Forest Service: Indirect Expenditures Charged to Five Funds (Testimony,
06/04/98, GAO/T-RCED-98-214).

GAO discussed the indirect support activities associated with five
Forest Service funds.

GAO noted that: (1) the Forest Service's records show that indirect
expenditures for the five funds appear to have increased significantly
between 1993 and 1997, while total expenditures for these funds
increased by a minor amount; (2) as a result, indirect expenditures as a
percentage of total expenditures increased from 16 percent to 27 percent
between 1993 and 1997; (3) however, the relationship between indirect
expenditures and total expenditures varied greatly from fund to fund and
from region to region; (4) while GAO is still in the process of
analyzing the data, it has identified several limitations in the data
that may affect the extent to which overall conclusions may be drawn;
(5) for example, although the Forest Service provides general guidance
on what should be considered indirect expenditures, regions have
flexibility in how to apply this guidance and therefore may differ in
what they have decided to include; (6) moreover, in 1994, the Forest
Service added a category of indirect support activities, so 1993 data
may not be comparable to later years'; and (7) GAO expects that its
ongoing work will provide some insight about whether or not the changes
in expenditures reflect programmatic changes or simply result from
unreliable financial systems.

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

 REPORTNUM:  T-RCED-98-214
     TITLE:  Forest Service: Indirect Expenditures Charged to Five Funds
      DATE:  06/04/98
   SUBJECT:  Trust funds
             Funds management
             Forest management
             Overhead costs
             Financial records
             Financial management systems
             Accounting errors
             Accounting procedures
IDENTIFIER:  Brush Disposal Fund
             Reforestation Trust Fund
             Cooperative Work Trust Fund
             Knutson-Vandenberg Trust Fund
             Salvage Sale Fund
             
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Cover
================================================================ COVER


Before the Committee on Agriculture,
House of Representatives

For Release
on Delivery
Expected at
10 a.m.  EDT
Thursday
June 4, 1998

FOREST SERVICE - INDIRECT
EXPENDITURES CHARGED TO FIVE FUNDS

Statement of James K.  Meissner,
Associate Director,
Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-98-214

GAO/RCED-98-214T


(141193)


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

  GAO -
  RCED -
  AIMD -

MR.  CHAIRMAN AND MEMBERS OF THE
COMMITTEE: 
============================================================ Chapter 0

We appreciate the opportunity to be here today to provide data on
indirect support activities associated with five Forest Service
funds.  Essentially, the expenditures for these activities are ones
that cannot be identified with a single project activity.  Our
statement today, which is drawn from our May 1998 report,\1
summarizes what the Forest Service's records identify as indirect
expenditures charged to each of the funds and what our concerns are
with the reliability of the Forest Service's data.  Our more detailed
analysis of the trends and fluctuations in indirect expenditures over
the past 5 years will be delivered to you in late July, when we
complete our analysis of the Forest Service's expenditures at several
regional offices and at the Washington Office. 

Our summary today covers expenditure data on five funds that provide
more than $400 million annually to support widely diversified work by
the Forest Service, including brush disposal (the Brush Disposal
Fund), road and trail reconstruction and maintenance (the Cooperative
Work--Other Fund), reforestation (the Reforestation Trust Fund and
the Cooperative Work--Knutson-Vandenberg Fund, commonly called the
K-V Fund), and the preparation and administration of salvage timber
sales (the Salvage Sale Fund)--all of which are described in appendix
I. 

In summary: 

  -- The Forest Service's records show that indirect expenditures for
     the five funds appear to have increased significantly between
     1993 and 1997, while total expenditures for these funds
     increased by a minor amount.  As a result, indirect expenditures
     as a percentage of total expenditures increased from 16 percent
     to 27 percent between 1993 and 1997.  However, the relationship
     between indirect expenditures and total expenditures varied
     greatly from fund to fund and from region to region. 

  -- The data used in this testimony rely totally on the Forest
     Service's documents, and that reliance raises some serious
     concerns for us.  While we are still in the process of analyzing
     the data, we have identified several limitations in the data
     that may affect the extent to which overall conclusions may be
     drawn.  For example, although the Forest Service provides
     general guidance on what should be considered indirect
     expenditures, regions have flexibility in how to apply this
     guidance and therefore may differ in what they have decided to
     include.  Moreover, in 1994, the Forest Service added a category
     of indirect support activities, so 1993 data may not be
     comparable to later years'.  We expect that our ongoing work
     will provide some insight about whether or not the changes in
     expenditures reflect programmatic changes or simply result from
     unreliable financial systems. 

Before I elaborate on these points, Mr.  Chairman, allow me to
present some background on indirect expenditures. 


--------------------
\1 Forest Service:  Indirect Expenditures Charged to Five Funds
(GAO/RCED-98-164R, May 6, 1998). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Each of the five funds we reviewed has a specific account that is
used for indirect expenditures.  This account, called "Indirect
Support Activities," is defined in the Forest Service Handbook as
being for "those costs that cannot be readily identified specifically
with a single project activity in a feasible manner." For example,
forest supervisors involved with overall forest management would
charge their time to indirect support activities, whereas staff
preparing a timber sale would charge their time to that specific
project.  The Forest Service's guidance calls for including the
following three categories of work under indirect support activities: 

  -- Line management.  This category is for costs related to line
     officers and their identified support staff.  Line officers
     include district rangers, forest supervisors, regional
     foresters, and specifically named Washington Office positions. 
     Costs that can be assigned include salary, travel, training,
     vehicle use, and secretarial support costs. 

  -- Program support.  This category is for costs to coordinate,
     manage, and execute a program, business activities, community
     involvement, and common service activities (defined below).  It
     includes the salary, travel, training, and vehicle use of
     employees involved with the coordination and management of
     program support. 

  -- Common services.  This category is for the nonpersonnel costs
     associated with providing space and a working environment for
     employees.  It includes such costs as those for rent, utilities,
     communications, radio, office and computer equipment, mail and
     postage, office supplies, and forms. 


   THE INDIRECT EXPENDITURES FOR
   FIVE FOREST SERVICE FUNDS
---------------------------------------------------------- Chapter 0:2

According to the Forest Service's data, indirect expenditures for the
Brush Disposal Fund, Cooperative Work--Other Fund, Cooperative
Work--K-V Fund, Reforestation Trust Fund, and Salvage Sale Fund
increased between 1993 and 1997, but the increase varied considerably
among the funds.  Region by region, there were wide variations in the
relationships between indirect and total expenditures; and within
regions, there was similar inconsistency among the funds. 


      INDIRECT EXPENDITURES
      INCREASED EACH YEAR
-------------------------------------------------------- Chapter 0:2.1

As table 1 shows, indirect expenditures increased each year from 1993
to 1997, regardless of whether total expenditures increased (as they
did in fiscal years 1994 and 1996) or decreased (as they did in
fiscal years 1995 and 1997).  For example, although total
expenditures for the five funds fell from $465.4 million in fiscal
year 1996 to $437.2 million in fiscal year 1997, indirect
expenditures rose from $114.1 million to $118.7 million. 



                                         Table 1
                         
                          Summary of Expenditures by the Forest
                         Service's Regions and Washington Office,
                                   Fiscal Years 1993-97

                             1993          1994          1995          1996          1997
-------------------  ------------  ------------  ------------  ------------  ------------
Total expenditures   $413,513,300  $446,445,606  $432,116,416  $465,354,482  $437,189,232
Indirect               65,966,285    92,041,439   104,973,072   114,058,025   118,744,103
 expenditures
Percent of indirect        15.95%        20.62%        24.29%        24.51%        27.16%
 to total
 expenditures
-----------------------------------------------------------------------------------------
Note:  In addition to the regions and the Washington Office, other
offices such as the Forest Experiment Stations also charge the five
funds for indirect expenditures.  Because these amounts are
relatively minor, we chose not to include them in the compilation of
expenditures. 

Figure 1 gives a snapshot of the rather steady and continuous
increase in indirect expenditures relative to total expenditures over
the 5-year period.  While the rate of growth paused in 1996, when
total expenditures increased by more than $30 million, it resumed in
1997, when total expenditures fell. 

   Figure 1:  Indirect
   Expenditures as a Percentage of
   Total Expenditures by Five
   Forest Service Funds, Fiscal
   Years 1993-97

   (See figure in printed
   edition.)


      GROWTH IN INDIRECT
      EXPENDITURES INCONSISTENT
      AMONG FUNDS
-------------------------------------------------------- Chapter 0:2.2

When the funds are considered individually rather than together, the
growth in indirect expenditures varies dramatically.  As table 2
shows, some indirect expenditures for individual funds grew by
significant amounts, and others grew by minor amounts.  Only two
funds, Brush Disposal and K-V, had a similar pattern that held both
for total expenditures and indirect expenditures.  For these two
funds, total expenditures decreased, indirect expenditures increased,
and indirect expenditures as a percentage of total expenditures
increased by more than 50 percent.  The three other funds each
followed a different pattern.  For example, the Cooperative
Work--Other Fund experienced a large increase in total expenditures,
a very small increase in indirect expenditures, and a reduction in
the indirect expenditure rate from about 13 percent to 9 percent. 



                                         Table 2
                         
                            Summary of Expenditures for Funds
                                         Examined

Fund                         1993          1994          1995          1996          1997
-------------------  ------------  ------------  ------------  ------------  ------------
Brush Disposal Fund
-----------------------------------------------------------------------------------------
Total expenditures    $39,155,531   $32,682,801   $28,516,095   $24,779,148   $21,792,477
Indirect                7,276,062     8,296,252     9,269,824     7,628,872     7,451,007
 expenditures
Percent of indirect        18.58%        25.38%        32.51%        30.79%        34.19%
 to total
 expenditures

Cooperative Work--Other Fund
-----------------------------------------------------------------------------------------
Total expenditures    $25,366,234   $34,089,814   $36,828,275   $38,449,576   $37,959,632
Indirect                3,248,775     3,424,970     4,471,326     3,659,738     3,409,289
 expenditures
Percent of indirect        12.81%        10.05%        12.14%         9.52%         8.98%
 to total
 expenditures

Cooperative Work--K-V Fund
-----------------------------------------------------------------------------------------
Total expenditures   $172,845,447  $195,157,437  $182,381,980  $167,816,598  $166,324,646
Indirect               33,259,078    44,491,025    47,129,820    44,804,956    51,169,263
 expenditures
Percent of indirect        19.24%        22.80%        25.84%        26.70%        30.76%
 to total
 expenditures

Reforestation Trust Fund
-----------------------------------------------------------------------------------------
Total expenditures    $31,868,201   $32,188,968   $26,971,033   $30,590,737   $30,977,214
Indirect                  260,642     4,230,938     6,271,400     6,974,873     6,635,364
 expenditures
Percent of indirect         0.82%        13.14%        23.25%        22.80%        21.42%
 to total
 expenditures

Salvage Sale Fund
-----------------------------------------------------------------------------------------
Total expenditures   $144,277,887  $152,326,586  $157,419,033  $203,718,423  $180,135,263
Indirect               21,921,728    31,598,254    37,830,702    50,989,586    50,079,180
 expenditures
Percent of indirect        15.19%        20.74%        24.03%        25.03%        27.80%
 to total
 expenditures
-----------------------------------------------------------------------------------------
Figure 2 demonstrates the changing relationship between indirect
expenditures and total expenditures for each fund during the 5-year
period.  While increases in indirect expenditure rates were
relatively consistent for three of the funds--Brush Disposal, K-V,
and Salvage Sale--the two remaining funds had different patterns.  In
the Reforestation Trust Fund, indirect expenditure rates increased
sharply through fiscal year 1995 and then fell slowly, and in the
Cooperative Work--Other Fund, indirect expenditure rates generally
declined throughout the period. 

   > Figure 2:  Indirect
   Expenditures as a Percentage of
   Each Fund's Total Expenditures,
   Fiscal Years 1993-97

   (See figure in printed
   edition.)


      WIDE VARIATIONS OCCURRED
      BETWEEN REGIONS AND AMONG
      FUNDS WITHIN REGIONS
-------------------------------------------------------- Chapter 0:2.3

Indirect expenditures were not consistent among the Forest Service
regions for any of the five funds.  For example, for the Salvage Sale
Fund for 1997 (as shown in figure 3), while several regions had
indirect expenditure rates close to the nationwide average of 27.8
percent, Regions 2 (Rocky Mountain) and 10 (Alaska) had much lower
rates, and Regions 3 (Southwestern) and 8 (Southern) had much higher
rates. 

   Figure 3:  Salvage Sale Fund's
   Indirect Expenditures as a
   Percentage of Total
   Expenditures, Fiscal Year 1997

   (See figure in printed
   edition.)

Even within the same region, there was often wide variation in the
indirect expenditure rates.  For example, figure 4 shows the indirect
expenditure rates for each of the five funds in Region 4
(Intermountain) for fiscal years 1993 and 1997.  While all the
percentages increased, they did not begin at similar levels, achieve
similar levels, or grow at similar rates. 

   Figure 4:  Indirect
   Expenditures as a Percentage of
   Each Fund's Total Expenditures
   in Region 4, Fiscal Years 1993
   and 1997

   (See figure in printed
   edition.)


   CONCERNS ABOUT THE RELIABILITY
   OF THE FOREST SERVICE'S DATA
---------------------------------------------------------- Chapter 0:3

While we are still in the process of analyzing the data, at this
point in our analysis we have identified several limitations that may
affect the extent to which overall conclusions can be drawn: 

  -- Although the Forest Service's Washington headquarters provides
     general guidance on what should be considered indirect
     expenditures, regions have flexibility in deciding how this
     guidance should be applied in their situation.  Regions may
     differ in what they have decided to include as indirect
     expenditures.  Such region-to-region differences affect both the
     aggregated data and the comparability of data from location to
     location. 

  -- Year-to-year comparisons may also be affected somewhat because
     the Forest Service said it changed the coding requirements for
     indirect expenditures between fiscal years 1993 and 1994 and
     added the category of common services to the types of activities
     that could be included.  As a result, 1993 data may not be
     comparable to later years'.  We expect that our ongoing work
     will provide some insight as to the comparability of 1993 data
     with that of later years. 

  -- According to Forest Service officials, some of the increases in
     indirect expenditures probably resulted from changes made to
     correct prior inaccuracies, inconsistencies, or inequities that
     occurred when charging indirect expenditures to the funds. 

As we have reported previously, we continue to have concerns about
the reliability of the Forest Service's financial information in
general.\2 Some areas of questionable reliability include real
property valuation and revenue accounting, though these areas may not
affect the data used in this report.  We expect that our ongoing work
will provide some insight about whether some of the major
year-to-year changes in expenditure patterns within individual funds
reflect programmatic changes or simply result from unreliable
financial systems. 


--------------------
\2 We recently reported on these concerns in Forest Service:  Status
of Progress Toward Financial Accountability (GAO/AIMD-98-84, Feb. 
27, 1998). 


-------------------------------------------------------- Chapter 0:3.1

This concludes our prepared statement, Mr.  Chairman.  We would be
happy to respond to any questions you or other Members of the
Committee may have. 


DESCRIPTIONS OF THE FIVE FUNDS
EXAMINED
=========================================================== Appendix I


   BRUSH DISPOSAL FUND
--------------------------------------------------------- Appendix I:1

This is a permanent appropriation that uses deposits from timber
purchasers to dispose of brush and other debris resulting from timber
harvests.  It was authorized by the Act of August 11, 1916, ch.  313,
39 Stat.  446, as amended.  (16 U.S.C.  490)


   COOPERATIVE WORK--OTHER FUND
--------------------------------------------------------- Appendix I:2

This is a trust fund that uses deposits from
"cooperators"--commercial users of the forest road system--for the
construction, reconstruction, and maintenance of roads, trails, and
other improvements.  It was authorized beginning with the Act of June
30, 1914, ch.  131, 38 Stat.  415, as amended.  (16 U.S.C.  498)


   COOPERATIVE
   WORK--KNUTSON-VANDENBERG FUND
--------------------------------------------------------- Appendix I:3

This is a trust fund that uses deposits made by timber purchasers to
reforest timber sale areas.  In addition to planting, these deposits
may also be used for eliminating unwanted vegetation on lands cut
over by the purchasers and for protecting and improving the future
productivity of the renewable resources on forest land in the sale
areas, including sale area improvement operations, maintenance,
construction, reforestation, and wildlife habitat management.  The
fund was authorized by the Act of June 9, 1930, ch.  416, 46 Stat. 
527, as amended.  (16 U.S.C.  576-576b)


   REFORESTATION TRUST FUND
--------------------------------------------------------- Appendix I:4

This is a trust fund that uses tariffs on imports of solid wood
products to prevent a backlog in reforestation and timber stand
improvement work.  It was authorized by sec.  303 of the Recreational
Boating Safety and Facilities Improvement Act of 1980, Pub.L. 
96-451, 94 Stat.  1983, as amended.  (16 U.S.C.  1606a)


   SALVAGE SALE FUND
--------------------------------------------------------- Appendix I:5

This is a permanent appropriation that uses receipts generated by the
sale of salvage timber to prepare and administer future salvage
sales.  It was authorized by sec.  14(h) of the National Forest
Management Act of 1976, Pub.L.  94-588, 90 Stat.  2949.  (16 U.S.C. 
472a(h))


*** End of document. ***