oversight

Timber Sales Program: Issues Surrounding the Timber Sales Cost Reporting System

Published by the Government Accountability Office on 1990-02-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         United   States   General   Accounting   Office


GAO                      Briefing Report to the Chairman,
                         Subcommittee on Environment, Energy,
                         and Natural Resources, Committee on-
                         Government Operations, House of
                         Representatives
February   1990
                         TIMBER SALES
                         PROGRAM
                         Issues Surrounding the
                         Timber SalesCost
                         Reporting System




                   RESTRICTED--       Not to be released outside the
                   General Accounting   Office unIess specifIcaIIy
                   approved by the OfTice of Congressional
                   Relations.




GAO/AFMD-90-48BR
      United States
GAO   General Accounting Offke
      Washington, D.C. 20548

      Accounting and Financial
      Management Dic-ision



      B-226580
      February      28,    1990

      The Honorable  Mike Synar
      Chairman
      Subcommittee  on Environment,
        Energy, and Natural    Resources
      Committee on Government Operations
      House of Representatives
      Dear Mr. Chairman:
      Your letters       of February      17 and April     27, 1989, asked that
      we respond to issues regarding             the implementation      of the
      Forest Service's         Timber Sale Program Information          Reporting
      System (TSPIRS).          On November 16, 1989, we presented           the
      preliminary      results    of our review in testimony         before your
      Subcommittee        (Forest   Service Cost Accounting       For Timber
      Sales (GAO/T-AFMD-90-4).             To further    respond to your
      request     and to focus on the most significant            issues you
      raised,     we formulated      17 questions     related   to the
      implementation        of TSPIRS, which are answered in this
      briefing     report.
      RESULTS IN BRIEF
      In general,      we believe     TSPIRS was implemented   as intended.
      However, experience         gained by the Forest Service      while
      testing    the system during        fiscal years 1987 and 1988 has
      indicated     that changes are needed.         Among the changes being
      considered      by the Forest Service      are (1) separately
      disclosing      the costs of road construction       and (2) modifying
      the method for computing          the cost of growing timber.
      We compared the costs reported            in TSPIRS to costs reported
      in the Forest Service's           general   accounting       system, and we
      believe    that TSPIRS is reporting           all significant       direct
      timber costs.          We note that the Statement          of Revenues and
      Expenses and the Economic Account report                 differ    with
      respect    to the types and amount of cost reported.                    That
      difference      is primarily      because the former report           portrays
      a pro rata share of costs incurred               during    the reporting
      year I   whereas     the  latter   report   includes     costs    and
      benefits     anticipated       to occur in future       periods.
E-226580


Finally,     we believe     TSPIRS information         is becoming
increasingly     useful     to the Forest Service          and the Congress
as a means of monitoring           the financial       condition    of the
timber sales program and the effect                 of timber harvesting       on
other national       forest   resource      programs.      We discuss    these
and other issues in greater            detail     in appendix    I.   That
appendix also provides          information      on the background       of
TSPIRS' development         as well as on its underlying            concepts
and the kinds of information             it reports.
OBJECTIVES,      SCOPE, AND METHODOLOGY
As agreed with your           staff,  we visited the following
locations  to review          the implementation   of the TSPIRS fiscal
year 1988 Statement           of Revenues and Expenses and Economic
Account report:
--   Chequamegon      National        Forest,      Wisconsin;
--   Lo10 National        Forest,      Montana;
--   Okanogan    National        Forest,      Washington;
--   Santa    Fe National        Forest,        New Mexico;     and
--   Sierra    National     Forest,        California.
We also interviewed         Forest Service      officials    at the
Northern    Regional     Office    in Missoula,      Montana; Southwestern
Regional    Office    in Albuquerque,      New Mexico; and the
Washington,      D.C.   headquarters.      Our   work was done between
July and November 1989.
In a 1987 report        to the Congress,       the Forest Service
described     the content       and reporting     structure     of TSPIRS.
We reviewed that report           and examined the Forest Service's
headquarters      instructions       for preparing      the Statement     of
Revenues and Expenses and Economic Account report.                     We also
visited    the previously        mentioned    forests     to determine    if
the Forest Service          implemented     TSPIRS in accordance       with
the original     design.
Aside from the general      question  of whether TSPIRS was
implemented   as intended,    we also examined the following
areas related    to the timber sales cost reporting      system
during  our review.     These areas represent    the essence of
the issues raised     by the Subcommittee.

2
B-226580


--     How road costs         are accounted     for.
--     Whether the formulas   used for computing  timber                   sale   and
       growth activity  costs need to be changed.
-- Whether any significant  timber                 related     costs    were
   excluded from TSPIRS reports.
mm
       Whether information in the Statement  of Revenues and
       Expenses and the Economic Account report  is consistently
       reported.
--     Whether     TSPIRS information         is useful      to the    Forest
       Service     and the Congress.
As requested       by your staff,         we did not obtain          comments from
the Forest Service         on this report.             However, we discussed
the issues presented           in our responses           to the questions         in
appendix     I with Forest Service            officials.         They provided
their    perspective      on these matters,            which we considered           in
preparing      this report.          As agreed with your office,             unless
you publicly       announce the contents             of this report       earlier,
we will     not distribute         it until     30 days from its date.               At
that time we will         send copies of the report               to the
Secretary      of Agriculture,         the Chief of the Forest Service,
various     congressional        committees,        and other interested
parties.       Please   contact       me  at   (202)     275-9454 if you or
your staff      have any questions           concerning       the report.
Major contributors         to this report           are listed      in appendix
II.
Sincerely         yoursl



          e:
           to;,   Financial     Management
     - Systems    Issues




 3
                              Contents

                                                                            Page
LETTER                                                                        1
APPENDIXES
       I     QUESTIONS AND RESPONSES CONCERNING THE
               FOREST SERVICE'S IMPLEMENTATION OF THE
               TIMBER SALE PROGRAMINFORMATION
               REPORTING SYSTEM (TSPIRS)                                      5
  II         MAJOR CONTRIBUTORS TO THIS REPORT                               56




                               ABBREVIATIONS


TSPIRS       Timber   Sale   Program     Information   Reporting   System
APPENDIX I                                                  APPENDIX I


                QUESTIONS AND RESPONSES CONCERNING
            THE FOREST SERVICE'S IMPLEMENTATION OF THE
     TIMBER SALE PROGRAMINFORMATION REPORTING SYSTEM (TSPIRS)

                             QUESTION 1
WHY WAS TSPIRS DEVELOPED AND WHAT ARE SOME OF ITS UNDERLYING
CONCEPTS? (See page 8.)

                             QUESTION 2
WHAT REPORTS ARE PROVIDED BY TSPIRS AND WHAT KINDS OF INFORMATION
DO THEY SHOW? (See page 12.)

                             QUESTION 3
WHY IS IT NECESSARY FOR THE TSPIRS STATEMENT OF REVENUES AND
EXPENSES TO MATCH REVENUE WITH COST? (See page 16.)

                             QUESTION 4
HAS TSPIRS' STATEMENT OF REVENUES AND EXPENSES BEEN IMPLEMENTED IN
ACCORDANCEWITH THE BASIC DESIGN OUTLINED BY GAO IN 1987?   (See
page 18.)

                             QUESTION 5
IS THE FOREST SERVICE SATISFIED   WITH THE TSPIRS DESIGN?   (See page
20.)

                             QUESTION 6
HAS THE SALE ACTIVITY COST POOL EXPENSE FORMULA PROPOSED IN GAO'S
1987 BASIC DESIGN BEEN MODIFIED BY THE FOREST SERVICE, AND WHY DOES
THE COST ASSOCIATED WITH THIS POOL FLUCTUATE FROM YEAR TO YEAR?
(See page 22.)




                                  5
APPENDIX I                                                     APPENDIX I


                                 QUESTION 7
DID THE FOREST SERVICE IMPLEMENT THE GROWTHACTIVITY COST POOL
FORMULA IN ACCORDANCEWITH GAO'S 1987 BASIC DESIGN, AND WHY DC'ES
THIS COST FLUCTUATE ANNUALLY? (See page 24.)

                                 QUESTION 8
HAVE THERE BEEN PROBLEMS IMPLEMENTING TSPIRS?        (See page 28.)

                                 QUESTION 9
WHAT ROAD COSTS ARE CURRENTLY INCLUDED IN TSPIRS?        (See page 32.)

                                 QUESTION 10
WHAT DID THE SERVICE'S   CONSULTANT SAY ABOUT THE TREATMENT OF ROAD
COSTS? (See page 34.)

                                 QUESTION 11
COULD A USEFUL LIFE BASED   ON    TIME BE USED FOR ROAD DEPRECIAA'ION?
(See page 36.)

                                 QUESTION 12
SHOULD ALL ROADS BE INCLUDED IN TSPIRS COSTS, EVEN THOSE CLOSED
AFTER THE HARVEST? (See page 38.)

                                 QUESTION 13
WERE ANY SIGNIFICANT TIMBER SALES PROGRAMCOSTS EXCLUDED FROM
TSPIRS?  (See page 40.)

                                 QUESTION 14
WHY ARE AMOUNTS SHOWNON THE TSPIRS ECONOMIC ACCOUNT REPORT
DIFFERENT FROM THOSE ON THE STATEMENT OF REVENUES AND EXPENSES?
(See page 44.)


                                     6
APPENDIX I                                               APPENDIX I


                            QUESTION 15
WHAT IS THE METHODOLOGYUSED FOR COMPILING THE TSPIRS ECONOMIC
ACCOUNT REPORT, AND HOW DOES IT COMPARE WITH THAT USED FOR
COMPILING ITS STATEMENT OF REVENUES AND EXPENSES? (See page 48.)

                            QUESTION 16
HOW IS THE FOREST SERVICE USING TSPIRS REPORTS IN MANAGING THE
FORESTS? (See page 52.)

                            QUESTION 17
IS TSPIRS INFORMATION OF BENEFIT TO THE CONGRESS? (See page 54.)




                                7
APPENDIX I                               APPENDIX I




                   QUESTION 1
WHY WAS TSPIRS DEVELOPED AND WHAT ARE SOME OF ITS
UNDERLYING CONCEPTS?
APPENDIX I                                                                       APPENDIX I


RESPONSE
        For several       years, members of the Congress and public
interest     groups have expressed concern that the Forest Service
loses money on its timber sales program.                      In 1984, we issued a
report    on the cost of timber sales entitled,                    Congress Needs Better
Information        on Forest Service's          Below-Cost      Timber Sales (GAO/RCED-
84-96, June 28, 1984).               Subsequently,      the Subcommittee          on Interior
and Related Agencies;              House Committee      on Appropriations,          asked the
Forest Service        a number of times for detailed                 information      regarding
the costs and revenues associated                  with timber sales.            The Forest
Service     responded that its accounting               system could not provide              the
detailed      information        the Subcommittee       was seeking.          Therefore,      in
1986, the Subcommittee              asked us to assist        the Forest Service          in
designing       a system to portray          costs incurred        in planning,
executing,       and   controlling       the  timber    sales    program.
       We outlined     the basic design for a cost accounting          system to
provide    information     about the timber      sales program in an April     21,
1987, report      to the Subcommittee     entitled,    Timber Program: A Cost
Accounting      System Design for Timber Sales in National           Forests
(GAO/AFMD-87-33).         The  timber sales    program  cost  system   was based
on the following       premises:
       --   Each forest    within  the Service    would serve as the
            management level,     or cost center,     for developing  and
            reporting   timber sales cost information,        with summarized
            information    at the regional    and national    levels.
       --   The system would         provide       information      which   compared    costs
            and revenues.
       --   Standard  procedures    and definitions                would be developed by
            the Forest Service    to ensure that                 costs and revenues were
            treated  uniformly   and consistently.
       Because the Forest Service        needed the flexibility     to adapt a
basic design to its operating         structure   and procedures,     we did not
develop the cost accounting        system in detail.       Further,   the
Service   needed to determine      how the design could best be
implemented   and utilized    within     the agency.
      Concurrent    with its work in developing      the detailed      design
for the timber sales cost accounting      reports,      the Forest Service
developed   requirements    for reporting  information     on two other
aspects of its timber      sales program.    This additional      information


                                               9
APPENDIX I                                                                 APPENDIX I


is related   to (1) the timber sales program's    estimated               future
economic benefits   and costs in relation   to all forest                resource
programs and (2) the income and employment opportunities                     expected
to result  from timber harvest  activities.
       Together,      the three types of information             (financial,
economic,     and income and employment           opportunities)        comprise
TSPIRS, which the Forest Service             anticipated       would provide      a more
complete     reporting      of the costs and benefits          of its timber program
than was previously          available.     The Forest Service          provided
information      from TSPIRS to the Congress for the first                   time in 1987.
This information         resulted     from a test of the system conducted
during    that year.




                                           10
APPENDIX I        APPENDIX I




             11
APPENDIX I                                  APPENDIX I




                     QUESTION 2
WHAT REPORTS ARE PROVIDED BY TSPIRS AND WHAT KINDS OF
INFORMATION DO THEY SHOW?




                         12
APPENDIX I                                                                               APPENDIX I


Response
       TSPIRS provides        the    following          three    reports:
       --   the Statement      of Revenues             and Expenses,
       --   the   Economic    Account,        and
       --   the Employment,         Income,       and Program           Level   Account.
The Statement       of Revenues       and Expenses
        The Statement    of Revenues and Expenses reports        (for each
forest     and at the regional    and national     levels) revenues and
controllable      expenses,l   as well as payments to the states       from
timber sales receipts.         In addition,    it shows the results    of
operations     from the timber sales program during        a fiscal   year and
shows timber volume harvested         during   the year.
       The receipts      from timber sales are reported    as revenue.
Revenue also includes        the value of roads built    by timber
purchasers    for the Service      and collections   from purchasers   for
brush disposal      projects    and other work performed   by the Forest
Service.
       Expenses reported     include all single-year     costs relating    to
the administration      of timber sales contracts,     timber    program
overhead,    and payments made to the states.        A pro rata share of
multiyear    costs is also reported     as expense.    Multiyear     costs
include   the following    expenses:
       --   planning    and preparing            specific       areas     for   timber
            harvesting;
       -a
            fertilizing       and thinning    the forest     timber              stock and
            constructing        roads to access the tracts          of           timber which
            will      be harvested    under existing     contracts,                as well as
            those to be harvested          in the future     years;              and
       --   depreciation      of timber          facilities.
       These multiyear costs are accumulated into three separate
cost   pools.  The sale activity cost pool accumulates  costs in the

lControllable        expenses are those expenses which managers can
 actually      control    at the organizational level being reported
 on--for      example,    forest expenses at the forest  level.
                                                  13
APPENDIX I                                                                       APPENDIX I


first   category;     the growth activity     cost pool accumulates          costs
related    to the second category;        and the facilities       depreciation
cost pool accumulates        costs in the last category.          costs
accumulated      in these pools are allocated       to cost of operations
each year based on formulas        which are intended        to link    these costs
to the revenue they produce.
The Economic       Account
        The Economic Account report               provides     the estimated          future
positive     and negative        effects      of the current        year's      timber harvest
on all of the forest's             resource      programs.       Some of the estimated
effects     will    involve    the receipt        or outlay      of cash, and some will
not.     Since not all of the effects                can be valued using market
prices,     some subjectivity           exists     in preparing       the estimates.          For
example,     the year's      timber harvest          on a forest        may be thought        to
adversely        impact certain       recreational        opportunities         for which the
Service     does not receive          user fees.         While in this case lost
revenue to the Forest Service                  is not an issue,         Forest Service
economists        have conducted        research     to estimate        the economic value
of these recreational            opportunities         to forest      visitors.        The
Service     uses these estimated             values to express estimated                losses of
these recreational          opportunities         in dollars.
        Since the costs (cash outlays)              and positive      or negative
effects     shown in the Economic Account report                are projected       to
occur in the future,         the Forest Service         discounts      all dollar
values in the report         to current       year dollars.        The report     then
nets negative       and positive      effects     to obtain     total    present
benefits.      Finally,    total     estimated     costs (cash outlays)          are
subtracted      from total     estimated      present   benefits      (or added if a
net negative       present   benefit)      to derive    the net present        value.
The Employment,         Income,    and Program       Level    Account
       The Employment,      Income, and Program Level Account reports                    the
estimated    value of the forest        timber program in terms of
employment opportunities         provided     and income produced         in
communities     surrounding     the forests.       Income statistics          include
estimates    of the salaries       and federal,      state, and local         income
taxes paid by those associated            with timber harvest        activities        on
the national      forests.     The report     also provides    timber program
production     statistics,     such as volume of timber harvested,                 acres
harvested,     acres replanted,      and miles of road built.




                                               14
APPENDIX I        APPENDIX I




             15
APPENDIX I                               APPENDIX I




                   QUESTION 3



WHY IS IT NECESSARY FOR THE TSPIRS STATEMENT OF
REVENUES AND EXPENSES TO MATCH REVENUE WITH COST?




                        16
APPENDIX I                                                                 APPENDIX I


RESPONSE
        The proper matching       of revenue and expenses is a fundamental
principle    of accounting       and financial    reporting      in government       as
well as in the private         sector.     To provide     useful    information      and
a proper matching       of revenue and expenses,          our accounting
requirements2     provide    that income and expenses,           as well as the
cost of assets and liabilities,            be recognized      on an accrual        and
not on a cash basis.         For TSPIRS, this means that revenue is
recognized     when timber     is harvested    by the purchaser--not            when it
is paid for by the purchaser.            The Service's       costs related       to that
timber are reported       as expenses in the same period,              regardless      of
the period     in which they were paid.
       As we discussed        in our response to the previous        question, the
Service    incurs     three types of costs in connection         with its timber
program activities.           Since some of these costs span a number of
years, an allocation         method that recognizes      only a proportionate
amount of expense against           any one year's   timber   sales revenue was
devised.       Therefore,     when revenue is matched with the cost of
generating      the revenue,      a better  measure of program performance       is
achieved     than would be possible        under other methods of accounting
for transactions,         such as when cash is received       or paid.
        In examining      the timber    program,    we found that the
relationship       between the Forest Service's          timber   sales revenues
and its costs is the timber harvested.                 Thus, TSPIRS is intended
to match costs and revenues on the basis of the annual volume of
timber harvested.           In the instance    of timber sales costs,       the
costs are apportioned          over the total      volume of timber under
contract.        For timber growth costs,        the costs are apportioned       over
the total     volume of timber grown for harvest.               The Forest Service
plans to modify        its method of determining         these growth costs.       (See
question     7.)




2The Comptroller      General is required      under 31 U.S.C. 3511 to
 establish    accounting    principles    and standards     for the federal
 government.      These principles     and standards     are prescribed     in
 Title    2 of GAO's Policy      and Procedures    Manual for Guidance of
 Federal    Agencies.
                                           17
APPENDIX I                                APPENDIX I




                    QUESTION 4
HAS TSPIRS' STATEMENT OF REVENUES AND EXPENSES BEEN
IMPLEMENTED IN ACCORDANCE WITH THE BASIC DESIGN
OUTLINED BY GAO IN 1987?
APPENDIX I                                                                 APPENDIX I


RESPONSE
        The Forest Service        has generally     implemented      the TSPIRS
Statement     of Revenues and Expenses in accordance               with the basic
design.     We reviewed a 1987 Forest Service              report    to the Congress,
which contained        a detailed    description      of the reporting         framework
and content     of the Statement       of Revenues and Expenses.              We noted no
significant     difference      between the Forest Service's            report     and the
original    design.      However, as we discussed          in our 1987 report,          and
in response to other questions             in this report,       aspects of the basic
design may need reevaluation           and periodic      change in order to avoid
overstatement       or understatement        of costs.
        The Forest Service         implemented      an automated   financial
reporting     process,     which    helped ensure that TSPIRS data are
generally     produced in accordance           with the original      design.   The
Department     of Agriculture's         National     Finance Center in New
Orleans,     Louisiana,      maintains    a computer program which
automatically       extracts     and stores      timber costs from the Forest
Service's     general     accounting     system.      The finance    center
automatically       computes sale and growth activity             cost pool expenses
using the formulas         established      and the information       extracted  from
the accounting        system.
       The Department       of Agriculture's        Fort Collins      Computer Center
in Fort Collins,        Colorado,    maintains      a data base of timber      sales
receipts    and harvest      volume.      Each month, the computer center
transmits     receipt    and volume data to the National              Finance Center
where, along with the timber            cost data, they are maintained          and
reported    in the TSPIRS Statement           of Revenues and Expenses.         The
Statement     of Revenues and Expenses compiled                by the finance  center
is transmitted        to each forest,      regional     office,     and Forest Service
headquarters.
       TSPIRS was in a testing    phase during      fiscal  years 1987 and
1988.    As such, the information     reported    for these periods     may not
be comparable    because these periods      were used to resolve      any
implementation    problems encountered.        The first   "official"   TSPIRS
reports   will  show timber  revenues and expenses for fiscal          year
1989.
        We believe      that the Forest Service has been generally
conscientious         in implementing     the design of TSPIRS.      It has been
willing      to consider     suggestions     for improvements   and has actively
questioned        and discussed     the issues involved.      The process of
further      refining     the system will      continue to improve its
capabilities         and usefulness     as a management tool.

                                           19
APPENDIX I                               APPENDIX I




                   QUESTION 5
IS THE FOREST SERVICE SATISFIED   WITH THE TSPIRS
DESIGN?




                       20
APPENDIX I                                                             APPENDIX I


RESPONSE
        The Forest Service has advised us that it is satisfied             with
the design of TSPIRS.        We believe   that the Service      is making
progress    in learning   how to use the information       available    from the
system to enhance its management of the timber sales program.
This issue is discussed       further   in our response to question        16.
However, any new system requires         modifications   to address
implementation     problems,    and the Forest Service     is currently
exploring    ways to modify TSPIRS information.
        In 1989, the Service       asked a public       accounting     firm to study
whether TSPIRS conforms to generally              accepted accounting
principles.      The firm has completed         its work and has made several
recommendations      for modifying      TSPIRS.      It advised the Forest
Service,     for example,    to capitalize      certain     road preconstruction
and construction       costs as an addition        to permanent land value and
to discontinue     recognizing       a share of these costs as an expense
attributable     to timber     sales.     This proposal       is discussed    further
in our response to question           11.    The Forest Service        is evaluating
all of the firm's       recommendations,       and modifications         to TSPIRS may
result.




                                         21
APPENDIX I                                 APPENDIX I




                    QUESTION 6
HAS THE SALE ACTIVITY COST POOL EXPENSE FORMULA
PROPOSEDIN GAO'S 1987 BASIC DESIGN BEEN MODIFIED BY
THE FOREST SERVICE, AND WHY DOES THE COST ASSOCIATED
WITH THIS POOL FLUCTUATE FROM YEAR TO YEAR?




                         22
APPENDIX I                                                                  APPENDIX I


RESPONSE
         Since purchasers       often harvest       timber    sold to them over a
3-to S-year period,          the sale activity         cost pool was designed         as a
means to compute the current              year's   portion     of multiyear     costs
directly      related    to selling     timber.       The formula    for computing
these expenses was originally              intended     to determine     the annual
selling      expenses of the timber sales program by dividing                   the
balance of costs in the pool by the total                   timber   volume under
contract.        The result     was to be multiplied          by timber    volume
harvested       during   a year and was expected to represent               the annual
cost incurred         in marketing    timber contracts.
       Prior    to releasing    TSPIRS' 1987 reports,        the Service
discovered      that it had mistakenly      modified     this formula.      Rather
than using the volume under contract            for the entire      year, the
volume under contract        at the end of the year was used.            This
factor    resulted    in a different    amount for timber under contract
being used in the ratio         for determining      annual selling     expense
than would have resulted          under the original       TSPIRS basic design.
Annual selling       expenses for that year would have been misstated
had this error       not been found and corrected.
        To correct   the problem,    the Forest Service changed this
factor    of the sale activity     cost pool formula       to one which
represents     volume actually    harvested   during    the year plus volume
under contract      at the end of the year.        Because it is a way of
expressing     the volume under contract      for the entire     year, we
believe    that this change meets the intent         of the formula     initially
proposed in 1987.
       The amount reported      as sale activity    cost pool           expense would
be expected to fluctuate         from year to year.     Since         the volume
harvested     fluctuates   from one year to the next due              to market
factors,     sale activity    cost pool expense will      rise        or fall
accordingly.        This is a normal and expected      result         of using the
sale activity       cost pool formula.




                                            23
APPENDIX I                                  APPENDIX I




                     QUESTION 7
DID THE FOREST SERVICE IMPLEMENT THE GROWTHACTIVITY
COST POOL FORMULA IN ACCORDANCEWITH GAO'S 1987 BASIC
DESIGN, AND WHY DOES THIS COST FLUCTUATE ANNUALLY?




                         24
APPENDIX I                                                                   APPENDIX I


RESPONSE
        The Forest Service        implemented      the growth activity          cost pool
formula    in accordance       with our basic design of 1987.                 However, in
our 1987 report,         we commented that the growth activity                 cost pool
formula    must be reevaluated         and changed periodically             to reflect
changing     conditions.       Also, the growth activity           cost pool balances
should be reviewed         annually     to determine      how realistically         they
portray    what is actually         happening    on the forests.          Both GAO and
the Forest Service         agree, based on the experience              gained since
1987, that the estimate           of harvestable       timber used in the present
formula    now needs modification            to better    match the cost of growing
timber    with revenues derived           from harvesting      timber.
        As originally       envisioned,      the growth activity       cost pool
formula    sought to recognize            and match long-term      costs related     to
growing large tracts           of timber     for harvest.     Amounts in this pool
are not specifically           identifiable      with a particular      harvest   unit.
For example,       a single      road may be constructed        with the intention
of using it to access several               sales within   a given tract       of timber
over a long-term         period,     as well as including       the road into the
overall    forest     transportation        system.
         As part of the 1987 basic design,        we suggested     a formula   for
determining         the annual growth activity    cost pool expense which was
intended       to divide   the previous   and current    years'  unamortized
costs in the pool by the total           volume of harvestable      timber that a
forest     will    produce over the average life      cycle of the timber
stand.       (By unamortized,     we mean those costs that have not yet been
matched with revenues.)           The result   was to be multiplied      by timber
harvested        during  a given year to determine     the annual growth
activity       cost.
       The Forest Service         recognized    early     in the implementation          of
TSPIRS that in some instances,              the way the growth activity           cost
pool expense formula was implemented               may not properly        recognize
expense.     The central     problem identified          by the Forest Service           is
that a theoretical       estimated       volume over the timber         rotation
period    was used to represent          the amount of timber which would be
harvested     from the forest.         The estimated        volume determined       this
way may not be correct          in comparison      to the volume which actually
will   be harvested.      In those instances          where volume is overstated,
use of the estimate       would underallocate          costs to the present
harvest.     That is, too little           cost would be shown for a particular
year.     Thus, the year-end         pool balances      (the unamortized        costs)
would inappropriately         increase      over time.       The reverse would be
true if the volume is understated.

                                            25
APPENDIX I                                                                    APPENDIX I


        During the implementation           phase of the TSPIRS project,           the
Forest Service deferred           any changes during the test period             in
fiscal    years 1987 and 1988.           The Service,        however, hired a
consultant      in 1988 to review the system.                The consultant
recommended that the way the total                volume of harvestable       timber     is
estimated     be changed.        The new estimate        would be made by averaging
the actual      yearly    harvest    volume and multiplying          it by the timber
growth period.          The consultant      believed     that this would result        in a
better,     experience-based       estimate      of  the   timber   actually  to   be
harvested,      resulting     in a more proper matching           of cost with
revenues from harvesting           timber.
         The Forest Service           is currently     considering        the consultant's
recommendation.           We believe,         however, that alternatives            in
addition      to those suggested            by the consultant        could be explored      by
the Service.          One alternative          might be to relate         costs in the pool
 (the formula's        numerator)        to the equivalent         board footage       of
timber currently           available       for harvest   and timber         expected to be
harvested.         We agree, though,           that the way the Forest Service
estimates       total    harvest      volume needs modification             to more
realistically         estimate      it over the timber        life     cycle,    which will
allow a more proper match of cost and revenue.
         As is the case with the sale activity            cost pool expenses
discussed      in the previous     question,     the amount reported        as growth
activity      cost pool expenses fluctuates         from year to year.         This
occurs because amounts harvested             are subject     to annual
fluctuation.        Since the formula      matches cost with timber
harvested,       as the harvest    rises or falls,      the amount of expense
reported      each year will    naturally     vary in direct     proportion     to
that fluctuation.




                                             26
APPENDIX I        APPENDIX I




             27
APPENDIX   I                                APPENDIX   I




                     QUESTION 8
HAVE THERE BEEN PROBLEMS IMPLEMENTING TSPIRS?




                          28
APPENDIX I                                                                  APPENDIX I


RESPONSE
       We found that the Forest Service            has experienced      several
problems      implementing    TSPIRS, which is not surprising           for a new
system.       For example,    the Forest Service       reported     some costs as
expenses which should not have been recognized                  as expenses for
that year.        This was particularly       true in the case of a portion           of
the costs incurred         in road construction.        Undelivered     orders,    that
is, goods or work ordered but not received,                pertaining     to road
construction,       and road preconstruction        costs were added to the
balance of the growth activity           cost pool before the related           roads
were built      and ready for use.
         Reporting       such transactions       as part of the cost from the
growth activity           cost pool at that time overstates           expense in the
years before         the road is usable because it overvalues               the growth
activity     cost      pool balance.       However, we note that this
overstatement          would be offset       if such transactions       occur in
roughly     equal      amounts from year to year.            Even so, if the system
is to conform          to accrual    principles       in federal  accounting
requirements,          the Forest Service        will   need to charge undelivered
orders to the          proper accounting        period   in the future.
        In addition    to this problem,    we encountered       difficulties     in
verifying    the accuracy      of the beginning    balance     in the cost pools
because historic       documentation    to support    the opening balances         was
not available.      TSPIRS amortizes      certain   long-term       growth costs
over the timber     life    cycle.   Since the Service       did not begin using
TSPIRS at the point        in time when it first      acquired       the timber
property,    each forest     had to construct     an opening balance         for the
growth activity     cost pool.
         Road costs are currently         a major component of the growth
activity     cost pool.       Thus, forests       attempted     to determine     the
historical      net book value of roads built              to access timber by
researching      costs going back as far as 50 years.                 Forest personnel
found that historical          records    were often not available           to provide
the necessary      data.      Lacking historical         information,     forest
personnel     estimated     the current       value of older roads in the growth
activity     cost pool.       The Forest Service had little            choice,     and its
solution     was practical,       considering       the circumstances.
       While,   from an audit standpoint,      the lack of historical
records    placed us in a position     where we could not vouch for the
accuracy of these estimates       of road values,     we reviewed    the
practices     used by the forests   we visited     to construct   the opening
road balances.      We found that the methodology       used was logical.

                                            29
APPENDIX I                                                                  APPENDIX I


For example,        the staff      of the Lo10 National       Forest had no
documentation         of the cost of timber        roads built      before   1959.    In
determining       the value of the pre-1959           roads, forest      engineers
first     estimated      the total    mileage of those roads.           To calculate
their     cost,   forest     staff   used the forest's       1987 average cost per
mile to construct           roads and discounted        that amount to allow for
inflation       in prior     years.     An allowance     was then made for
depreciation        of the roads.        This approach seemed reasonable            to us.
Since documentation           was lacking,      some estimate     had to be made of
the value of roads, and we do not have an alternative                       method which
we would recommend to be used to reconstruct                   prior    year costs.
       We are presently    completing   an audit of the Forest               Service's
financial    statements.    This work may indicate    additional              problems
encountered     by the Service   in implementing   TSPIRS.




                                            30
                  APPENDIX I
APPENDIX I




             31
APPENDIX   I                                APPENDIX   I




                     QUESTION 9
WHAT ROAD COSTS ARE CURRENTLY INCLUDED IN TSPIRS?




                         32
APPENDIX I                                                         APPENDIX I


RESPONSE
       All costs related    to constructing   timber     roads which will    be
included    in the permanent transportation      system of a forest      are
currently     included in TSPIRS' growth activity       cost pool.    These
include    costs for engineering,     roadbed construction,     and road
surfacing,     as well as for the structural     costs of bridges     and
culverts.
        Roads built     to access timber to be harvested      as part of one
particular      sale are not a part of a forest's       permanent
transportation       system.    Normally, these costs are borne by the
timber purchaser.         However, in any instance     where the Forest
Service     pays for this type of road, the basic design calls          for the
cost to be included        in the sale activity    cost pool.
      Road preconstruction       and construction  costs included      in the
TSPIRS growth activity       cost pool are amortized    on the same basis
as other costs in the pool.         This issue is discussed    further    in our
response to question       10.




                                      33
APPENDIX   I                           APPENDIX   I




                  QUESTION 10

WHAT DID THE SERVICE'S CONSULTANT SAY ABOUT THE
TREATMENT OF ROAD COSTS?




                       34
APPENDIX I                                                                   APPENDIX I


RESPONSE
       The Forest Service's      consultant      recommended that TSPIRS would
better    comply with generally       accepted accounting    principles      if road
preconstruction        and some construction      costs were capitalized       as an
addition     to permanent land value.         This recommendation      would delete
these costs from the growth activity            cost pool.   They would be
reported,      in total,   as an asset on the balance sheet of the
Service.
        Also, to better    comply with generally      accepted accounting
principles,     the consultant    recommended that culverts        and bridges
be depreciated     over their    average useful   lives,     removed from the
growth activity     cost pool, and reported      as a separate      line item.
Road maintenance     cost would be treated      as an annual expense.
       We believe    the consultant's         recommendation  regarding
permanent capitalization        of some       road costs would better    comply
with generally      accepted accounting          principles.  However, if
implemented     by the Service,      some     TSPIRS report  users may feel that
information     regarding   the cost of        the annual timber   sales program
is being omitted.
       These costs can, however, be looked at in another                       way by
users of TSPIRS reports.              We believe     that the Service's          objective
in the timber         sales program could be to earn a fair                return    on
amounts invested          in the program.        In determining       the amounts
invested      in the timber       program,    permanently     capitalized        road costs
would be considered            as part of the investment         in the program.
Under this concept,            the program,     over time, would be expected to
yield    sufficient       profit   to pay a fair       return  on all the amounts
invested,       including      the cost of roads and any other amounts
invested      in assets employed in growing and selling                  timber.       The
Congress and other interested              parties     could receive       this type of
analysis      as part of TSPIRS reporting.




                                            35
APPENDIX   I                             APPENDIX   I




                   QUESTION 11

COULD A USEFUL LIFE BASED ON TIME BE USED FOR ROAD
DEPRECIATION?




                        36
APPENDIX I                                                                  APPENDIX I


RESPONSE
       Yes, it could.      Generally,   accounting   for depreciation    seeks
to match the cost of an asset with the revenue generated              by that
asset.     In some instances,      an asset will   wear out over time, while
in other instances,      the asset wLll wear out with use.
      When the      Service   originally established     TSPIRS, the system
was designed      to equate asset usage with timber harvest            volumes.
This concept      has been criticized    by many public     interest      groups
because they      believe   that it will  charge road costs to operations
over a period       of time that is greater      than the useful     life    of a
road.
        In examining        this area, the Service's          consultant     suggested
that it would be appropriate              for the system to instead           depreciate
road surfaces,        culverts,      and bridges    based on their        useful    lives
expressed      in years.        We asked engineers      at the forests        we visited
about the useful         life    of road surfaces,      culverts,       and bridges.      In
their    view, the surface         of a road wears out and a new surface                must
be applied       every 3 to 25 years-- depending             on the amount and type of
traffic     using it.        Regarding    the useful    life     of culverts     and
bridges,     these engineers         estimated   a useful      life   of from 20 to 50         '
years.
        As discussed       in the prior   response,     the consultant
recommended that the cost of roadbeds be permanently                   capitalized
and not depreciated.           We asked engineers       at the forests      we visited
about the useful        lives    of roadbeds.    They said that they believed
the life     of a roadbed is indefinite.            Further,   they believe       that
once a roadbed has been established,              it generally     requires      no
further    construction       work unless the roadway is altered            at a later
date.




                                           37
APPENDIX   I                             APPENDIX   I   '




                   QUESTION 12

SHOULD ALL ROADS BE INCLUDED IN TSPIRS COSTS, EVEN
THOSE CLOSED AFTER THE HARVEST?




                        38
APPENDIX I                                                                        APPENDIX I


RESPONSE
         Another controversy    concerning    road costs is that,        while they
are currently       amortized as the timber      is harvested    from the
forest,      roads are often reported      as closed after     a specific     timber
harvest.        Some users of TSPIRS reports       question   why roads reported
as closed are amortized       in the growth activity        cost pool when the
original      TSPIRS design stated    that roads permanently        closed after
the harvest       would be amortized    in the sale activity       cost pool.
     We questioned      Service personnel    at the forests                  we visited
about permanently     closed roads.    We were told that                    very few roads
are permanently    closed after    one harvest.
         According      to Service      personnel,      road projects         are planned
before a sales contract              is negotiated.         During this process,
forest     engineers       take into account the long-term               transportation
needs of anticipated             sales within       a tract     of timber during         the
timber     life     cycle.     Timber roads are extremely             costly,     and the
Forest Service          normally     does not wish to incur the cost of
building       a road for a single          series    of near-term      harvests.          We
were told that roads are temporarily                    closed after       the harvest       to
avoid annual maintenance               expense, as well as to meet certain
wildlife       and recreational         objectives.        According    to the Forest
Service,       these roads are not permanently                closed;    they remain
available        for future      harvests     later   in the timber        life   cycle.
        In those cases where a road is temporarily               closed, the
Service's     inclusion     of these costs in the growth activity           cost
pool would be consistent           with the underlying       concept of TSPIRS.
The value of roads abandoned and permanently                 closed would be
removed (that        is, written    off)   both from the asset section       of the
Forest Service's        balance sheet and the TSPIRS in the year in which
the road is closed and determined              to be no longer useful.        (The
response to question          10 discusses     the treatment     of road costs
further.)




                                               39
APPENDIX   I                              APPENDIX   I   1




                    QUESTION 13
WERE ANY SIGNIFICANT    TIMBER SALES PROGRAM COSTS
EXCLUDED FROM TSPIRS?




                         40
APPENDIX I                                                                   APPENDIX I


RESPONSE
       We compared the cost elements     in TSPIRS to the cost elements
reported    in the Forest Service's   general    accounting     system.    Based
on this comparison     and our knowledge of timber sales costs
developed     over a number of years of reviewing      this program,     we
believe   that TSPIRS is reporting    all significant       timber related
direct   costs.
       We recognize,      however,  that there may be differences     of
opinion    in this area.      Road maintenance,   land line location,     and
fire   protection     costs and other costs which benefit      all Forest
Service programs are examples of costs which some believe             should
be but are not included         in TSPIRS.   We specifically   looked at the
treatment      of these costs.
       We were told at the forests          we visited      that most      road
maintenance       costs are incurred     when a timber        road is     being used to
harvest      timber.     We reviewed  provisions      of a standard        timber     sales
contract       and noted that it requires         the purchaser     to    perform     or pay
for these maintenance          costs, not the Forest Service.              Further,
Forest Service        policy   states that if a timber          road is    frequently
used by visitors         or other forest    traffic,     the forest       will   assume
responsibility        for a portion   of the maintenance.
       Land line location        costs are incurred           to establish      ownership
through surveying        and marking boundaries.              The Forest Service's
policy    is that the determination            of land line position          is a normal
cost of being a landowner:             thus, it does not routinely            include    land
line location      as a cost of timber sales.                The Service    reasons that,
when it is uncertain        as to the exact location             of its boundaries,         it
must survey and mark the boundaries                  for all of its forests.
Therefore,     we believe     land line location           costs are a direct        cost of
adherence to property         laws rather       than the timber sales program.
We do note, however,        that if a timber sale is planned on or near
the forest     boundary,    forest       staff  will     survey and mark the boundary
to ensure that forest         activities       do not result       in trespass      on
nonforest    property.
        However, maintaining    established     land lines,     when directly
related    to a sale,   is considered     by the Forest     Service  to be a
cost of timber     sales operations.        As such, land line maintenance
will    be charged to the timber sale activity         cost pool.
        Fire protection  costs are incurred     to both prevent    (pre-
suppression)     and combat timber  fires   (suppression).    As such,                  fire
protection    costs benefit   all of a forest's     resource programs.

                                             41
APPENDIX I                                                                        APPENDIX I


However, a portion             of fire     protection       costs are not presently
allocated       to the timber program.                 In addition     to fire protection
costs,     there      are  other     types     of  costs    which   benefit    all Forest
Service      activities,         such as regional          and headquarters       general     and
administrative           costs.      A portion       of these costs iS also not
presently       allocated        to the timber program at the forest,level.
Further,      the Forest Service             incurs      some costs in Operating          its
timber program which benefit                   its other programs but which are not
allocated       to these programs.               While the Forest Service           is not
allocating        joint     costs because it believes              reasonable     allocation
methods to do so are unavailable,                      it recognizes      that these
situations        can overstate         or understate        costs of Forest Service
programs.
        The Forest    Service    is developing    a new system--the    All
Resources Reporting        System-- to report     the costs related    to all of
its resource      programs,    including    the timber    sales program.    In
designing     this system, the Forest Service          is considering    how to
allocate    joint    costs to each resource       program.




                                                42
APPENDIX I        APPENDIX I




             43
APPENDIX   I                              APPENDIX   I




                   QUESTION 14
WHY ARE AMOUNTS SHOWNON THE TSPIRS ECONOMIC ACCOUNT
REPORT DIFFERENT FROM THOSE ON THE STATEMENT OF
REVENUES AND EXPENSES?




                        44
APPENDIX I                                                                     APPENDIX I


RESPONSE
      The Statement       of Revenues and Expenses and the Economic
Account report     differ     with respect     to reporting   time frame, type
of cost reported,       and the source of cost data.          The Statement      of
Revenues and Expenses discloses            costs actually   recognized     during
the reporting     year on an accrual        basis.    The sources of the data
in this financial       report    are the Forest Service's       automated
accounting    systems.      As discussed     below, the TSPIRS Economic
Account report     has a different       focus.
        The Forest Service        believes,    and we agree, that a l-year
depiction      of timber program revenues and expenses provides                an
incomplete      picture     of the financial     and economic benefits        of
managing timber         resources    on forest   land.     Therefore,    they
designed     the Economic Account report           to portray     an estimate    of
future    cash flows.
       To prepare  the Economic Account report,  forests                     project
future   timber program receipts  and costs using data                     from several
sources.     Among these sources are
      --   forest    land    management        plans,
      --   the TSPIRS Statement              of Revenues     and Expenses,     and
      --   other    historical        cost    and receipts     data   maintained     by
           forest    timber      staffs.
       For example,   the Chequamegon National        Forest staff    assumed
that roads constructed      to remove timber      from the acres harvested
in fiscal    year 1988 would need reconstruction          in future   years when
the acres would be harvested        again.     The forest   engineers
estimated    the cost to reconstruct       timber roads, and the forest
timber staff     used mathematical     formulas   to compute the future
value of the reconstruction        costs in the year it was anticipated
that the reconstruction       would occur.
        The Forest Service        also believes    that timber harvesting
provides    positive     and negative      economic benefits    which are not
measurable     through    traditional      market transactions.      Therefore,
the Economic Account report            assigns dollar    values to the
anticipated      effects    of the timber program on nontimber         resource
programs.
      For example,       the Okanogan National Forest wildlife       program
staff   believe   that some of the areas harvested       in 1988 resulted       in
a decline     in habitat    quality  for deer. The wildlife     staff    wanted
                                               45
APPENDIX     I                                                                   APPENDIX     I



to quantify       the negative     impact in dollars        for their     fiscal   year
1988 Economic Account report.              A forest    biologist      assumed that the
forest    deer population        would decline      in the future      as a result     of
harvest    activities     within     areas used by deer.         The biologist
estimated     the decline      in population     and correlated        the decline     with
a loss in the number of visits             made to the forest         by deer hunters.
       Since the Forest Service     has published     research  concerning
the economic value of a day of hunting         and established     the value
in dollar     terms, the biologist   was able to express the negative
impact in dollars      and use mathematical    formulas    to compute the
future    value of the economic loss to hunters.
         Forest     staff  discount     all future      timber and nontimber            program
costs,      revenues,     and impacts to present           dollars.       Anticipated
negative       effects,    such as the loss of          hunting      opportunities        on the
Okanogan National          Forest,     are subtracted         from anticipated         positive
effects       and timber     revenues to derive         total     present    benefits.
Anticipated        costs are subtracted        from     total     present    benefits       to
obtain      the net present        value of current        year timber harvest
activities.
        The Forest     Service    is presently      changing        the time frame over
which revenues,        effects,    and costs are computed in the Economic
Account report.          Starting   with the fiscal          year 1989 TSPIRS report,
the Economic Account report            will   report    revenues,        effects,      and
costs incurred        before and during       the harvest.           With this change in
time frame, the Economic Account report                 will      include     actual
revenues,    effects,       and costs incurred       prior      to and during        the
reporting    year, as well as an estimate             of future         costs and
benefits.




                                             46
                    APPENDIX   I
APPENDIX   I




               47
APPENDIX   I                               APPENDIX   I




                    QUESTION 15
WHAT IS THE METHODOLOGYUSED FOR COMPILING THE TSPIRS
ECONOMICACCOUNT REPORT, AND HOWDOES IT COMPAREWITH
THAT USED FOR COMPILING ITS STATEMENT OF REVENUESAND
EXPENSES?




                         48
APPENDIX I                                                                APPENDIX I


RESPONSE
       During our visits      to the forests,    we reviewed    the
methodologies     followed    in preparing    the fiscal  year 1988 Economic
Account report.        We found that the methodologies       varied among the
forests,    whereas a standard      method was prescribed     to compile data
for the Statement       of Revenues and Expenses.
       The procedures       for obtaining      data for the Statement       of
Revenues and Expenses were established                by Forest Service
headquarters     staff.       In most cases, revenue and cost data coded in
a predetermined       manner are automatically           extracted    from Forest
Service    accounting      systems by a computer program and stored             in a
data base for TSPIRS financial             information.        The data base
automatically      computes total       revenue,     expenses,     and the net gain or
loss from timber        sales.
        However, preparation      of the Economic Account report         requires
certain    assumptions    regarding     the costs and receipts     incurred     in
connection     with future    harvests,     the timing  of the harvests,       and
the effect     of timber harvesting        on nontimber  outputs.     These
assumptions     were, for the most part,        made independently     by the
staffs    of each forest.
       The instructions     for compiling     economic data indicated  that
headquarters      officials  did not expect each forest      to follow an
identical    process because of differences         in the amount and quality
of relevant     information    among forests.
        For example,     Forest Service     instructions         for compiling       the
Economic Account report         asked each forest          to estimate     receipts
from future    harvests      on the acres of timber harvested              in fiscal
year 1988.     The instructions        suggested      that the forests        use the
best available      source of information         for projecting        future     timber
prices,    such as data used in the forest              resource    planning     process,
or more recent      information     if forest     planning      data are out of date.
        Not all forests          used the same sources of data in projecting
future    timber      receipts.        For example,     the Santa Fe National      Forest
staff    used actual         timber receipts      received   from purchasers     over the
latest    S-year period          to project    timber values.        Staff at the Lo10
National      Forest,       however, used data collected         by the state of
Montana which reflected              the prices     paid to timber cutters      for cut
logs delivered           to a mill.      The state data covered the most recent
3-year period.             The staff    at the Lo10 adjusted       these data to
project     the price that the purchasers               will pay the forest     for the
timber before          it is harvested.

                                           49
APPENDIX I                                                                    APPENDIX I


       We alsc noted that at the forests                 we visited,     staff  did not
always estimate        future     costs in the same manner.             For example, at
the Chequamegon and Sierra             National      Forests,    staff   did not project
general    administrative        costs when determining            the cost of
overseeing    future      harvest     activities.        The Lolo,     Okanogan, and
Santa Fe National         Forests'      staff     did include    these costs when
estimating    future      harvest     expenditures.
       General administrative         costs are a significant             portion     of
timber program expenditures,           and    the  instructions       for   preparing
the Economic Account report           asked the forests         to consider        them in
their    projections.        For example,     general    administrative         expenses as
reported      in the fiscal     year 1988 Statement          of Revenues and Expenses
for the Sierra        National   Forest were in excess of $820,000,                  or over
11 percent       of that forest's     controllable       expenses for that year.
        Variations      in determining     the present         value of future     timber
revenue and costs,           such as in the example           just described,    cause
differences        in the economic values reported               among forests.      These
variances       can affect      the comparability       of    Economic Account reports
among individual          forests   and national      level      analysis   of overall
timber program economic results.                 Current      TSPIRS Economic Account
reports     may, therefore,        be most useful       in    analyzing   the economic
results     of the timber program at individual                  forests.




                                             50
APPENDIX I        APPENDIX I




             51
APPENDIX   I                             APPENDIX   I




                   QUESTION 16
HOW IS THE FOREST SERVICE USING TSPIRS REPORTS IN
MANAGING THE FORESTS?
APPENDIX I                                                                    APPENDIX I


RESPONSE
        Since TSPIRS reports           have been available        for only 2 years,
and on a test basis,           Forest    Service managers are still            in the
early     stages of using the information               to adjust    timber program
operations.         The Forest Service          is currently    devising     a set of
guidelines       for analyzing       the cost-effectiveness          of all national
forest     timber     programs.      A draft      of these guidelines      directs
Forest Service          managers to use TSPIRS reports            as a starting      point
in evaluating         the efficiency       of their     timber operations,
particularly        those operations         for which expenses exceed revenues.
        The objective      of the proposed guidelines       is to        reduce the
number of sales for which expenses exceed revenues.                       The draft
guidelines      state that if a forest      timber program is            operating   at a
financial     net loss which is not offset        by mitigating            economic or
social    benefits,     the forest   should consider     increasing          minimum bid
rates or offer       fewer sales.
        We believe    TSPIRS will    assist     the Forest    Service     in analyzing
ways to improve the efficiency            of the national      forest     timber
program.      The usefulness      of the TSPIRS Statement         of Revenues and
Expenses will      grow over time.         In future   years,    Forest Service
managers will       have several    years of data available           with which to
monitor    long-term    increases    or decreases      in revenue and expense
trends.      Managers will     then be able to spot changes in cost,              as
well as trends,       and could attempt       to adjust    program activities         to
better    manage controllable       costs.




                                             53
APPENDIX   I                               APPENDIX   I




                    QUESTION 17
IS TSPIRS INFORMATION OF BENEFIT TO THE CONGRESS?




                        54
APPENDIX I                                                                  APPENDIX I


RESPONSE
          Yes.     The TSPIRS Statement        of Revenues and Expenses is the
first      report     available     to the Congress which attempts           to provide
information          on the timber sales program's          financial     activities
using appropriate            accounting    procedures    applied      on a consistent
basis.         However, this statement         alone will     not show the Forest
Service's        financial      condition,    which would also require
considering         a balance sheet portraying        the Service's        assets,
liabilities,          and net assets.
       In addition,   the current    Economic Account report     provides  the
Congress with an estimate       of the net present     value of the Forest
Service's   timber program.      While the Economic Account report
conforms to accepted principles        of economic analysis,     it makes
assumptions     about the future    and attempts   to quantify   unknown
economic parameters.      Therefore,    the actual   results   may not achieve
expected outcomes.
       The congressional        conference      report    accompanying     the Forest
Service's    fiscal     year 1990 appropriation           urges continued
development      and improvement       of TSPIRS.        As is the case with any
new reporting       system, adjustments         and refinements       to TSPIRS will
be required.        As  the  Forest    Service     continues     to  study   the system
and incorporates        changes,    the   reports    generated      should  become
increasingly      useful    to the Forest Service           and the Congress.       Once
the changes are implemented,            the   Congress     should    have  enhanced
information      on the timber sales program's              revenues and expenses
for each forest        and region,     as well as for the entire           program.




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APPENDIX II                                                     APPENDIX II

                      MAJOR CONTRIBUTORS TO THIS REPORT
ACCOUNTING AND FINANCIAL        MANAGEMENTDIVISION,    WASHINGTON, D.C.
Robert A. Pewanick,  Senior Assistant      Director,    Financial
 Management Systems Issues,      (202) 275-9508
Edward P. Darragh,  Evaluator-in-Charge
Thomas A. Sharratt,  Audit Supervisor
Kenneth A. Johnson, Accountant

OFFICE OF THE CHIEF ECONOMIST
Randolph   M. Lyon,    Senior   Economist




(901485)

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