Forest Service: Effect of H.R. 4149 on Indirect Expenditures Charged to
Four Funds (Statement/Record, 07/28/98, GAO/T-RCED-98-251).
GAO discussed provisions in H.R. 4149 that would reduce indirect
expenditures in managing the National Forest System, focusing on H.R.
4149's impact in: (1) increasing the visibility of indirect
expenditures; (2) charging indirect expenditures to off-budget funds;
and (3) whether eliminating indirect expenditures from off-budget funds
would reduce overall Forest Service indirect expenditures.
GAO noted that: (1) H.R. 4149 includes several provisions which would
increase the visibility of indirect expenditures, thereby addressing
weaknesses GAO identified in the Forest Service's management of these
expenditures during prior audit work; (2) these provisions would require
the Forest Service, as part of its budget request, to estimate future
indirect expenditures, compare them against expenditures in prior years,
and identify how indirect expenditures would be affected by any changes
being made in definition or accounting practices; (3) H.R. 4149 would
have substantial impact on the Forest Service's ability to obtain
funding for indirect expenditures from off-budget funds; (4) it would
reduce indirect expenditures charged to off-budget funds within 90 days
of its enactment and eliminate off-budget funds entirely as a funding
source for indirect expenditures within the second full fiscal year; (5)
on the basis of the indirect expenditures charged to four of these funds
in 1997, more than $115 million in indirect expenditures would have to
be eliminated within 2 years or shifted to some other funding sources;
(6) although H.R. 4149 would restrict funding sources the Forest Service
could use for indirect expenditures, the extent to which its provisions
would actually reduce these expenditures overall is unknown; (7) H.R.
4149 provides the Forest Service with significant flexibility in how it
could meet the required elimination of indirect charges from off-budget
funds; (8) GAO's previous work has shown that the Forest Service has
used such flexibility to comply with funding restrictions without
actually reducing costs; (9) rather than making reductions, the Forest
Service has redefined the costs or shifted them to another funding
category; and (10) it is likely that similar redefinitions and shifting
will occur in this case, given the short timeframe allowed to reduce
indirect expenditures, the magnitude of the reductions required, and the
difficulty of eliminating some expenditures the Forest Service places in
this category, such as those for rent, utilities, and computers--all of
which are common expenditures associated with Forest Service programs.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-RCED-98-251
TITLE: Forest Service: Effect of H.R. 4149 on Indirect
Expenditures Charged to Four Funds
DATE: 07/28/98
SUBJECT: Forest management
Funds management
Budget outlays
Financial records
Budget administration
Accounting procedures
Cost analysis
Overhead costs
IDENTIFIER: Knutson-Vandenberg Trust Fund
Reforestation Trust Fund
Salvage Sale Fund
Brush Disposal Fund
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Cover
================================================================ COVER
Before the Committee on Agriculture, House of Representatives
Not to Be Released
Before 2:00 p.m., EDT
Tuesday
July 28, 1998
FOREST SERVICE - EFFECT OF H.R.
4149 ON INDIRECT EXPENDITURES
CHARGED TO FOUR FUNDS
Statement for the Record by James K. Meissner,
Associate Director,
Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division
GAO/T-RCED-98-251
GAO/RCED-98-251T
(141237)
Abbreviations
=============================================================== ABBREV
============================================================ Chapter 0
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to provide comments for the record on
H.R. 4149, The Forest Service Cost Reduction and Fiscal
Accountability Act of 1998. Our comments focus on those provisions
in H.R. 4149 that would reduce indirect expenditures (i.e.,
expenditures that cannot be identified with a single project
activity) in managing the National Forest System. Our observations
are drawn from work that we have completed over the past year on
costs in certain funds, including "off-budget" funds (i.e., funds
other than direct appropriations such as the Brush Disposal Fund, the
Cooperative Work--Knutson-Vandenberg Fund--commonly called the K-V
Fund, the Reforestation Trust Fund, and the Salvage Sale Fund),\1 and
on the Forest Service's response to earlier funding restrictions.\2
Specifically, this statement discusses H.R. 4149's impact in (1)
increasing the visibility of indirect expenditures, (2) charging
indirect expenditures to off-budget funds, and (3) whether
eliminating indirect expenditures from off-budget funds would reduce
overall Forest Service indirect expenditures.
In summary, we found the following with regard to H.R. 4149's likely
impact:
-- H.R. 4149 includes several provisions which would increase the
visibility of indirect expenditures, thereby addressing
weaknesses we identified in the Forest Service's management of
these expenditures during prior audit work. These provisions
would require the Forest Service, as part of its budget request,
to estimate future indirect expenditures, compare them against
expenditures in prior years, and identify how indirect
expenditures would be affected by any changes being made in
definitions or accounting practices. The Forest Service would
also be required to develop a strategic plan for decreasing
indirect expenditures.
-- H.R. 4149 would have a substantial impact on the Forest
Service's ability to obtain funding for indirect expenditures
from off-budget funds. It would reduce indirect expenditures
charged to off-budget funds within 90 days of its enactment and
eliminate off-budget funds entirely as a funding source for
indirect expenditures within the second full fiscal year. On
the basis of the indirect expenditures charged to four of these
funds in 1997, more than $115 million in indirect expenditures
would have to be eliminated within 2 years or shifted to some
other funding sources.
-- Although H.R. 4149 would restrict funding sources the Forest
Service could use for indirect expenditures, the extent to which
its provisions would actually reduce these expenditures overall
is unknown. H.R. 4149 provides the Forest Service with
significant flexibility in how it could meet the required
elimination of indirect charges from off-budget funds. Our
previous work has shown that the Forest Service has used such
flexibility to comply with funding restrictions without actually
reducing costs. Rather than making reductions, the Forest
Service has redefined the costs or shifted them to another
funding category. It is likely that similar redefinitions and
shifting will occur in this case, given the short time frame
allowed to reduce indirect expenditures, the magnitude of the
reductions required, and the difficulty of eliminating some
expenditures the Forest Service places in this category, such as
those for rent, utilities, and computers--all of which are
common expenditures associated with Forest Service programs.
--------------------
\1 Forest Service: Indirect Expenditures Charged to Five Funds
(GAO/T-RCED-98-214, June 4, 1998); Forest Service: Indirect
Expenditures Charged to Five Funds (GAO/RCED-98-164R, May 6, 1998).
\2 Forest Service: Review of the Alaska Region's Operating Costs
(GAO/RCED-98-106R, March 31, 1998).
BACKGROUND
---------------------------------------------------------- Chapter 0:1
The Forest Service generally obtains its funding partly from
appropriations made directly by the Congress and partly from trust
and other funds established to cover certain activities such as
reforestation, brush removal, and sales of salvage timber. These
other funds are referred to as off-budget funds because they are not
annually appropriated. Rather, they are trust funds or permanent
appropriations administered by the Forest Service. Within each
funding source, the Forest Service places indirect expenditures into
a specific account for "Indirect Support Activities." The Forest
Service Handbook explains that expenditures to be included in this
account are those expenditures "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.
-- 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.
-- Program support. This category is for costs to coordinate,
manage, and/or execute a program, business activities, community
involvement, and common service activities. It includes the
salary, travel, training, and vehicle use of employees involved
with the coordination and management of program support.
For this testimony we concentrated on four off-budget funds--the
Brush Disposal Fund, the K-V Fund, the Reforestation Trust Fund, and
the Salvage Sale Fund -- these are described in appendix I.
Collectively, these four funds accounted for about $400 million in
total expenditures in fiscal year 1997. As reported by the Forest
Service\3 , indirect expenditures accounted for more than 20 percent
of total expenditures in all four funds in fiscal year 1995. See
appendix II for a summary of the indirect expenditures made in each
of the four funds for fiscal years 1993 through 1997.
--------------------
\3 As we have reported previously, we continue to have concerns about
the reliability of the Forest Service's financial information in
general. Some areas of questionable reliability include real
property valuation and revenue accounting, which may not affect the
data used in this statement. We recently reported on these concerns
in Forest Service: Status of Progress Toward Financial
Accountability (GAO/AIMD-98-84, Feb. 27, 1998).
H.R. 4149 WOULD INCREASE
VISIBILITY OF INDIRECT
EXPENDITURES
---------------------------------------------------------- Chapter 0:2
H.R. 4149 contains several provisions that would increase the
visibility of indirect expenditures. Among the main provisions are
the following:
-- As part of the annual budget request, a disclosure identifying
indirect expenditures by line item or program and comparing them
with expenditures for the past 3 years.
-- An addendum to the annual budget request that would identify
changes in the definition of or the method of accounting for
indirect expenditures.
-- A strategic plan that would include a schedule for eliminating
indirect expenditures from off-budget funds and a framework for
establishing and achieving a 5-year goal for reducing indirect
expenditures for each Forest Service program. Washington,
regional, forest, and ranger district offices would all be
required to reduce their indirect expenditures.
Each of these provisions would respond to weaknesses that we have
identified in the Forest Service's management of off-budget funds
during prior audit work. During fiscal years 1993-97, the Forest
Service initiated many changes in how it accounted for indirect
expenditures, such as changing the definition of them and
reclassifying how expenditures were charged. While the Forest
Service has reported what was covered under different indirect costs
with each redefinition, it has not made a practice of identifying how
the definitions changed from year to year or the dollar impacts of
the changes. Even though these changes produced significant
increases in indirect expenditure rates and in the amounts of these
expenditures charged to the funds we reviewed, Forest Service
officials responsible for program development and budget, financial
management, and forest management were generally unaware of the
increases that had occurred because they had not monitored the
increase in indirect expenditures.
H.R. 4149 WOULD SUBSTANTIALLY
REVISE FOREST SERVICE'S SOURCES
OF FUNDING FOR INDIRECT
EXPENDITURES
---------------------------------------------------------- Chapter 0:3
As proposed, H.R. 4149 would have an immediate effect on the four
off-budget funds we examined. It limits indirect expenditures in
off-budget funds to no more than 20 percent of total expenditures
within 90 days of its enactment. In fiscal year 1997, all four funds
had indirect expenditure rates above this threshold. If the
definition of indirect expenditures remained the same and current
expenditure patterns continued, some action to reduce or reclassify
indirect expenditures would be necessary immediately. More
significantly, H.R. 4149 would require that all indirect
expenditures from off-budget funds be totally eliminated by the end
of the second full fiscal year after enactment. This requirement
would eliminate the Forest Service's practice of charging the
off-budget funds with indirect expenditures, which in fiscal 1997
amounted to $115 million.
These new limitations would substantially alter the trends we have
observed in these funds. For example, for fiscal years 1993 through
1997, as total expenditures from the Brush Disposal Fund were
decreasing from $39.2 million to $21.8 million, indirect expenditures
rose from $7.3 million to $7.5 million, or from 19 percent to 34
percent of total expenditures. For the Salvage Sale Fund, where
total expenditures rose from $144 million in fiscal year 1993 to $180
million in fiscal year 1997, the indirect expenditure rate also
increased. For the Salvage Sale Fund, indirect expenditures rose
from $21.9 million in 1993 to $50.1 million in 1997, or from 15
percent to 28 percent of total expenditures.
H.R. 4149 WOULD ALLOW THE
FOREST SERVICE SUBSTANTIAL
FLEXIBILITY IN SHIFTING
INDIRECT EXPENDITURES
---------------------------------------------------------- Chapter 0:4
Beyond encouraging the use of private-sector contractors to improve
cost-effectiveness of Forest Service programs, H.R. 4149 does not
identify the specific actions the Forest Service should take to
reduce or eliminate indirect charges to off-budget funds. Although
cost-efficiency efforts might reduce indirect expenditures, the
Forest Service could not simply eliminate all of the indirect charges
it currently makes to these off-budget funds. For example,
expenditures for rent, utilities, program support, computer
equipment, and line management are all classified as indirect
expenditures unless they can be directly attributed to a specific
project. To the extent that these expenditures would continue to be
incurred to support Forest Service programs, they will need to be
shifted to other funding sources.
In previous work, we found that when faced with requirements to cut
certain types of spending, the Forest Service generally responded by
redefining the items to be included in the cost category or moving
the expenditures so that they were paid from some other funding
source. By using these approaches, the Forest Service was able to
comply with such restrictions without actually reducing costs, as
these examples show:
-- The Appropriations Committees, in committee and conference
reports, have directed the Forest Service to limit what it
charges to general administration--a budget line item for
certain line management, administrative support, and common
services. From fiscal year 1982, when the limitation was first
applied, through fiscal year 1996, the line item declined by 32
percent in constant dollars. While the line item has declined,
total costs were not always reduced. One of the ways that the
Forest Service has been able to comply with this restriction is
by redefining and moving costs, previously charged to general
administration, to other expenditure categories. For example,
in 1996, general administration funded Regional Foresters and
Deputy Regional Foresters. In 1997, only the Regional Forester
was funded by general administration. Similarly, ranger
district support funded by general administration was reduced
from up to five positions in 1989, to one position in 1995.
These positions were not necessarily eliminated, only their
eligibility for funding through general administration. For
those positions removed from general administration, alternative
funding sources needed to be found.
-- In a discussion about operations of the Forest Service's Alaska
region in the conference report for the Forest Service's fiscal
year 1998 appropriations, the conferees expressed concern "about
the appearance that expenditures for regional office operations
and centralized field costs (funds that usually have regionwide
benefits) have risen significantly as a proportion of annual
appropriated funds since 1993." As a result, in the
appropriations act, the Congress limited the Alaska regional
office's budget for regional operations and centralized field
costs to $17.5 million (without 60 days prior notice to
Congress)--a contrast with the 1997 allocation of $26.6 million
and the preliminary 1998 budget allocation of $26.5 million.
The Alaska Region did not identify any actual cost reductions
that were necessary to comply with the limitation. It
eliminated the account for centralized field office costs and
allocated the funds directly to the field offices, separated one
of its organizational units away from the account for regional
office operations and treated it as a separate entity for
accounting purposes, and placed unallocated funds in a reserve
account for eventual distribution to other offices.
H.R. 4149 appears to allow the Forest Service much of this same
flexibility in responding to the requirement to eliminate indirect
expenditures from off-budget funds. H.R. 4149 does require the
Forest Service to explain the effect of any change it makes in the
definition of indirect costs and any change in accounting practices
that would have an effect on such costs, but this provision does not
eliminate using these steps as an approach. Given the importance of
some of the items currently included in the category of indirect
expenditures, it would appear likely that the Forest Service will
continue to make use of these approaches alongside actual reductions
to obtain cost efficiencies.
-------------------------------------------------------- Chapter 0:4.1
In summary, H.R. 4149 would increase the visibility of indirect
expenditures, both within the Forest Service and for the Congress.
Previously, the large increases in indirect expenditures had little
visibility within the agency, and therefore little attention was
placed on reversing the trend. If this bill is enacted, indirect
expenditures and indirect expenditure rates will become public. At
the same time, eliminating off-budget funds as a funding source for
indirect expenditures is not the same as eliminating the expenditures
themselves. Some of these costs would continue no matter how
efficient the Forest Service were to become. H.R. 4149 would allow
the Forest Service substantial flexibility in how it meets the
limitation and it is silent on a goal for actual cost reductions. It
is left to the Forest Service to develop a plan for actual cost
reduction. The reporting mechanisms built into H.R. 4149 would
provide greater insight into how the Forest Service is going about
this task than has been the case in previous congressional attempts
to limit particular types of spending by the Forest Service. That
greater insight, however, will not minimize the difficulty of
actually reducing indirect expenditures.
DESCRIPTIONS OF THE FOUR FUNDS
EXAMINED
=========================================================== Appendix I
BRUSH DISPOSAL FUND
------------------------------------------------------- Appendix I:0.1
A permanent appropriation that uses deposits from timber purchasers
to dispose of brush and other debris resulting from timber harvest.
It was authorized by the Act of August 11, 1916, ch. 313, 39 Stat.
446, as amended. (16 U.S.C. 490)
COOPERATIVE
WORK--KNUTSON-VANDENBERG
FUND
------------------------------------------------------- Appendix I:0.2
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:0.3
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:0.4
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))
SUMMARY OF EXPENDITURES FOR FOUR
FUNDS
========================================================== Appendix II
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--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
-----------------------------------------------------------------------------------------
*** End of document. ***