[Audit Report on the Salvage Timber Program, Bureau of Land Management]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 98-I-399

Title: Audit Report on the Salvage Timber Program, Bureau of Land
       Management

     Date:  April 2, 1998
  
  
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     U.S. Department of the Interior         
     Office of Inspector General                              

     AUDIT REPORT

     SALVAGE TIMBER PROGRAM,
     BUREAU OF LAND MANAGEMENT

     REPORT NO. 98-I-399
     APRIL 1998                                                                                                                                             
  
  
  
     MEMORANDUM
  
     TO:  The Secretary
  
     FROM:  Robert J. Williams
            Acting Inspector General
  
     SUBJECT SUMMARY:  Final Audit Report for Your Information -
                       "Salvage Timber Program,
                       Bureau of Land Management" (No. 98-I-399)
  
     Attached for your information is a copy of the subject final
     audit report. The objective of the audit was to determine
     whether the Bureau of Land Management (1) conducted sales of
     blown-down, diseased, or fire-damaged timber in an expedient
     manner; (2) adequately pursued instances of timber theft; and
     (3) used the Forest Ecosystem Health and Recovery Fund as the
     Congress intended.
  
     We concluded that the Bureau conducted timber sales in a timely
     manner and effectively used the Forest Ecosystem Health and
     Recovery Fund to eliminate the backlog of salvage timber
     projects. Furthermore, our review disclosed that timber thefts
     did not appear to be a significant problem on lands administered
     by the Bureau. We also determined that the Bureau was depositing
     both the county and Federal shares of salvage timber sale
     proceeds into the Fund rather than just the Federal share
     specified by the Congress in Public Law 102-381. However, the
     Bureau requested and obtained an opinion from the Office of the
     Solicitor that stated that the Bureau's treatment of these funds
     was proper.
  
     Based on the results of our review and the Solicitor's opinion,
     we did not make any recommendations in the report.
  
     If you have any questions concerning this matter, please contact
     me at (202) 208-5745.
  
  
     Attachment
  
  
  
     AUDIT REPORT
  
     Memorandum
  
     To:  Director, Bureau of Land Management
  
     From:  Robert J. Williams
            Acting Inspector General
  
     Subject:  Audit Report on the Salvage Timber Program,
               Bureau of Land Management (No. 98-I-399)
  
  

     INTRODUCTION

     This report presents the
     results of our audit of the Bureau of Land Management's Salvage
     Timber Program. The objective of the audit was to determine
     whether the Bureau (1) conducted sales of blown-down, diseased,
     or fire-damaged timber in an expedient manner; (2) adequately
     pursued instances of timber theft; and (3) used the Forest
     Ecosystem Health and Recovery Fund as the Congress intended.
  
     BACKGROUND
  
     The Bureau of Land Management is responsible for managing,
     protecting, and improving 270 million acres of public land,
     including about 45 million acres of forest land in 11 western
     states and Alaska. The Bureau administers an additional 2.4
     million acres of forest land in western Oregon, which include
     public domain lands, the revested Oregon and California Railroad
     grant lands, and the reconveyed Coos Bay Wagon Road grant lands.
  
     The term "salvage timber sale" is defined by the Bureau as a
     timber sale designed to remove diseased or insect-infested
     trees; dead, damaged, or downed trees; or trees affected by fire
     or imminently susceptible to disease or insect attack. Such
     sales may also include removal of associated trees for purposes
     of ecosystem rehabilitation. According to Bureau officials, it
     is important that salvage timber is offered for sale as soon as
     practicable to prevent additional damage to adjacent green
     timber and also to prevent further deterioration of the damaged
     timber. Additionally, drought conditions in the western states
     over the past several years have significantly increased the
     occurrences and effects of forest wildfires and the subsequent
     death of trees. The drought conditions have also contributed to
     the increased occurrences and severity of insect outbreaks and
     resultant bug-killed timber, creating the need for more salvage
     timber sales. As a result, damaged timber was placed as the
     highest priority in the Bureau's annual timber sales plans.
     However, the Bureau said that resources were not adequate to
     expeditiously market these sales and that therefore a large
     backlog of salvage timber projects was created.
  
     In order to minimize the loss of merchantable volume and to
     improve forest conditions, the Congress established the Forest
     Ecosystem Health and Recovery Fund on October 5, 1992. The
     Fiscal Year 1993 Department of the Interior and Related Agency
     Appropriation Act (Public Law 102-381) created this special fund
     in the U.S. Treasury, which was "to be derived hereafter from
     the Federal share of moneys received from the disposal of
     salvage timber prepared for sale from the lands under the
     jurisdiction of the Bureau of Land Management, Department of the
     Interior." This Act places requirements on the way the Bureau
     may spend these funds and also states that the formulas for the
     distribution of timber sales receipts specified by law are not
     changed. Specifically, Public Law 102-381 states in part:
  
     The money in this fund shall be immediately available to the
     Bureau of Land Management without further appropriation, for the
     purposes of planning and preparing salvage timber for disposal,
     the administration of salvage timber sales, and subsequent site
     preparation and reforestation. Nothing in this provision shall
     alter the formulas currently in existence by law for the
     distribution of receipts for the applicable lands and timber
     resources.
  
     In regard to existing laws, the formulas for distribution of
     timber sales receipts (including salvage timber) from Oregon and
     California Railroad grant lands were established by Title II of
     the Oregon and California Grant Lands Act of 1937. Under the
     Act, timber sales proceeds were to be divided as follows: 50
     percent to the Federal Government and 50 percent to the 18
     western Oregon counties that contain Oregon and California
     Railroad grant lands. The proceeds from timber sales on Coos Bay
     Wagon Road lands were to be divided as follows: 25 percent to
     the Federal Government and 75 percent to Coos and Douglas
     Counties. The Federal share of timber receipts from public
     domain lands is 96 percent, with the remaining 4 percent going
     to the state where the salvage sale occurred.
  
     In response to environmental concerns, including old growth
     forest issues and the presence of the Northern Spotted Owl,
     restrictions on harvesting timber significantly decreased sales
     on Government lands in western Oregon. As a result, the 18
     counties' shares of proceeds from timber sales on the Oregon and
     California Railroad grant lands and on the Coos Bay Wagon Road
     lands were substantially decreased. In order to stabilize the
     counties' revenues, appropriation language for fiscal years
     1991, 1992, and 1993 included a provision for minimum payments
     to the Oregon and California counties, which would ensure that a
     county's payments would be equal to the annual average of the 5
     -year period between 1986 and 1990 (the payment could not exceed
     total receipts collected). In fiscal year 1993, the Congress
     passed the Omnibus Budget Reconciliation Act of 1993 (Public Law
     103-66), which established special county payments for fiscal
     years 1994 through 2003 based on an annually decreasing
     percentage of the 5-year average of 1986 through 1990. For
     example, special payments to the Oregon and California counties
     started at $78.6 million in fiscal year 1994 and are gradually
     reduced to $53.6 million in fiscal year 2003. These "special
     payments" temporarily replaced the counties' share of actual
     timber receipts for the Oregon and California Railroad grant
     lands and the Coos Bay Wagon Road lands. For fiscal years 1999
     through 2003, the amount to be paid to the counties is the
     greater of the special payment amount established in Public Law
     103-66 or the counties' 50 percent share of timber sales
     proceeds.
  
     SCOPE OF AUDIT
  
     To accomplish our objective, our audit of the Salvage Timber
     Program included a review of data relative to the initiation and
     final disposition of timber theft cases and a review of salvage
     timber projects, including allocation of sales receipts and
     project expenditures to the Forest Ecosystem Health and Recovery
     Fund.
  
     Our audit was conducted in accordance with the "Government
     Auditing Standards," issued by the Comptroller General of the
     United States. Accordingly, we included such tests of records
     and other auditing procedures that were considered necessary
     under the circumstances. We requested information from 24 Bureau
     offices (Appendix 1) and discussed Forest Ecosystem Health and
     Recovery Fund projects, expenditures, receipts, and/or policy
     and procedures with personnel from these offices.  Each field
     office contacted had used the Fund to conduct salvage timber
     projects and had eliminated its respective backlog of salvage
     projects. We also reviewed law enforcement records and obtained
     other information from the Bureau's Law Enforcement Office in
     Boise, Idaho, and from Special Agents in the California and Utah
     State Offices.
  
     As a part of our audit, we evaluated the system of internal
     controls related to salvage timber sales and the Forest
     Ecosystem Health and Recovery Fund to the extent we considered
     necessary.
  
     We also reviewed the Department's Accountability Report for
     fiscal year 1996, which includes information required by the
     Federal Managers' Financial Integrity Act of 1982,  and the
     Bureau's annual assurance statement to determine whether any
     reported weaknesses were within the objective and scope of our
     review. Neither the Accountability Report nor the Bureau's
     assurance statement addressed the Bureau's Salvage Timber
     Program.
  
     PRIOR AUDIT COVERAGE
  
     Neither the Office of Inspector General nor the General
     Accounting Office has issued any audit reports during the past 5
     years on the Bureau's Salvage Timber Program or on the Forest
     Ecosystem Health and Recovery Fund.
  
     RESULTS OF AUDIT
  
     We found that the Bureau of Land Management conducted salvage
     timber sales in a timely manner and used the Forest Ecosystem
     Health and Recovery Fund to eliminate the backlog of salvage
     timber projects. Furthermore, our review disclosed that timber
     thefts did not appear to be a significant problem on lands
     administered by the Bureau. However, the Bureau may have been
     inappropriately depositing both the counties' and Federal shares
     of salvage timber sales proceeds into the Fund rather than just
     the Federal share specified by the Congress in Public Law 102
     -381. The counties' share of proceeds for Oregon and California
     Grants Lands was established at 50 percent of the sales receipts
     by the Oregon and California Grant Lands Act of 1937. Bureau
     financial officials said that they believed that Public Law 103
     -66, which provides for temporary special payments to the Oregon
     and California Railroad grant lands counties except if the
     counties' 50 percent share is greater than the special payment,
     eliminated the counties' shares of receipts and thereby
     authorized the Bureau to keep 100 percent of the proceeds from
     salvage timber sales. Since the U.S. Treasury has been making
     special payments to the counties in lieu of the counties' 50
     percent share of actual receipts, we believe that the counties'
     shares should be deposited into the U.S. Treasury General Fund
     account to partially offset those special payments. As of August
     31, 1997, the Bureau had deposited $5.2 million of the counties'
     shares of salvage timber sales receipts from fiscal years 1994
     through 1997 into the Forest Ecosystem Health and Recovery Fund.
     Based on our review, the Bureau requested a Solicitor's opinion
     on this matter on May 28, 1997, in which it stated that its
     interpretation "of legislation [Public Law 103-66] is that the .
     . . salvage timber receipts are entirely the Federal
     Government's share during the special payment years."
  
     The Forest Ecosystem Health and Recovery Fund has provided Bureau
     field offices with the additional funding necessary to expedite
     salvage timber sales and reduce the backlogged volume of salvage
     timber. Sales of salvage timber have increased from 10.4 million
     board feet in 1993 to nearly 39 million board feet in 1997.
     During the 5 years since the implementation of the Fund, the
     Bureau has sold over 141 million board feet of salvage timber
     and collected receipts of about $23.5 million. We contacted 17
     Bureau field offices, and none of those field offices reported a
     backlog of salvage timber.                               Our
     audit also disclosed that the number of timber thefts that
     occurred during fiscal years 1994 through 1996 was minimal. Data
     provided by the National Law Enforcement Office showed that an
     average of 12 timber theft cases were opened per state per year.
     The average loss per timber theft case was less than $1,400,
     based on the law enforcement officers' estimates of the value of
     the timber or other forest products removed. During this period,
     timber sales fluctuated between about $75 million and $100
     million per year, and the loss from timber theft was estimated
     at about $100,000 per year.  Furthermore, according to the
     Bureau's Uniform Crime Reporting System, about 50 percent of the
     timber theft cases reported were cleared by arrest or other
     means. While law enforcement officials did not provide
     statistics on the dollar value of cases cleared, they stated
     that they had had greater success working and obtaining
     prosecutions on the larger dollar cases. They also stated that
     many of the smaller cases involved theft of firewood or
     unauthorized tree cutting while roads were being constructed and
     that it was often difficult to obtain prosecution on these
     cases. Consequently, after reviewing all of the information
     provided by the Bureau, we concluded that timber thefts did not
     appear to be a significant problem on Bureau-managed lands.
     The Bureau's accounting records showed that during fiscal years
     1994 and 1995 (through June 1995), the Oregon and California
     counties' shares of salvage timber receipts were deposited into
     the U.S. Treasury General Fund. However, on June 16, 1995,
     Bureau officials decided that the counties' share could be
     deposited into the Bureau's Forest Ecosystem Health and Recovery
     Fund rather than the U.S. Treasury General Fund.
  
     We reviewed correspondence which indicated that during 1995 and
     1996, Bureau officials discussed this matter with the
     Department's Budget Office, which requested a Solicitor's
     opinion as to whether the Bureau could transfer 100 percent of
     salvage timber receipts into the Fund. The Solicitor did not
     provide a written opinion. However, correspondence dated April
     20, 1995, between the Department's Budget Office and the Bureau
     stated:
  
     The Solicitor's office thought that such an interpretation was
     reasonable, but suggested that BLM/DOI [Bureau of Land
     Management/Department of the Interior] consult with OMB [Office
     of Management and Budget] and the relevant Congressional
     committees before beginning to handle the receipts in that way.
  
     Correspondence from the Department's Budget Office also stated
     that the Bureau had not consulted with either the Office of
     Management and Budget or the relevant Congressional committees.
     Nevertheless, on June 16, 1995, the Bureau's Chief, Division of
     Finance, authorized the transfer of 100 percent of salvage
     timber receipts to the Fund for fiscal years 1994 through 2003.
     The memorandum authorizing the transfers indicated that the
     Solicitor had provided verbal assurance that the Bureau's
     interpretation of the law was reasonable.
  
     The Congress initially appropriated $1 million for the Forest
     Ecosystem Health and Recovery Fund. For fiscal years 1993 to
     1997 (through July 31, 1997), salvage timber sales receipts of
     $23.5 million had been deposited into the Fund. The Oregon and
     California and Coos Bay Wagon Road counties' shares of receipts
     deposited into the Fund totaled about $5.2 million for fiscal
     years 1993 to 1997 (through August 31, 1997).  Because the
     Bureau deposited all salvage timber sales receipts into the
     Fund, the U.S. Treasury did not receive any revenue from the
     sale of salvage timber, but it pays the counties a share of
     those receipts (Public Law 103-66) through an appropriation
     based on the average sales receipts from fiscal years 1986
     through 1990.
  
     Public Law 102-381 authorized the Bureau to transfer only the
     Federal share of salvage timber receipts to the Forest Ecosystem
     Health and Recovery Fund (which was 50 percent of the sales
     receipts from Oregon and California lands and 25 percent from
     Coos Bay Wagon Road lands). Without specific authorization to
     deposit 100 percent of the salvage timber receipts into the
     Fund, we believe that the $5.2 million counties' share, which is
     50 percent of the salvage timber sales proceeds from Oregon and
     California Railroad grant lands (about $5,150,000) and 75
     percent of the salvage timber sales proceeds from Coos Bay Wagon
     Road lands (about $50,000), should be deposited into the General
     Fund of the U.S. Treasury.
  
     During our exit conference, we recommended that the Bureau of
     Land Management obtain a formal written opinion from the
     Solicitor's Office as to whether the Bureau can retain 100
     percent of the salvage timber sales receipts. The Bureau agreed,
     and on May 28, 1997, the Director of the Bureau requested a
     Solicitor's opinion on the issue of whether and/or how much of
     the counties' share of salvage timber receipts should be
     deposited into the Forest Ecosystem Health and Recovery Fund.
  
     Conclusion
  
     On January 29, 1998, the Deputy Associate Solicitor, Division of
     Law, Office of the Solicitor, responded to the Bureau's request
     for an opinion (see Appendix 2) on the Bureau's retention of 100
     percent of the salvage timber receipts. The Solicitor's opinion
     stated:  Although there is clearly ambiguity about how "Federal
     share" should be interpreted, we believe the structure for
     payment of the "special payment amount" in OBRA 93 [the 1993
     Omnibus Budget Reconciliation Act] creates a sound basis for
     concluding that the BLM's [Bureau of Land Management's] practice
     is correct.  We conclude that through FY [fiscal year] 2003, in
     any year when the payments to the counties are made from a
     General Fund appropriation under OBRA 93 [1993 Omnibus Budget
     Reconciliation Act), all salvage timber fee receipts will be
     retained by the Federal government and deposited to the FEHRF
     [Forest Ecosystem Health and Recovery Fund]. Between FY 1999 and
     2003, if the payments are made from timber fee receipts under
     the pre- OBRA 93 formula, only the portion of such receipts
     retained by the Federal government should be deposited to the
     FEHRF.  Based on this opinion, we are not making any
     recommendations on this matter.
  
     Other Matters
  
     During our survey, we noted inconsistencies in the way the
     Bureau's forestry program managers interpreted guidance relative
     to Forest Ecosystem Health and Recovery Fund expenditures and
     deposits. Although these instances were not systemic, we believe
     that they should be corrected.
  
     Forest Ecosystem Health and Recovery Fund Expenditures.
     Regarding expenditures of the Forest Ecosystem Health and
     Recovery Fund (Subactivity 5900), the Bureau's fiscal year 1996
     Fund Coding Handbook states:
  
       [The Forest Ecosystem Health and Recovery Fund] includes all
     costs associated with the salvage of dead and dying timber on
     forest and woodland ecosystems on Public Domain Lands and on
     Oregon and California Railroad grant lands and Coos Bay Wagon
     Road lands in western Oregon. [It] includes maintenance and
     enhancement of the forest and woodlands ecosystems effected by
     fire, disease, insects etc. It includes only activities related
     to the sale of salvage timber and the subsequent site
     preparation, reforestation and maintenance of these sites. No
     program oversight or administrative costs should be coded to
     this account. [Emphasis added.]
  
     We believe that some expenditures which were charged to the Fund
     should have been charged to the Bureau's appropriated funds
     budgeted for the forestry program as follows:
  
     - In 1996, the Oregon, Idaho, and California State Offices
     charged $191,405, $78,645, and $78, respectively, to the Fund
     for allocation of state office overhead, while the Alaska,
     Arizona, Montana, New Mexico, and Wyoming State Offices did not
     charge the Fund for overhead. In our opinion, charging overhead
     costs to the Fund directly conflicts with the Handbook
     instructions that state, "No program oversight or administrative
     costs should be coded to this account."
  
     - The Arizona Strip District Office is spending an estimated
     $3.5 million of Fund money on a research project to restore a
     ponderosa pine ecosystem to pre-European settlement conditions.
     The project is being designed by a university and basically
     involves the following: removing young trees, leaving the old
     growth trees, burning the underbrush, and seeding grasses. In
     our opinion, the use of the Fund for this project is not
     consistent with provisions of the Fund Coding Handbook because
     the area has not been affected by fire, disease, or insects. In
     addition, this project does not appear to meet the definition of
     salvage timber provided in Bureau Instruction Memorandum No. 95
     -132. Specifically, the memorandum states:
  
       The term "salvage timber sale" is defined as a timber sale
     designed to remove diseased or insect-infested trees; dead,
     damaged or downed trees; or trees affected by fire or imminently
     susceptible to disease or insect attack. Such sales may also
     include removal of associated trees for purposes of ecosystem
     rehabilitation.
  
     Since this project does not appear to meet Bureau requirements,
     we believe that it should be subject to the Bureau's budget
     process and funded with appropriated forestry funds.
  
      Forest Ecosystem Health and Recovery Fund Deposits. Our review
     of deposits made to the Fund (Subactivity 5900) during fiscal
     years 1995, 1996, and 1997 disclosed that the Craig, Colorado,
     and the Worland and Rawlins, Wyoming, field offices posted
     firewood and fencepost sales receipts to the Fund. During the
     Bureau's 1996 Alternative Management Control Review of the Fund,
     officials of the Prineville District Office stated that they
     would like the authority to deposit firewood permit receipts
     into the Fund. We believe that the Bureau should establish a
     policy as to whether the estimated $200,000 per year in firewood
     and fencepost receipts from the public domain lands should be
     retained by the Bureau in the Forest Ecosystem Health and
     Recovery Fund or deposited into the U.S. Treasury General Fund.
  
     During the summer of 1996, an interagency review team concluded
     that considerable variation existed in the types of timber sales
     identified by field offices as meeting the definition of salvage
     timber sales, ranging from sales of mostly dead trees to sales
     of mostly live trees. The team, in its final report, stated that
     the broad definition of salvage timber was a significant factor
     contributing to this situation. On October 8, 1996, the
     interagency team issued a report which recommended that the
     Bureau and the U.S. Forest Service develop a common definition
     of salvage timber which is within the limits of their underlying
     legislative authorities. A March 4,1997, followup action plan
     developed by the interagency team recommended a legislative
     proposal to address this issue. This proposal had not been
     submitted to the Congress as of September 1, 1997. We believe
     that the Bureau of Land Management should review these matters
     to ensure that the Forest Ecosystem Health and Recovery Fund is
     administered effectively and efficiently.
  
     Although the report did not contain any recommendations, the
     Director, Bureau of Land Management, in a March 31, 1998,
     response to the preliminary final report (Appendix 3), stated
     that because of our report, "Several items were brought to BLM's
     [Bureau of Land Management's] attention which will strengthen
     the integrity of the program."
  
     The legislation, as amended, creating the Office of Inspector
     General requires semiannual reporting to the Congress on all
     audit reports issued, actions taken to implement audit
     recommendations, and identification of each significant
     recommendation on which corrective action has not been taken.
  
     We appreciate the assistance of Bureau personnel in the conduct
     of our audit.
  
  
                              APPENDIX 1                  OFFICES
     CONTACTED OR VISITED
  
         OFFICES CONTACTED OR VISITED           LOCATION
  
     National Offices Bureau of Land  Management Budget Office
     Washington D.C. Bureau of Land   Management Finance Office
     Washington D.C. Forest Ecosystem Health  and Recovery Fund
     Program Coordinator  Boise, Idaho Forestry Program Office
     Washington, D.C. National Business Center*      Lakewood,
     Colorado National Law Enforcement Office   Boise, Idaho Office
     of the Solicitor       Washington, D.C. Arizona Arizona State
     Office         Phoenix, Arizona Arizona Strip District*
     St. George, Utah California Eagle Lake Resource Area Office
     Susanville, California Folsom Resource Area         Folsom,
     California Colorado Kremmling Resource Area       Kremmling,
     Colorado Royal Gorge Resource Area Office   Canon City, Colorado
     Idaho Idaho State Office          Boise, Idaho Upper
     Columbia/Salmon Clearwater Districts   Coeur d'Alene, Idaho
     Montana Butte District Office        Butte, Montana Oregon
     Oregon State Office         Portland, Oregon Coos Bay District
     Office       North Bend, Oregon Eugene District Office
     Eugene, Oregon Klamath Falls Resource Area     Klamath Falls,
     Oregon Medford District Office       Medford, Oregon Roseburg
     District Office       Roseburg, Oregon Wyoming Worland District
     Office       Worland, Wyoming Rawlins District office
     Rawlins, Wyoming
  
  
     * Offices visited.
     



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