Forest Service: Status of Efforts to Improve Accountability (Testimony,
02/16/2000, GAO/T-RCED/AIMD-00-93).

Pursuant to a congressional request, GAO discussed the status of efforts
by the Forest Service to achieve accountability for the tax dollars
appropriated to carry out its mission, focusing on: (1) actions the
agency has taken to improve its financial and performance
accountability; (2) the remaining hurdles to those improvements; and (3)
strategies the agency is developing to address these hurdles.

GAO noted that: (1) the Forest Service is taking actions to address
known problems with its financial management and reporting, as well as
with its performance-related data, measurement, and reporting; (2) to
improve its performance accountability, the agency is revising the
strategic plan that it prepared under the Government Performance and
Results Act of 1993 to better focus on outcomes to be achieved over
time; (3) in addition to goals and objectives, the revised strategic
plan sets out performance measures and milestones as indicators of
progress; (4) as GAO has previously recommended, the agency has proposed
significant changes in its budget structure for fiscal year (FY) 2001;
(5) these changes are intended to better link its largest discretionary
appropriation--for the National Forest System--with the goals and
objectives in its strategic plan and with the integrated way that work
activities are conducted in the field; (6) despite these efforts, major
hurdles to achieving financial and performance accountability remain;
(7) in terms of performance, the Forest Service's proposed FY 2001
budget justification continues to rely on annual performance measures
that do not always encourage progress toward the agency's strategic
objectives; (8) until the agency better links annual performance
measures and budget allocation criteria to its strategic objectives and
corrects deficiencies in its financial management and reporting systems,
the agency will not be able to provide Congress or the public with a
clear understanding of how many taxpayer dollars are being spent on each
of the agency's strategic goals and objectives and what is being
accomplished with the money; (9) to address the remaining hurdles to
attaining financial accountability, the Forest Service has devised a
strategy with goals, objectives, timeframes, and measures and is
redesigning the organizational structure of its financial management
functions; (10) the agency is also beginning to develop a strategy for
improving the links between its strategic objectives and its annual
performance measures and budget allocation criteria; and (11) the Forest
Service also plans to develop as yet unspecified changes to the
organizational structure of the National Forest System to better
accomplish its strategic goals and objectives.

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

 REPORTNUM:  T-RCED/AIMD-00-93
     TITLE:  Forest Service: Status of Efforts to Improve
	     Accountability
      DATE:  02/16/2000
   SUBJECT:  Performance measures
	     Mission budgeting
	     Congressional/executive relations
	     Agency missions
	     National forests
	     Forest management
	     Strategic planning
	     Accountability
	     Financial management systems
	     Federal agency accounting systems
IDENTIFIER:  Forest Service Foundation Financial Information System
	     GPRA
	     Government Performance and Results Act

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Testimony

Before the Subcommittee on Interior and Related
Agencies, Committee on Appropriations, House of Representatives

For Release on Delivery
Expected at
10 a.m. EST
Wednesday
February 16, 2000

FOREST SERVICE

Status of Efforts to Improve Accountability

Statement of Barry T. Hill,
Associate Director,
Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED/AIMD-00-93

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss the status of efforts by the
Department of Agriculture's Forest Service to achieve accountability for the
tax dollars appropriated to it to carry out its mission. Our statement will
summarize (1) actions the agency has taken to improve its financial and
performance accountability, (2) remaining hurdles to those improvements, and
(3) strategies the agency is developing to address these hurdles. Our
comments are based primarily on two reports issued within the last 15
months, as well as on our ongoing work for this Subcommittee.

In summary, Mr. Chairman:

   * The Forest Service is taking actions to address known problems with its
     financial management and reporting, as well as with its
     performance-related data, measurement, and reporting. For example, the
     agency implemented its new accounting system-the Foundation Financial
     Information System (ffis)-agencywide on October 1, 1999, as scheduled,
     and has made significant progress in completing a physical inventory of
     its real and personal property, as well as developing a methodology for
     valuing its road assets. To improve its performance accountability, the
     agency is revising the strategic plan that it prepared under the
     Government Performance and Results Act of 1993 (the Results Act) to
     better focus on outcomes to be achieved over time. Such outcomes
     include the health of the land, the quality of water, and the
     satisfaction of customers. In addition to goals and objectives, the
     revised strategic plan sets out performance measures and milestones as
     indicators of progress. Moreover, as we have previously recommended,
     the agency has proposed significant changes in its budget structure for
     fiscal year 2001. These changes are intended to better link its largest
     discretionary appropriation-for the National Forest System-with the
     goals and objectives in its strategic plan and with the integrated way
     that work activities are conducted in the field.

   * Despite these efforts, major hurdles to achieving financial and
     performance accountability remain. For instance, according to the
     Department of Agriculture's Office of Inspector General and a
     consultant for the Department, computer systems that preprocess data
     entered into ffis are often deficient. These deficiencies reduce
     assurance that the new accounting system will provide timely, accurate,
     reliable, and consistent financial information. In addition,
     preliminary audit results of the Forest Service's fiscal year 1999
     financial statements indicate that significant accounting deficiencies
     continue to exist. In terms of performance, the Forest Service's
     proposed fiscal year 2001 budget justification continues to rely on
     annual performance measures that do not always encourage progress
     toward the agency's strategic objectives. Furthermore, despite the
     changes to its budget structure that it has proposed to better link the
     National Forest System appropriation to its strategic goals, the agency
     has not yet developed criteria for allocating funds to its regions and
     forests on the basis of its strategic objectives or performance
     measures. The proposed budget structure would create larger pools of
     money, giving greater discretion to field and program managers in
     deciding where to spend the funds. However, until the agency better
     links annual performance measures and budget allocation criteria to its
     strategic goals and objectives and corrects deficiencies in its
     financial management and reporting systems, it will not be able to
     provide the Congress or the public with a clear understanding of how
     taxpayer dollars are being spent on each of its strategic goals and
     objectives and what is being accomplished with the money.

   * To address the remaining hurdles to attaining financial accountability,
     the Forest Service has devised a strategy with goals, objectives, time
     frames, and measures and is redesigning the organizational structure of
     its financial management functions. The agency is also beginning to
     develop a strategy for improving the links between its strategic
     objectives and its annual performance measures and budget allocation
     criteria. The Forest Service also plans to develop as yet unspecified
     changes to the organizational structure of the National Forest System
     to better accomplish its strategic goals and objectives. While progress
     has been made to improve financial accountability, this represents the
     third time in 13 years that the Forest Service is promising greater
     accountability for its performance in exchange for greater discretion
     over larger pools of money. In the two previous instances, the agency
     did not fulfill its promises to improve its performance-related data,
     measurement, and reporting. Therefore, while we believe that the
     proposed changes to the Forest Service's budget structure could
     facilitate the agency's management of the 155 national forests, we also
     believe that sustained oversight by the Congress should now be focused
     on ensuring that the agency (1) continues to make progress on its
     financial management and (2) follows through on its strategies to
     improve its performance accountability in a timely manner.

The Forest Service Has Completed Several Actions and Begun Others to Improve
Accountability

The Forest Service has taken several actions to improve its financial
management and reporting systems. For example, the agency implemented the
ffis accounting system agencywide on October 1, 1999, as scheduled. This
system will enable the Forest Service to track its obligations, assets,
liabilities, revenues, and costs. Despite some start-up problems, such as
rejected transactions and system down time, Forest Service staff are now
entering fiscal year 2000 transactions into the system. In addition, the
agency has made significant progress in completing a physical inventory of
its real and personal property, as well as developing a methodology for
valuing its road assets. Furthermore, the Forest Service and the Department
of Agriculture's National Finance Center (nfc)-which processes much of the
Forest Service's accounting data-signed a Memorandum of Understanding (mou)
that will transfer responsibility for several key accounting functions from
nfc to the Forest Service. For example, the mou will transfer responsibility
for preparing certain critical budgetary and accounting reports to the
Forest Service.

The Forest Service is also taking actions to improve its performance
accountability. In particular, it is revising its strategic plan, prepared
under the Results Act, to better focus on outcomes and results to be
achieved over time, such as the health of the land, the quality of water,
and the satisfaction of customers. The draft plan refines the agency's
strategic goals and objectives and links them to long-term performance
measures and 5-year milestones. In addition, the Forest Service has begun to
develop strategies and plans to achieve its objectives. For example, the
agency has drafted a strategy to address the increasing incidence of
uncontrollable and often catastrophic wildfires. This strategy can serve as
a basis for establishing funding priorities and developing more meaningful
performance measures. In addition, according to the Forest Service's draft
strategic plan, annual performance plans will address specific management
actions and investments needed to ensure progress toward the goals and
objectives of the strategic plan, and annual budget proposals will seek the
funding needed to deliver these annual actions and investments.

Moreover, as we recommended in December 1998, the Forest Service has
proposed significant changes to its budget structure for fiscal year 2001.
The revised budget structure would reduce 21 existing budget line items and
extended budget line items within the National Forest System
appropriation-the agency's largest discretionary appropriation-to 3 budget
line items. These changes are intended to better link the $1.3 billion
requested to manage the National Forest System with two goals in the
agency's strategic plan and with the integrated way that work activities are
conducted in the field. (See fig. 1.)

Source: U.S. Department of Agriculture Forest Service, Overview of FY 2001
President's Budget and Draft USDA Forest Service Strategic Plan (2000
Revision).

The simplified budget structure would also better support the agency's
integrated approach to land management. This approach recognizes that a full
range of tools-including timber sales, thinning, watershed improvement
projects, wildlife habitat treatments, prescribed fires, and mechanical
treatments-are often necessary to restore and protect land health and forest
resources. Finally, the agency proposes to justify its future fiscal year
budgets on the basis of annual performance measures linked to
mission-oriented outcomes, outputs, and financial information rather than on
the basis of resource-specific programs that no longer reflect the
integrated way that work activities are conducted in the field.

Major Hurdles to Financial and Performance Accountability Remain

While the Forest Service has made considerable progress toward improved
accountability, much difficult work remains. The agency still faces several
major hurdles before it can provide accurate and timely information on how
much of its funds are spent on specific strategic goals and objectives and
what is accomplished with the money.

Hurdles to Financial Accountability

The Forest Service's existing accounting structure uses computer
systems-referred to by the Department of Agriculture as feeder systems-to
preprocess data, which are subsequently sent to ffis. The Department's
Office of Inspector General and Logistics Management Institute-a consultant
for the Department-have criticized these feeder systems. Specifically, the
Office of Inspector General reported that the feeder systems are poorly
documented, operationally complex, deficient in appropriate control
processes, and costly to maintain. The Office of Inspector General has
concluded that the feeder systems reduce assurance that ffis will be able to
provide timely, accurate, reliable, and consistent financial information.
The Department's Chief Financial Officer has agreed with the Office of
Inspector General's recommendation to develop a long-range plan to
consolidate, integrate, and/or reengineer the feeder systems.

Another hurdle that the Forest Service must address is the lack of
information needed to transfer to ffis over $100 million in unreconciled or
unsupported transactions remaining from its old accounting system. The
agency faces a major effort in trying to (1) document and validate these
transactions so they can be transferred to ffis or (2) reach agreement with
the Office of Inspector General on a policy to write off or otherwise
resolve the differences.

Preliminary audit results of the Forest Service's fiscal year 1999 financial
statements indicate that significant accounting deficiencies still exist.
For example, the Office of Inspector General found reporting errors in the
Forest Service's supporting accounting records for individual property,
plant, and equipment assets included in the agency's physical inventory. The
Office of Inspector General's audit also disclosed that the Forest Service's
internal controls over its Fund Balance with Treasury account were not
sufficient to ensure that these assets were adequately safeguarded. This
account, which is similar in nature to a checking account with the U.S.
Treasury, contained $2.6 billion as of September 30, 1999. Since
insufficient internal controls over Fund Balance with Treasury accounts is
also a Department-wide problem, Agriculture formed a task force representing
the Forest Service, nfc, the Department's Office of the Chief Financial
Officer, and an outside consultant-PricewaterhouseCoopers LLP-to resolve
this issue. The task force anticipates the problem will be corrected
sometime next month.

In January 1999, when we designated the Forest Service's financial
management as a high-risk area vulnerable to waste, fraud, abuse, and
mismanagement, we noted that an unqualified audit opinion on financial
statements, on which the agency is primarily focused, while certainly
important, is not an end in itself. Efforts to obtain reliable year-end data
that are not backed up by fundamental improvements in underlying financial
management systems and operations that enable the routine production of
accurate, relevant, and timely data to support ongoing program management
will not achieve financial accountability. In addition, the National Academy
of Public Administration (napa)-an independent, nonpartisan, nonprofit
organization chartered by the Congress to help federal, state, and local
governments improve their performance-reported that attaining an unqualified
audit opinion would not, by itself, restore the Forest Service's credibility
and trust with the Congress and other external groups.

Hurdles to Performance Accountability

The Forest Service's proposed budget structure for fiscal year 2001 moves
the agency toward performance-based budgeting by linking each budget line
item to specific annual performance measures for which the agency believes
it can be held accountable. These measures are intended to gauge the Forest
Service's annual progress toward achieving its long-term strategic goals and
objectives. However, the annual performance measures often do not adequately
indicate the outcomes the agency intends to achieve. As a result, they do
not always encourage progress toward the agency's strategic goals and
objectives and are not clearly linked to the long-term performance measures
or the 5-year milestones set out under each objective in the agency's draft
strategic plan.

For example, to gauge its annual progress toward achieving one strategic
objective-improving the capability of the national forests and rangelands to
provide diverse, high-quality outdoor recreation opportunities-the Forest
Service proposes to annually tally the total number of special-use permits
(permits for private recreational cabins, special group events, and other
noncommercial special uses) in existence at the end of the fiscal year
without consideration of the quality of facilities provided. Thus,
special-use permits for substandard facilities are counted as an
accomplishment toward improving the capability of the national forests to
provide high-quality outdoor recreation opportunities. Such an annual
performance measure confuses quantity with quality. In addition, in our
opinion, a substandard recreational cabin or special group event would
detract from, rather than contribute to, the long-term measure and 5-year
milestone in the agency's draft strategic plan of increasing user
satisfaction with recreation programs and facilities.

Similarly, the Forest Service's annual measure of progress toward reducing
hazardous fuels on the national forests and its basis for justifying each
future fiscal years' funding-the number of acres treated-encourages a focus
on quantity without reference to difficulty or safety. Thus, the agency's
field offices have an incentive to focus on the easiest and least costly
areas, rather than on those that present the highest risks but are often
costlier to treat. Moreover, an annual performance measure focused on the
total acreage treated rather than on nearby communities, watersheds, and
species at risk is not clearly linked to the long-term measure and 5-year
milestone in the Forest Service's draft strategic plan of decreasing the
number of acres at extreme risk from wildfire.

Hurdles to Linking Budget Allocation Criteria to Strategic Goals and
Objectives and Annual Performance Measures

The budget structure for the Forest Service's proposed fiscal year 2001
National Forest System appropriation is generally linked to the agency's
strategic goals and to the integrated way that work activities are conducted
in the field. However, the current criteria that the agency uses under its
existing budget structure to allocate funds to its regions and forests are
based on its resource-specific programs rather than on the objectives in its
draft strategic plan or on the annual performance measures in its budget
justification.

Since fiscal year 1996, the Forest Service has used criteria developed at
its Washington Office to allocate appropriated funds to its field offices.
Like many of the agency's annual performance measures, many of the Forest
Service's budget allocation criteria are based on quantity and outputs
rather than on quality and outcomes. For example, the agency allocates funds
appropriated for recreation facilities on the basis of the quantity, rather
than the quality, of recreational experiences on the national forests. Funds
for recreational facilities are allocated on the basis of how many people
the developed sites can accommodate at one time rather than on the quality
of visitors' recreational experiences. Continuing to allocate funds for
recreation management solely on this basis could work counter to the
agency's strategic objective of improving the capability of the national
forests and rangelands to provide diverse, high-quality outdoor recreational
opportunities, because this allocation criterion gives forests an incentive
to maintain substandard facilities and sites. Specifically, we have found
that because forest managers fear their future years' funding could be
reduced, they are reluctant to close substandard facilities.

According to napa, using a criteria-based approach for allocating funds does
not result in budgets that reflect the Forest Service's changing priorities,
nor does it allow the agency to hold its field organization and employees
fully accountable for expenditures or performance. napa observed that
distributing budget resources on the basis of allocation criteria "is a poor
substitute for making hard choices among alternatives given limited
resources." It recommended replacing the Forest Service's criteria-based
approach with one based on the agency's strategic plan and the level of
resources needed to accomplish stated goals and objectives.

The Forest Service Has Devised or Is Beginning to Develop Strategies to
Address the Remaining Hurdles to Accountability

The Forest Service has developed strategies and undertaken various
organizational initiatives to help it achieve a clean opinion on its fiscal
year 2000 financial statements and address the remaining hurdles to
financial accountability. Specifically, the Forest Service retained a
consultant-Grant Thornton LLP-whose final report has enabled the agency to
prioritize its efforts and develop a realistic time line for achieving a
clean opinion. In addition, the Forest Service has devised a strategy with
goals, objectives, time frames, and measures that it believes will
eventually allow it to obtain not only a clean opinion on its year-end
financial statements but also accurate and timely information for
decision-making throughout the year. Moreover, it is redesigning the
organizational structure of its financial management functions to provide
the leadership needed to correct its long-standing financial management and
reporting deficiencies. This new structure will also serve as a nucleus
around which financial accountability can be built. Moreover, the Forest
Service plans to establish a team this year to study the financial
management structure of its highly decentralized and autonomous field
offices.

The Forest Service is also working to refine its annual performance measures
to better link them with the objectives, long-term performance measures, and
5-year milestones in its draft strategic plan. However, the agency has not
determined how long it will take to gather and analyze the data needed to
evaluate and refine annual and long-term performance measures. In addition,
the Forest Service plans to revise its budget allocation criteria to, among
other things, reflect its strategic priorities and integrate its
resource-specific programs with its strategic plan before allocating the
funds appropriated for fiscal year 2001 to its regions and forests.
Furthermore, in a December 22, 1999, letter to this Subcommittee, the
Secretary of Agriculture stated that by March 31, 2000, the Forest Service
will propose changes to the National Forest System's organizational
structure to better align it with the agency's proposed fiscal year 2001
budget structure and, thus, with its strategic goals.

***

In conclusion, Mr. Chairman, we commend the Forest Service for the progress
it has made to date and its commitment to overcome the remaining hurdles to
financial and performance accountability. We are optimistic that the agency
will continue to improve its financial management. However, given its
history, continued vigilance and oversight seems appropriate. As we have
reported previously, the Forest Service also promised in 1987 and 1995 to
improve its performance accountability in exchange for a simplified budget
structure. The Appropriations Committees, on both occasions, gave the agency
more flexibility in managing its budget, but the Forest Service did not
improve its performance-related data, measurement, and reporting. Therefore,
while we believe that the proposed changes to the Forest Service's budget
structure could facilitate the agency's management of the 155 national
forests, we also believe that sustained oversight by the Congress should now
be focused on ensuring that the agency (1) continues to make progress on its
financial management and (2) follows through on its strategies to improve
its performance accountability in a timely manner.

This concludes my formal statement. If you or other Members of the
Subcommittee have any questions, we will be pleased to respond to them.

Contact and Acknowledgment

For future contacts regarding this testimony, please contact Barry T. Hill
on (202) 512-3841. Individuals making key contributions to this testimony
included Ryan T. Coles, Charles S. Cotton, Dena M. Owens, Louis J. Schuster,
and McCoy Williams.

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