Forest Service: Actions Needed To Ensure That Salvage Sale Fund Is
Adequately Managed (Letter Report, 09/26/97, GAO/RCED-97-228).

Pursuant to a congressional request, GAO reviewed the status of the
Salvage Sale Fund's balance and the management practices affecting the
replenish the replenishment of the fund.

GAO noted that: (1) after reaching a high of $247 million at the end of
fiscal year (FY) 1993, the Salvage Sale Fund's balance declined 25
percent to $186 million at the end of FY 1996; (2) the decline occurred
for a variety of reasons, and the fund's balance appears to be
stabilizing in FY 1997; (3) if the Forest Service's estimates are
correct, the Salvage Sale Fund's balance will total about $182 million
at the end of FY 1997, a balance the Forest Service believes is
sufficient to meet the estimated obligations for FY 1998; (4) several
management practices that affect the flow of salvage sale receipts into
the Salvage Sale Fund need to be improved; (5) specifically, these
practices include how regions and forest: (a) establish priorities for
distributing salvage timber sale receipts; (b) establish estimates of
the costs to recovered; (c) review satisfactorily correct deficiencies;
and (d) satisfactorily correct deficiencies.

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

 REPORTNUM:  RCED-97-228
     TITLE:  Forest Service: Actions Needed To Ensure That Salvage Sale 
             Fund Is Adequately Managed
      DATE:  09/26/97
   SUBJECT:  Timber sales
             National forests
             Funds management
             Revolving funds
             Budget receipts
             Accounting procedures
             Projections
             Forest management
IDENTIFIER:  Salvage Sale Fund
             Clearwater National Forest (ID)
             Umatilla National Forest (OR)
             Stanislaus National Forest (CA)
             Homochitto National Forest (MS)
             Forest Service Timber Sale Program Information Reporting 
             System
             Forest Service Central Accounting System
             National Forest Fund
             Knutson-Vandenberg Trust Fund
             Roads and Trails Fund
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Subcommittee on Interior and
Related Agencies, Committee on Appropriations, House of
Representatives

September 1997

FOREST SERVICE - ACTIONS NEEDED TO
ENSURE THAT SALVAGE SALE FUND IS
ADEQUATELY MANAGED

GAO/RCED-97-228

Forest Service's Salvage Sale Fund

(140544)


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

  K-V - Knutson-Vandenberg

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


B-277210

September 26, 1997

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

Dear Mr.  Yates: 

Sales of salvage timber--that is, timber that is insect-infested,
dead, damaged, or downed--represented nearly half of all the timber
offered for sale from the national forests in fiscal year 1996. 
Because nonsalvage timber offered for sale has declined significantly
in recent years, the salvage sale volume offered is nearly double the
proportion offered just 5 years ago.  Because of this proportional
increase, you asked us to obtain information about the fund used to
prepare and administer these sales--the Salvage Sale Fund.  In August
1996, we provided you with information on how the fund is used, its
status, and its current and historical deposits and outlays.\1 As
agreed with your office, this second report updates the status of the
fund's balance and provides a more in-depth look at the management
practices affecting the replenishment of the fund.  Our analysis is
based on nationwide data from the Forest Service and on a detailed
review of the salvage sale programs at four national forests and the
Forest Service regions that administer them.\2 (App.  I contains a
more detailed discussion of our scope and methodology.)


--------------------
\1 Salvage Sale Fund's Deposits and Outlays (GAO/RCED-96-240R, Aug. 
22, 1996). 

\2 The forests reviewed were the Clearwater National Forest in Idaho,
the Stanislaus National Forest in California, the Umatilla National
Forest in Oregon, and the Homochitto National Forest in Mississippi. 
The regions reviewed were the Northern Region, the Pacific Southwest
Region, the Pacific Northwest Region, and the Southern Region. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

After reaching a high of $247 million at the end of fiscal year 1993,
the Salvage Sale Fund's balance declined 25 percent to $186 million
at the end of fiscal year 1996.  The decline occurred for a variety
of reasons, and the fund's balance appears to be stabilizing in
fiscal year 1997.  If the Forest Service's estimates are correct, the
Salvage Sale Fund's balance will total about $182 million at the end
of fiscal year 1997, a balance the Forest Service believes is
sufficient to meet the estimated obligations for fiscal year 1998. 

Several management practices that affect the flow of salvage sale
receipts into the Salvage Sale Fund need to be improved. 
Specifically, these practices include how regions and forests (1)
establish priorities for distributing salvage timber sale receipts,
(2) establish estimates of the costs to be recovered, (3) review
salvage sale plans for completeness and accuracy, and (4)
satisfactorily correct deficiencies. 


   BACKGROUND
------------------------------------------------------------ Letter :2

With a few exceptions, the volume of salvage timber the Forest
Service has offered for sale has remained fairly constant over the
years.  However, as the green (or nonsalvage) timber sale program has
decreased in size, the salvage sale program has increased as a
percentage of the total volume offered for sale.  For example, even
though the actual salvage timber offered for sale declined from about
2.9 billion board feet to 1.9 billion board feet in 1990 through
1996, it actually increased as a percent of total timber offered for
sale from about 26 percent to 48 percent during this same period. 

The National Forest Management Act of 1976, as amended (16 U.S.C. 
472a[h]), established the Salvage Sale Fund as a permanent
appropriation, and the Congress appropriated $3 million in fiscal
year 1977 to get it started.  The act authorized the Secretary of
Agriculture to require timber purchasers to make deposits into the
Salvage Sale Fund as part of the payment for the timber.  Such
deposits are then available to replenish the fund and pay for the
costs of preparing and administering future salvage sales.  As
appropriations to fund the overall timber program have decreased, the
importance of the Salvage Sale Fund as a source of funding has
increased.  For example, in fiscal year 1990, moneys from the Salvage
Sale Fund represented 20 percent of all funds needed for the green
and salvage timber programs, but by fiscal year 1996, the amount had
risen to 45 percent. 

The Salvage Sale Fund is not the only fund in which salvage sale
timber receipts are deposited.  Salvage sale receipts not used to
recover costs may be deposited into (1) the Knutson-Vandenberg (K-V)
Fund, where they are used to reforest harvested timberlands, and (2)
the National Forest Fund, where they can be used to make required
payments to the states, the Roads and Trails Fund, and other
obligations.  Under federal law, at the end of each fiscal year, 25
percent of all moneys received at each national forest, including
moneys received from salvage sales, is to be paid to the state in
which the forest is located.  These funds are to be expended for
public roads and schools.  Federal law also requires that at the end
of the fiscal year, 10 percent of all moneys received is to be
deposited into the Roads and Trails Fund.  These funds are to be
expended for roads and trails in the forests from which the moneys
were derived. 

The Forest Service's guidelines require that a plan be prepared for
each salvage sale or group of small sales.  This plan determines the
amount of receipts to be deposited into the Salvage Sale Fund to
recover the sale's costs.  Specifically, the salvage sale plan
identifies the sale's volume, the sale's direct and indirect costs,
and any additional amount that may be collected to meet future
program needs.  The salvage sale plan is the only document in which
these costs are estimated and identified on a sale-by-sale basis. 
The Forest Service's accounting systems do not track actual
sale-by-sale costs. 


   AFTER A THREE-YEAR DECLINE, THE
   SALVAGE SALE FUND'S BALANCE
   APPEARS TO BE STABILIZING IN
   1997
------------------------------------------------------------ Letter :3

The history of the Salvage Sale Fund has been one of a growing
balance through fiscal year 1993 and then a declining balance for the
next 3 years.  From the start of fiscal year 1990 through the end of
fiscal year 1993, the Salvage Sale Fund's balance more than doubled,
from $111 million to a high of $247 million (see table 1).  Declines
through fiscal year 1996 lowered the balance to $186 million, a drop
of 25 percent.



                                Table 1
                
                The Salvage Sale Fund's Ending Balance,
                     Fiscal Years 1989 Through 1997

                         (Dollars in millions)

                                                      Unobligated fund
Fiscal                                                  balance at end
year                                                of the fiscal year
----------------------------------------  ----------------------------
1989                                                              $111
1990                                                               162
1991                                                               182
1992                                                               223
1993                                                               247
1994                                                               229
1995                                                               210
1996                                                               186
1997(est.)                                                         182
----------------------------------------------------------------------
The fund's ending balance declined from fiscal years 1994 through
1996 for the following reasons: 

  -- In fiscal year 1994, $40.2 million of the fund's balance was
     considered excess to the salvage sale program's anticipated
     needs and was used for other authorized purposes.

  -- During fiscal year 1994, salvage timber offered for sale
     declined to its lowest level in almost 10 years.  As a result,
     less salvage sale receipts were collected from these sales in
     fiscal years 1995 and 1996.

  -- In fiscal year 1995, the emergency salvage timber sale program
     was implemented and additional costs were incurred to prepare
     and administer sales that would generate receipts largely in
     future years.\3

  -- In fiscal year 1996, as costs for the emergency salvage timber
     sale program continued to rise, the Forest Service deposited
     $35.6 million originally intended for the Salvage Sale Fund into
     the National Forest Fund to cover a shortage in the funds needed
     to make the payment to the states and other obligations.\4 In
     addition, Forest Service officials stated that lowered receipts
     resulted from the volume offered under the emergency salvage
     program because the salvage timber was of lower quality. 

Because the fund's balance had declined for 3 years and because the
salvage sale program's obligations for the last 2 years exceeded
deposits to the Salvage Sale Fund by more than $30 million, we asked
Forest Service officials to provide us with information about the
agency's ability to meet the salvage sale program's future needs with
available funding levels.  They told us that the Salvage Sale Fund's
obligations for fiscal year 1997 and 1998 will be much lower than
those in fiscal year 1996 because they expect a lower volume of
salvage timber to be offered for sale.  In addition, the Forest
Service projects that in fiscal year 1997, about $167 million in
salvage sale receipts will be deposited into the fund to cover an
estimated $172 million in obligations.  Forest Service officials
expect the fund's fiscal year 1997 ending balance to be about $182
million, an amount they consider sufficient to meet expected needs of
$153 million in fiscal year 1998. 


--------------------
\3 Under the emergency salvage program, established by the Congress
in 1995, the Forest Service offered 4.6 billion board feet of salvage
timber that was 1.2 billion board feet more than originally proposed
by the Forest Service before the emergency program. 

\4 For a detailed discussion of the reasons for the funding shortage,
see Forest Service:  Unauthorized Use of the National Forest Fund
(GAO/RCED-97-216, Aug.  29, 1997). 


   SEVERAL MANAGEMENT PRACTICES
   AFFECT HOW THE FUND IS
   REPLENISHED
------------------------------------------------------------ Letter :4

Several management practices that affect the flow of salvage sale
receipts into the fund need to be improved to ensure more consistency
in the salvage sale program.  Specifically, these practices include
how regions and forests (1) establish priorities for distributing
salvage sale receipts, (2) establish estimates of costs to be
recovered, (3) review salvage sale plans for completeness and
accuracy, and (4) satisfactorily correct deficiencies. 


      PRIORITIES FOR DISTRIBUTING
      SALVAGE SALE RECEIPTS NEED
      CLARIFICATION IN POLICY
      GUIDANCE
---------------------------------------------------------- Letter :4.1

When timber sale receipts were at much higher levels, Forest Service
regional and forest-level officials decided how to distribute
receipts.  As a result, none of the four forests we visited
distributed salvage sale receipts in the same order or complied with
the legislative distribution priorities.  Recently, however,
declining timber receipts, combined with concerns about meeting all
required obligations, resulted in headquarters actions to clarify how
receipts should be distributed.  It is not yet clear whether these
clarifications will ensure that regions and forests handle the
distributions of receipts in keeping with the different legislative
priorities applicable to salvage and green sale receipts.  If the
separate legislative priorities are not applied, salvage sale
receipts could be used for other purposes before the fund is
replenished to cover costs. 


         LEGISLATIVE PRIORITIES
         FOR DISTRIBUTING SALVAGE
         SALE RECEIPTS
-------------------------------------------------------- Letter :4.1.1

The first legislative priority for the distribution of timber sale
receipts is the required 25-percent payment to the states.  Even
though the 25-percent requirement applies to receipts from both
salvage and green sales, it does not require that the payment be made
from the same source that generated the receipts.  For example, if
the receipts from green sales are sufficient, then they may be used
to make the payment to the states that are attributable to salvage
sales. 

There is one basic difference in how salvage sale receipts and green
sale receipts are to be handled once the 25-percent requirement is
met:  Salvage sale receipts must be deposited into the Salvage Sale
Fund until the sale's preparation and administration costs are
recovered.  This deposit must occur from salvage sale receipts
because receipts from the sale of green timber may not be deposited
to the Salvage Sale Fund.  Once salvage sale costs are recovered, any
remaining salvage sale receipts may then be deposited in accordance
with the priorities attributable to green sales. 


         FOREST SERVICE IS
         DEVELOPING GUIDANCE TO
         CLARIFY PRIORITIES
-------------------------------------------------------- Letter :4.1.2

Since September 1996, the Forest Service has made several attempts to
clarify how timber sale receipts should be distributed.  These
include amendments to the manual and the handbook as well as both
interim and draft guidelines.  The Forest Service issued interim
guidelines in January 1997 to provide guidance until a task force
developed and completed national guidelines.  This task force issued
its first draft in June 1997, a second draft in August, and a final
report on August 28, 1997.  However, none of these documents--the
amendments, the interim or draft guidelines, or the final task force
report--clearly illustrated the separate priorities existing for the
distribution of salvage and green timber sale receipts. 

In its report, the task force recommended establishing priority
groups to distribute timber receipts.  For example, the first
priority group includes required commitments for the payments to the
states, the payment to roads and trails, the payments for the next
year's planned purchaser-elect road program,\5 and the recovery of
required K-V reforestation costs.  The second priority group includes
the regional and local needs of the Salvage Sale Fund and other
reforestation activities.  However, the priority groupings do not
show that, unlike green sale receipts, deposits to the Salvage Sale
Fund must be made to recover costs before the identified K-V
reforestation requirements are satisfied.  If receipts are set aside
for other activities before salvage sale costs are recovered, the
amount remaining may be insufficient to adequately replenish the
fund. 


--------------------
\5 Under the National Forest Management Act of 1976, certain small
purchasers may elect to have the Forest Service build the roads
necessary to access the timber.  These are referred to as
"purchaser-elect" roads. 


         PRACTICES USED BY REGIONS
         AND FORESTS RAISE CONCERN
         ABOUT WHETHER PRIORITIES
         WILL BE FOLLOWED
-------------------------------------------------------- Letter :4.1.3

The task force's report has been sent to the regions for
implementation.  How it will be implemented and interpreted remains
to be determined.  The four regions we reviewed were all responding
in different ways to the interim guidance they had received: 

  -- Officials in the Southern Region stated that because the region
     has always met the payments to the states and the other required
     payments, they saw no reason to change their established
     priorities as a result of the interim guidance.  The region and
     the forests will monitor the situation to ensure that the
     National Forest Fund can meet all of its obligations, but the
     forests will continue to decide how to distribute timber sale
     receipts.

  -- The Pacific Northwest Region and the Northern Region have
     adopted regional policies similar to those in the task force's
     June draft, except that the priorities within the first category
     have been reordered.  For example, required reforestation is
     listed before the payments to the states.

  -- The Pacific Southwest Region is following the January interim
     guidance. 

We reviewed the task force's final report, including the new
guidance, which clearly identifies the 25-percent payment to the
states as the first priority and the appropriate source of funding
for the Roads and Trails Fund, both of which were not always clear in
earlier guidance.  However, the relative priority of distributing
receipts from salvage sales to the Salvage Sale Fund and to the K-V
Fund remains unclear.  For example, the guidance states that the
Salvage Sale Fund takes priority over the K-V Fund for salvage sale
receipts but later states that if insufficient value is received on a
salvage sale to fund the needs of both the Salvage Sale Fund and the
K-V Fund, then a decision must be made as to which fund will take
priority.  In addition, the transmittal letter leaves the relative
priority between the Salvage Sale Fund and K-V Fund to the discretion
of the responsible line officer.  These statements could easily lead
to continued confusion.  Consequently, we remain concerned about
whether the final version of the guidance will be clear enough to be
correctly interpreted or consistently implemented by those who must
use it.  Our concern stems in part from the variety of regional
practices we found for the interpretation and implementation of the
interim and draft guidelines as well as for the other problems
discussed below. 


      INCONSISTENCIES IN COST
      DEVELOPMENT
---------------------------------------------------------- Letter :4.2

A critical step in replenishing the Salvage Sale Fund is accurately
estimating the amounts necessary to reimburse the fund for direct and
indirect sale costs.  Because the Forest Service does not account for
actual costs on a sale-by-sale basis, these costs must be estimated
using cost information from previous years.  While these estimates
are used to determine what can be deposited into the Salvage Sale
Fund, the Forest Service has not provided detailed guidance on how
these costs should be determined.  The method used to estimate costs
is left to the regions, which, in turn, often pass this decision
along to the individual forests.  This practice has led to a variety
of cost development methods. 

At the four forests we reviewed, four different cost development
methods were used.  For salvage sales awarded in fiscal year 1995,
the Clearwater National Forest developed costs using a 3-year average
of cost data taken from the accrual-based Timber Sale Program
Information and Reporting System;\6 the Umatilla National Forest used
fiscal year 1992 expenditure data taken from the cash-based Central
Accounting System; the Stanislaus National Forest used a 3-year
average of the Central Accounting System expenditure data; and the
Homochitto National Forest developed its own cost estimates on the
basis of its experience. 

The Forest Service does not account for costs on a sale-by-sale
basis, and as a result, the method chosen to estimate these costs can
have a substantial impact on the amount to be deposited in the fund. 
As the size of the salvage sale program changes, the costs associated
with it rise and fall.  Thus, the costs selected and the period
chosen can have a significant effect on the amount identified as
needed to replenish the fund.  For example, if the Umatilla National
Forest had used the 3-year average method utilized by the Stanislaus
National Forest, its identified costs would have been $1.3 million
instead of the $367,223 actually claimed.  By selecting a method that
incorrectly estimates the program's cost, a forest runs the risk of
not setting aside the amount necessary to finance the program in the
future.  (For a table showing the total costs for the sales examined
in the four forests we reviewed, see app.  II.)


--------------------
\6 The reporting system presents financial and long-term economic
information for each national forest timber sale program. 


      INADEQUATE REVIEW OF SALVAGE
      SALE PLANS PERMITS ERRORS
---------------------------------------------------------- Letter :4.3

Forests need to accurately prepare salvage sale plans because these
documents serve as the basis for depositing available receipts to the
Salvage Sale Fund.  At the four forests we reviewed, however, we
found numerous errors.  For example, (1) regional and headquarters
overhead had not been included in the indirect costs, (2) overhead
was calculated on overhead, (3) incorrect volumes were listed, (4)
excessive allowable surcharges were calculated, and (5) basic
computational errors were made.  These errors and omissions point to
a lack of adequate review of the salvage sale plans by managers at
the forest and regional levels. 

The effect of these errors varied, understating costs in some places
and overstating them in others.  For example, of the 16 sales
reviewed at the Umatilla National Forest, 6 overstated indirect costs
and 7 understated them.  The overall impact was an overstatement of
about $21,000.  At the Stanislaus National Forest, the program's
future needs were based on 150 percent of direct and indirect costs
instead of the 50 percent permitted by the Forest Service's handbook;
this calculation overstated the amounts to be collected for the nine
sales reviewed by almost $150,000.  Furthermore, this incorrect
calculation method has been in effect since at least 1991. 

We also found instances in which salvage sale plans were never
prepared.  At the Homochitto National Forest, 3 of the 19 sales we
reviewed had no plan.  Without a plan, there is no basis for
distributing any receipts to the Salvage Sale Fund.  This omission at
the Homochitto National Forest cost the Salvage Sale Fund about
$19,000 in deposits. 


      MONITORING EFFORTS IDENTIFY
      PROBLEMS, BUT RESOLUTION
      REQUIRES FOLLOW-UP
---------------------------------------------------------- Letter :4.4

Over the past 5 years, both the U.S.  Department of Agriculture's
Office of Inspector General and various regional and headquarters
teams within the Forest Service have reviewed the salvage sale
program.  These reviews have reported many management weaknesses
similar to those we identified.  However, many of these management
weaknesses persist because the Forest Service has not communicated
the results of these reviews to all regions or adequately followed up
to ensure that corrective actions are taken. 


         RESPONSES TO INSPECTOR
         GENERAL'S FINDINGS
         INSUFFICIENT TO ENSURE
         CORRECTIVE ACTION
-------------------------------------------------------- Letter :4.4.1

In 1992, the Office of Inspector General audited three Forest Service
regions to determine whether the salvage sale program complied with
the applicable laws and regulations and whether collections and
receipts were appropriate.  Among other things, the Inspector General
found that

  -- the guidelines and monitoring of the salvage sale program were
     inadequate,

  -- improvements were needed in the management and in the collection
     of salvage sale funds, and

  -- controls over expenditures charged to the salvage sale program
     were inadequate. 

To correct these problems, the Inspector General recommended that the
Forest Service provide detailed instructions to its field offices on
the management of the salvage sale program and that the program be
monitored on a regular basis.  The Inspector General also recommended
that detailed and specific instructions be established for the
preparation of salvage sale plans in addressing allowable direct
costs, the calculation of indirect costs, and permissible excess
collections. 

In response to these recommendations, the Forest Service updated and
clarified its manual and handbook and agreed to schedule additional
reviews of its salvage sale program.  However, at the four forests
and regions that we reviewed, neither the guidance nor the monitoring
is specific enough to address the problems we found.  For example,
while the guidance requires that estimated costs be included in
salvage sale plans, it does not state how estimates should be
calculated.  The guidance also requires that costs be updated, but it
does not state how or on what basis.  The monitoring system put in
place does not include provisions requiring follow-up to ensure that
problems are corrected or that the weaknesses, problems, or best
practices identified in one office are communicated throughout the
agency so that changes can be made everywhere they are needed. 


         PROBLEMS IDENTIFIED IN
         INTERNAL REVIEWS OFTEN
         REMAIN UNCORRECTED
-------------------------------------------------------- Letter :4.4.2

The Forest Service conducts its own reviews of the salvage sale
program by annually selecting one or two regional offices for
in-depth analysis.  During these reviews, headquarters and regional
officials visit selected forests and examine guidelines, program
direction, and accounting procedures.  However, the problems or best
practices identified during these reviews are not communicated
throughout the agency so that changes can be made where needed. 
Consequently, the problems identified during a 1992 review were also
identified as problems 3 years later in another region. 

Since 1992, each region that we visited had been selected for review. 
The Forest Service review teams found many of the same problems we
identified, including

  -- incorrect calculation and updating of direct and indirect costs,

  -- inconsistent priorities in distributing salvage sale funds,

  -- failure to update salvage sale plans, and

  -- failure to collect the correct amount for the program's future
     needs. 

Action plans were prepared to address the problems uncovered by the
reviews, but the Forest Service did not share this information with
other regions or do the follow-up necessary to ensure that the
weaknesses were actually corrected.  For example, when we asked
Southern Region officials about the status of the action items in
their September 1995 review, we were told that many of the items in
the review that were targeted for completion by June 1996 were still
open in June 1997.  Headquarters officials said that because of
limited staff, they seldom follow up to ensure that the problems are
corrected, and they also do not report the results of their reviews
to other regions.  They said that they rely on regional officials to
report on the status of corrective actions and that they would follow
up on specific weaknesses during their next review. 


         TASK FORCE'S EFFORTS
         CARRY NO ASSURANCE OF
         EFFECTIVE IMPLEMENTATION
-------------------------------------------------------- Letter :4.4.3

The Forest Service has established two task forces whose work may
help improve some of the management practices affecting Salvage Sale
Fund replenishment.  The first task force, dealing with funding
priorities, has already been discussed.  The other task force is
developing directions for calculating indirect costs, improving
internal management controls over indirect costs, and identifying
ways to best manage the K-V Fund.  Forest Service officials expect,
however, that some of these findings will be applicable to the
management of the Salvage Sale Fund.  Forest Service officials stated
that the issuance date for the task force's report is uncertain at
this time. 

Over the years, the Forest Service has often used task forces to
identify problems and recommend solutions.  The results of these task
forces' studies, like those of activity reviews, are often thorough
and constructive, and they could do much to correct identified
problems if the recommendations were communicated and implemented. 
As we have pointed out, however, regions and forests do not always
carry out suggestions or recommendations for change. 

As we stated in our testimony of July 31, 1997,\7 the highly
decentralized management structure of the Forest Service gives
managers considerable autonomy and discretion for interpreting and
applying the agency's policies and directions.  As a result, it will
be a significant challenge for the Forest Service to ensure that the
recommendations made by the two task forces will be fully and
consistently implemented throughout the agency. 


--------------------
\7 The Results Act:  Observations on the Forest Service's May 1997
Draft Plan (GAO/T-RCED-97-223, July 31, 1997). 


   CONCLUSIONS
------------------------------------------------------------ Letter :5

The actions taken by the Forest Service in the past year to improve
the management of the Salvage Sale Fund show a willingness to correct
identified weaknesses.  Task forces have completed the new guidance
for the distribution of timber sale receipts and are identifying ways
in which the management of the Salvage Sale Fund can be improved. 
Substantial progress has been made.  The guidance on priorities,
however, needs additional clarification to ensure compliance with the
legislative priorities for the distribution of salvage sale receipts. 
In addition, concerns about management practices affecting fund
replenishment still need to be resolved and corrective action
implemented.  The need for consistent action requires that the
guidance include the identification of appropriate data sources, cost
calculation methods, and specific monitoring and feedback activities. 
In addition, the correction of individual mistakes or errors may not
result in solving systemic problems.  When reviews identify best
practices or mistakes, some mechanism is needed to communicate this
information throughout the agency so that all locations benefit. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

To help ensure that appropriate and consistent practices are in place
to manage the Salvage Sale Fund, we recommend that the Secretary of
Agriculture direct the Chief of the Forest Service to take the
following actions: 

  -- Clarify the agency's guidance to emphasize that the Salvage Sale
     Fund takes priority over the K-V Fund for the distribution of
     salvage sale receipts until preparation and administration costs
     have been recovered.

  -- Establish national guidance that identifies acceptable data
     sources and methods for calculating the cost estimates that
     determine the fund's replenishment requirements.

  -- Establish national procedures to ensure that salvage sale plans
     will be adequately reviewed to detect errors.

  -- Develop national follow-up procedures to ensure that errors,
     problems, or best practices found in one location are
     communicated, corrected, or implemented everywhere. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We provided a draft of this report to the Forest Service for review
and comment.  The Forest Service said that the report accurately and
fairly presented the information about the fund's balance and the
management practices affecting the replenishment of the fund.  The
Forest Service agreed with the recommendations for corrective action. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :8

To respond to the assignment objectives, we reviewed pertinent
legislation, the agency's guidance, the agency's financial records,
monitoring reports, and selected salvage sales.  We spoke with
representatives from Forest Service headquarters, four regional
offices, and four national forest offices to discuss how the Forest
Service manages the Salvage Sale Fund.  We conducted our work from
September 1996 through September 1997 in accordance with generally
accepted government auditing standards.  Appendix I provides a
detailed discussion of our scope and methodology. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the Secretary of Agriculture,
the Chief of the Forest Service, the Director, Office of Management
and Budget, and appropriate congressional committees.  We will also
make copies available to others upon request. 

If you or your staff have any questions about this report, please
call me at (206) 287-4810.  Major contributors to this report are
listed in appendix III. 

Sincerely yours,

James K.  Meissner
Associate Director, Energy,
 Resources, and Science Issues


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

Sales of salvage timber represented nearly half of all timber offered
for sale in fiscal year 1996.  Because of this increase in salvage
sales, the Ranking Minority Member, Subcommittee on Interior and
Related Agencies, House Committee on Appropriations, asked us to
provide information on the status of the fund's balance and the
management practices used by the Forest Service to replenish the
Salvage Sale Fund.  We agreed to provide this information in two
phases.  In phase one, we provided information on the uses and status
of the fund and compared the timber sales receipts deposited in the
Salvage Sale Fund to the outlays from the fund on a national,
regional, and forest-level basis for fiscal years 1991 through
1995.\8 The second phase provides a more in-depth assessment of the
current status of the fund's balance and the adequacy of the Forest
Service's efforts to replenish and manage the fund. 

To obtain information on the current status of the Salvage Sale
Fund's balance, we requested information on fiscal year 1996
receipts, expenditures, and the fund's ending balance and reviewed
the Forest Service's fiscal year 1997 projections for salvage sale
deposits and obligations.  In addition, we spoke with the Department
of Agriculture's Office of General Counsel to establish the
legislative distribution priorities for salvage sale receipts. 

To obtain information on the adequacy of management practices
affecting the replenishment of the fund, we spoke with agency
officials at all organizational levels.  We also reviewed the
agency's guidance, financial records, and monitoring reports along
with applicable laws and their legislative history.  Specifically, we
interviewed representatives from the Forest Management, Budgeting,
and Financial Management offices at Forest Service headquarters, four
regional offices, and four forest offices. 

The four regions we selected were chosen because they had large
salvage sale programs, provided wide geographic coverage, and had a
variety of salvage conditions ranging from fires to insect
infestation.  Within each region, one forest was selected for
detailed review.  Two of the forests--the Clearwater and
Stanislaus--were chosen because they were included in our recent
review of the emergency salvage sale program.\9 We selected the
Homochitto National Forest, within the National Forests in
Mississippi, because of the extensive Southern Pine Beetle epidemic
in fiscal year 1995 and the resulting large salvage sale program.\10
Finally, we selected the Umatilla National Forest in Oregon because
it had a large salvage sale program and had not been reviewed by GAO
in recent years.  Table I.1 provides the forests' names, locations,
and regions. 



                               Table I.1
                
                     Forests, Location and Regions

Forest                          Location            Region
------------------------------  ------------------  ------------------
Clearwater                      Orofino, Idaho      Northern
                                                    Missoula, MT

Homochitto                      Meadville,          Southern
                                Mississippi         Atlanta, GA

National Forests                Jackson,            Southern
in Mississippi                  Mississippi         Atlanta, GA

Stanislaus                      Sonora, California  Pacific Southwest
                                                    San Francisco, CA

Umatilla                        Pendleton, Oregon   Pacific Northwest
                                                    Portland, OR
----------------------------------------------------------------------
We examined the Forest Service's handbooks and manuals for guidance
on how to develop direct and indirect salvage sale cost rates,
distribute salvage sales receipts, develop salvage sale program
budgets, and prepare individual salvage sale plans.  To ascertain how
this guidance was used, we performed a detailed review of the salvage
sales awarded at the four forests in fiscal year 1995.  Fiscal year
1995 was selected because most sales were prepared before the major
impact of the emergency salvage sale program and because enough time
had elapsed for many of the sales to be completed.  For the
Clearwater, Stanislaus, and Umatilla National Forests, we selected
all salvage sales awarded in fiscal year 1995.  Because of the
extensive beetle epidemic in 1995, the Homochitto awarded more than
800 timber sale contracts and permits to sell the timber volume
necessary to accomplish its salvage sale program.  Because we were
testing the system rather than extrapolating our findings to the
whole, we randomly selected 13 contracts and 6 permits for detailed
review. 

Our review of the salvage sale files also included examining
pertinent data on sales volumes, the salvage sales' collection plans,
the sale areas' improvement plans, and financial documents showing
how the receipts were distributed among the various Forest Service
funds.  Because the Forest Service does not have a sale-by-sale
accounting system, we used data on forest-level obligations as the
basis for determining the charges to the Salvage Sale Fund.  We did
not perform a financial audit of these data, nor did we independently
verify or test the reliability of the deposits, the fund's balance,
or other Forest Service-supplied data.  However, the Forest Service's
financial statement audit reports for fiscal years 1992 through 1995
revealed significant internal control weaknesses in various
accounting subsystems that resulted in unreliable accounting data,
including timber-related data.  Even with these weaknesses, we used
the data because they were the only data available. 

We reviewed the agency-conducted activity reviews completed since
fiscal year 1992 to determine whether the deficiencies we noted were
similar to those identified internally.  We then determined whether
corrective action plans were developed and implemented.  Finally, we
reviewed the Department of Agriculture's Office of Inspector
General's report issued in 1993 on the Forest Service's Salvage Sale
Fund and reviewed the documents provided by the Inspector General
that explain the corrective actions taken by the Forest Service in
response to the Inspector General's recommendations. 

We conducted our review from September 1996 through September 1997 in
accordance with generally accepted government auditing standards. 


--------------------
\8 Salvage Sale Fund's Deposits and Outlays (GAO/RCED-96-240R, Aug. 
22, 1996). 

\9 Emergency Salvage Sale Program:  Forest Service Met Its Target,
but More Timber Could Have Been Offered for Sale (GAO/RCED-97-53,
Feb.  24, 1997). 

\10 While the Homochitto National Forest is a proclaimed national
forest, for administrative purposes it is considered a ranger
district within the National Forests in Mississippi. 


COSTS OF SALES AT THE FOUR FORESTS
REVIEWED
========================================================== Appendix II

                  (Volumes in thousands of board feet)

                                               National Forest
                                        ------------------------------
                                                Stanis          Homoch
                                        Clearw    laus            itto
                                          ater     (13  Umatil     (16
Cost                                        (5  sales)  la (16  sales)
category                                sales)      \a  sales)      \b
--------------------------------------  ------  ------  ------  ------
Sales preparation                       $86,19  $96,70  $173,3  $43,51
                                             2       0      79       4
Sales administration                    12,702  56,784  43,025  22,237
Road costs                              46,670       0       0       0
Indirect costs                          40,315  43,741  150,80  28,882
                                                             4
Total                                   $185,8  $197,2  $367,2  $94,63
                                            79      25      08       3
Volume offered                           1,199   3,065   5,499   3,430
----------------------------------------------------------------------
\a We reviewed one additional sale, but the forest had not prepared a
salvage sale plan as required.  Therefore, the estimated costs
associated with this sale could not be determined because the Forest
Service does not maintain a sale-by-sale accounting system. 

\b We reviewed three additional sales, but the forest had not
prepared a salvage sale plan as required.  Therefore, the estimated
costs associated with these sales could not be determined. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

ENERGY, RESOURCES, AND SCIENCE
ISSUES

Jill L.  Berman
Linda L.  Harmon
John P.  Murphy, Jr.
Victor S.  Rezendes
Stanley G.  Stenersen
Hugo W.  Wolter

OFFICE OF THE GENERAL COUNSEL

Alan R.  Kasdan


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