Woodlands as a
   Percentage of Total Land
   Managed

   (See figure in printed
   edition.)

Source:  GAO's presentation of BLM's data. 

BLM's responsibilities for reforestation are set forth in two laws. 
The Oregon and California Sustained Yield Act of 1937 (43 U.S.C. 
1181a et seq.) sets forth the general policies and guidelines for
managing the Oregon and California Railroad and Coos Bay Wagon Road
grant lands, known as the O&C lands, in western Oregon.  The act
states that these lands shall be managed for the purpose of providing
a permanent source of timber supply.  The Federal Land Policy and
Management Act of 1976 (43 U.S.C.  1711, 1732), as amended, provides
for the multiple-use management of public land on a sustained-yield
basis and for recognizing the nation's need for domestic sources of
timber. 

In fiscal year 1995, BLM harvested 120 million board feet of timber;
103 million board feet (or 86 percent) were harvested from the
forests in western Oregon.  During that same period, BLM reforested
55,000 acres of land in western Oregon and 2,330 outside of western
Oregon. 

BLM's four organizational levels share reforestation
responsibilities.  The agency's headquarters in Washington, D.C.,
provides policy formulation and program direction.  Twelve state
offices provide policy, procedural, and operational guidance. 
Fifty-nine district offices provide program direction, planning, and
administrative support for 139 resource area offices, which have the
direct responsibility for implementing BLM's policies and managing
and protecting the resources.  Currently, BLM is undergoing
organizational restructuring to a two-tier field structure that will
enable them to share resources both with other BLM offices and other
agencies. 


      REFORESTATION IS FUNDED WITH
      APPROPRIATIONS AND
      NONAPPROPRIATED FUNDS
------------------------------------------------------- Appendix I:0.2

BLM's forestry program receives funding through three accounts; two
of the accounts are appropriated moneys and one is nonappropriated
moneys.  The appropriated accounts include the Western Oregon
Resources Management, Reforestation and Forest Development account
for the O&C lands and the Renewable Resources Management, Forest
Management account for public domain lands.  O&C lands are public
lands granted to the Oregon and California Railroad Company and the
Southern Oregon Company and subsequently revested to the United
States.  Public domain lands, on the other hand, are original
holdings of the United States never granted or conveyed to other
jurisdictions or reacquired by exchange for other public domain
lands.  By far, the O&C lands receive the largest amount of
reforestation funding--about 90 percent of the more than $23 million
in reforestation funding in fiscal year 1994. 

BLM's nonappropriated account is the Forest Ecosystem Health and
Recovery Fund.  In 1992, the Congress authorized BLM to retain the
federal share of timber salvage receipts, and the moneys from this
fund are available for planning, preparing, administering, and
reforesting timber salvage areas. 


HOW THE FOREST SERVICE OBLIGATED
FISCAL YEAR 1994 REFORESTATION
FUNDS
========================================================== Appendix II

During fiscal year 1994, of the about $163 million obligated for
reforestation and related program support costs, $109.5 million came
from the K-V fund and the remaining $53.5 million came from
appropriations and the Reforestation Trust Fund.  Of the over $163
million,\14 the Washington Office obligated almost $3 million for the
costs of supporting its reforestation program.  For the regional
obligations, table II.1 identifies both the total reforestation
obligations of about $159 million and the program support obligations
of about $7 million for fiscal year 1994. 



                               Table II.1
                
                 Reforestation Program Obligations for
                   the Forest Service's Nine Regions,
                            Fiscal Year 1994

                         (Dollars in thousands)


--------------------
\14 Some support costs of the appropriated reforestation program are
funded by other administrative appropriations and are not easily
identifiable.  Therefore, our calculations of reforestation
obligations are conservative because these costs were not included in
our calculations. 


*** Error occurred during conversion.  Document is incomplete.  ***