Tongass National Forest: Administration of Two Long-Term Alaskan Timber Contracts

Published by the Government Accountability Office on 1990-02-21.

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

                       United   States   General   Accounting   Office
.                                                                        t
                       Report to Congressional Requesters

    February   1990
                       Administration of Two
                       Long-Term Alaskan
                       Timber Contracts      ’

    . GAO/RCED-90-87
                       United States
                       General Accounting Office
                       Washington, D.C. 20648

                       Resources, Community,            and
                       Economic Development             Division

                       B-2381 14

                       February 21,199O

                       The Honorable Sidney R. Yates, Chairman
                       The Honorable Ralph Regula, Ranking
                         Minority Member
                       Subcommittee on Interior
                         and Related Agencies
                       Committee on Appropriations
                       House of Representatives

                       In your March 10, 1989, letter, you raised questions about two long-term
                       timber contracts in the Tongass National Forest. The contracts required
                       private companies to harvest prescribed amounts of timber within
                       agreed upon time frames during the 50-year contract life. Specifically,
                       you expressed concern that considerable timber prepared for harvest by
                       the Department of Agriculture’s Forest Service either remained as
                       unharvested timber (commonly referred to as timber backlog) or had
                       been deleted from the companies’ operating plans, resulting in additional
                       effort and expense for the Forest Service.

                       On the basis of your concerns and subsequent agreements with your
                       offices, we agreed to review the accuracy of the Forest Service’s figures
                       for the volume ofl

                   l timber actually harvested under the two contracts,
                   0 timber deleted from the private companies’ operating plans, and
                   l backlogged timber.

                       In addition, you asked us to identify and review the steps being taken by
                       the Forest Service to improve its management of the timber program in
                       the Tongass National Forest.

                       In July 1988, the Forest Service reported that more than 3.8 billion
Results in Brief       board feet’ of Tongass timber had been prepared for the two contractors
                       during the 1 l-year period 1977-87. The Forest Service reported that
                       over 2.4 billion board feet of this timber had been harvested. We veri-
                       fied this figure to summary reports; however, we are unable to ensure

                       ‘The requesters furnished us wth data on the volume of timber harvested and deleted during the
                       period 1977-87 and the backlog as of September 30.1987, and we agreed to review the accuracy of
                       these figures.

                       ‘A board foot is the equivalent of a piece of wood 1 inch thick, 1 foot wide, and 1 foot long.

                       Page 1                                                  GAO/RCRD-9047 Alaskan Timber Gmtracls

                     that in return for developing and operating pulp mills, the two compa-
                     nies are guaranteed a total of about 13.3 billion board feet of harvest-
                     able timber over the life of the contracts. The contracts also require that
                     an operating plan be prepared on a B-year cycle for each company. The
                     plans are to describe the timber to be prepared for harvest during each
                     cycle. Currently, the 5-year operating plans cover the periods 1989-94
                     for the Ketchikan Pulp Company and 1986-90 for the Alaska Pulp

                     In preparing timber for harvest by the contractors, the Forest Service
Tongass Timber       performs such activities as preparing environmental analyses required
Program              by the National Environmental Policy Act and documenting decisions,
                     marking boundaries, estimating the volume of timber within the sale
                     area, identifying road rights-of-way, surveying and designing roads and
                     identifying timber to be left to protect fish and wildlife habitats.

                     At the end of a 5-year operating period, the timber prepared for harvest
                     will have been harvested, have been deleted from harvest, or remain as
                     an unharvested backlog. These timber volumes are determined as

                 . Timber harvested. The Forest Service determines the amount of timber
                   harvested by log scaling, that is, measuring individual logs to determine
                   the amount of usable material that can be manufactured from them.
                   Most log scaling is done on a sample basis, with the results of randomly
                   selected logs being projected to the entire harvest. The scaling is done by
                   a third-party scaling organization that is independent of the Forest Ser-
                   vice and the timber purchasers. On the basis of the results of the scaling,
                   purchasers are billed for the value of the harvested timber.
                 l Timber deleted. The Forest Service determines the volume of timber
                   deleted from harvest by reviewing and evaluating the need to redesign
                   harvest areas due to other resource requirements, environmental or
                   archaeological concerns, the impact of changed economic conditions, and
                   the selection of land by Alaska natives.
                 . Unharvested timber backlog. The Forest Service determines the
                   unharvested timber volume by reviewing sale unit records and sub-
                   tracting the timber harvested and deleted from the total volume pre-
                   pared for harvest.

                     The Forest Service reported that, for fiscal years 1977-87, more than 3.8
                     billion board feet of Tongass timber had been prepared for the two con-
                     tractors. Figure 1 shows the disposition of this timber.

                     Page 3                                  GAO/XCEB90.37 Alaskan Timber Contracts

                       standards, Forest Service policy requires that the Regional Forester
                       develop procedures to resolve the problem.

                       An additional internal control mechanism is unannounced log accounta-
                       bility audits to be conducted at each district office every 2 years and at
                       each area office every 3 years. These audits are designed to verify that
                       all logs cut and removed from national forest lands are accounted for
                       and presented for scaling and compliance with log export regulations.
                       Log accountability audits ensure that, among other things, logs are prop-
                       erly marked, there is proper accountability over log receipt books, and
                       tampering with the selection of sample log truck loads for scaling does
                       not occur. In other words, log accountability audits are the first step to
                       ensure that the Forest Service gets paid for logs harvested from federal

                       Our examination showed that although check scales were being per-
                       formed and log accountability audits had been done at area offices,
                       region 10 forest supervisors had conducted relatively few of the
                       required periodic log accountability audits at the district offices between
                       1984 and 1988. Region 10 officials said their check-scaling procedures
                       ensure that the 2.4 billion-board-feet figure of harvested timber is accu-
                       rate. They said district office log accountability audits were not con-
                       ducted because some districts had limited timber-scaling activities
                       during that period. Although limited timber-scaling activities may have
                       been done at some district offices, the Forest Service, in accordance with
                       its policy, still needs to conduct the required biennial audits at district
                       offices to provide the internal controls needed to ensure that there is a
                       full accountability of logs harvested.

                       On July 23, 1988, the Forest Service reported that 819 million board feet
Volume of Timber       of Tongass timber had been deleted from the volume of timber prepared
Deleted Could Not Be   for harvest during fiscal years 1977-87 for a number of reasons. We
Verified               could not verify the deleted volume primarily because Forest Service
                       records were incomplete.

                       Region 10 officials said that records documenting the individual dele-
                       tions should be at the districts responsible for the field work. However,
                       district officials told us that (1) complete records may not be available
                       for all prior operating periods, (2) the records that were maintained did
                       not indicate specific reasons for deletions, and (3) the deleted volumes
                       were based on available records, personal recollections, and estimations
                       by regional and district staff. As a result, we were unable to verify that

                       Page 6                                  GAO/WED-!30237 Alaskan Timber Contracts

                           that it was understated by 9 million board feet. We reviewed the docu-
                           mentation for the revised volumes and found no discrepancies that
                           would cause us to question their accuracy. According to region 10 offi-
                           cials, as of October 1989, the backlog had been reduced to 563 million
                           board feet-456 million board feet for Ketchikan Pulp Company and
                           107 million board feet for Alaska Pulp Corporation.

                           The Forest Service has recently proposed or taken action to account for
Forest Service Actions     the volume of timber harvested, minimize deletions, and control the
to Improve                 amount of backlogs. Also, as a result of problems in documenting past
Management of              timber sale activities on long-term sales, the Forest Service has taken
                           action to improve this documentation. These actions are discussed in the
Tongass Timber             following sections.

Accounting for Timber      To improve internal controls over the accuracy of actual timber hanrest
Harvested                  volumes, the Forest Service haa expanded its use of log accountability
                           audits. According to region 10 officials, because Tongass timber harvest
                           activities have increased and now involve all ranger districts, the
                           Regional Forester has required the forest supervisor at each of the three
                           Tongass area offices to establish plans to complete a log accountability
                           audit for each district office by no later than the end of 1989. However,
                           according to region 10 officials, log accountability audits for six of the
                           nine district offices had been completed.

Minimizing Deletions and   One step the Forest Service has taken to minimize deletions and control
Controlling Backlogs       backlogs is to limit the volume of timber prepared for harvest each year.
                           Region 10 haa established a goal of preparing for harvest only an
                           amount sufficient to replace the volume of timber harvested by a con-
                           tractor during the previous year. Data from recent years indicate that
                           the Forest Service has come close to this goal. For example, in fiscal
                           years 1988 and 1989, the Forest Service prepared a total of 498 million
                           board feet of timber for harvest, whereas the two companies harvested
                           a total of 500 million board feet thus reducing the backlog by 2 million
                           board feet.

                           Changes addressing deletions have also been made or proposed to the
                           two 50-year contracts. According to region 10 officials, administration
                           of the Ketchikan Pulp Company contract haa already been modified to
                           generally carry over all timber prepared for harvest, but not harvested.
                           into the next 5-year operating plan. The officials said modifications to

                       and Reporting System or the Unit Tracking System to ensure that future
                       timber sale activities are documented.

                       Accordingly, we recommend that the Secretary of Agriculture direct the
Recommendations        Chief of the Forest Service to ensure that, at the Tongass National For-
                       est, (1) forest supervisors conduct log accountability audits at each dis-
                       trict office every 2 years as required by Forest Service policy and (2)
                       the information needed to document when and why timber sale dele-
                       tions occur is accurately recorded in the agency records.

                       Forest Service officials reviewed a draft of this report and their com-
                       ments have been incorporated where appropriate. As agreed with your
                       offices, unless you release its contents earlier, we plan no further distri-
                       bution of this report until 30 days after the date of this letter. At that
                       time, we will send copies to the appropriate Senate and House Commit-
                       tees; interested Members of Congress; the Secretary of Agriculture; the
                       Chief of the Forest Service; the Director, Office of Management and
                       Budget; and other interested parties. Our review was conducted in
                       accordance with generally accepted government auditing standards.
                       Appendix I contains the details on our objectives, scope, and

                       If you have questions about this report, please contact John W. Harman,
                       Director, Food and Agriculture Issues, at (202) 275-5138. Major contrib-
                       utors to this report are listed in appendix II.

                  /I   J. Dexter Peach
                       Assistant Comptroller    General

                       Page 9                                   GAO/RCED9087   Alaskan Timber Contracts
Page I1   GAO/llCED90-87   Alaskan Timber Contracts
Apprmiix I
Objectives, Scope, and Methodology

We performed our review from May to October 1989. Our work was per-
formed principally at region 10 headquarters in Juneau, Alaska. We also
toured the Thome Bay log scaling and sorting yard located in Prince of
Wales Island. Our review was conducted in accordance with generally
accepted government auditing standards.

Page 13                               GAO/RCEIWX37 Alaskan Timber Contracts
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Appendix II                                                                                        -
Major Contributors to This Report

                          Gus Johanson, Assistant Director
Resources,                Gene Wichmann, Assignment Manager
Community, and            Chester Joy, Evaluator
Development Division,
Washington, D.C.

                          Leo H. Kenyon, Regional Management Representative
Seattle Regional Office   Robert B. Arthur, Evaluator-in-Charge
                          Stan Stenersen, Evaluator

(021029)                  Page 14                             GAO/RCED9&87 Alaskan Timber (‘ontracts
Appendix I

Objectives, Scope, and Methodology

                      In a March 10, 1989, letter. both the Chairman and the Ranking Minority
                      Member of the Subcommittee on Interior and Related Agencies, House
                      Committee on Appropriations, asked us to provide them with certain
                      information relating to two long-term contracts for Tongass timber. Spe-
                      cifically, the representatives were concerned that the volume of timber
                      available for harvest under two 50-year contacts is uncertain because
                      timber prepared by the Forest Service for harvest has not been har-
                      vested and the unharvested timber is being deleted from harvest-
                      thereby resulting in unnecesary timber sale preparation expenses. On
                      the basis of the request and discussions with the Subcommittee staff, we
                      agreed to review

              l the timber volume harvested for fiscal years 1977-87,
              l the timber volume deleted for fiscal years 1977-87,
              l the unharvested timber backlog volume at the end of fiscal year 1987,
              . the steps being taken by the Forest Service to improve accountability for
                harvested timber, minimize deletions, and control backlogs.

                      To obtain the requested information, we reviewed and analyzed Forest
                      Service files, records, and reports. However, Forest Service officials
                      were unable to provide us with adequate data to verify the accuracy of
                      the timber volume deleted for fiscal years 1977-87.

                      Regarding the other information we agreed to provide, we

                  l   verified the accuracy of the unharvested timber backlog volume by trac-
                      ing the volume to sale unit records, maps, and supporting
                  l   traced the timber volume harvested for fiscal years 1977-87 to Timber
                      Supply and Demand Reports and Timber Cut and Sold Reports and fur-
                      ther traced the fiscal year 1987 harvest volume to appropriate support-
                      ing documentation; and
                  l   reviewed the Forest Service’s log scaling and log accountability policies
                      and its region 10 check-scaling reports and log accountability audit

                      To obtain the documentation that supported the reported timber
                      volumes, we interviewed Forest Service headquarters and region 10 offi-
                      cials. In addition, we interviewed an official with the Southeast Alaska
                      Natural Resources Center, a conservation organization.

                      Page 12                                GAO/RCELGKM7 Alaskan Timber Contracts

Letter                                                                                             1

Appendix I                                                                                        12
Objectives, Scope, and
Appendix II
Major Contributors to
This Report
Figure                   Figure 1: Tongass Timber Volumes Harvested, Deleted,                      4
                              and Backlogged (Fiscal Years 1977-87)

                         Page 10                              GAO/RCEB9@437 Alaskan Timber Contracts

                          the Alaska Pulp Corporation contract have also been proposed to mini-
                          mize deletions. The proposed modifications state that once timber has
                          been designated for harvest, it must be harvested before additional tim-
                          ber is designated. In other words, timber cannot be substantially
                          deferred for later harvest. These actions, when fully implemented,
                          should help reduce future deletions and backlogs.

Documenting Timber Sale   To improve its documentation of timber sales program activities, includ-
Activities                ing deletions, the Forest Service has taken two actions. First, region 10 is
                          using the Forest Service’s Sale Tracking and Reporting System to record
                          long-term timber sale preparation activities. This system is designed to
                          document all timber sale preparation activities. Second, region 10 is
                          developing a Unit Tracking System to record and monitor for each long-
                          term sale area the units prepared for harvest, the volumes harvested,
                          the volumes deleted, and the unharvested volumes. Region 10 officials
                          believe the Unit Tracking System will provide them with an improved
                          system of accountability. However, we believe that these systems should
                          also document when and why deletions occur. Inclusion of this informa-
                          tion will further enhance management’s control over the use of federal
                          resources in the Tongass National Forest.

                          The Forest Service’s Region 10 has taken or proposed steps to control
Conclusions               timber backlogs and minimize timber deletions from the two 50-year
                          Tongass timber contracts. We believe that if region 10 complies with the
                          harvest demand goal, modifies the Alaska Pulp Corporation contract,
                          and prepares limited timber volumes as specified in the Ketchikan Pulp
                          Company contract, it will be moving in the right direction for minimizing
                          the volume of timber deleted and controlling the timber backlogged.

                          We believe that adhering to the requirements for district office log
                          accountability audits is an internal control step essential to ensuring
                          that harvested timber is accounted for accurately. While region 10 has
                          taken steps to comply with this requirement in 1989, it has not complied
                          in past years, and we believe that these audits should be performed
                          every 2 years as required.

                          Region 10 has taken action to improve its process for documenting tim-
                          ber sale activities including the deletions. However, we believe that
                          more needs to be done including adding information-such       as reasons
                          why deletions occurred in timber volumes reported, the .volumes
                          involved, and when the deletions occurred-to either the Sale Tracking

                          Page 8                                  GAO/RCED-9@8’7 Alaskan Timber Contracts

                       either the individual deletions or the reported figure of 819 million
                       board feet was correct.

                       Region 10 personnel did provide explanations for some of the individual
                       deletions. For example, 54 million board feet of timber was deleted from
                       the Alaska Pulp Corporation contract because the timber was on lands
                       that were selected by Alaskan natives under provisions of the Alaska
                       Native Claims Settlement Act.l In another case, 254 million board feet of
                       timber was deleted from the same contract because the Forest Service
                       did not carry over unharvested timber from the 1976-81 operating
                       period to the next operating period.

                       Further, included in the total amount of timber deleted was 218 million
                       board feet that may not have existed due to an overestimate of the tim-
                       ber prepared for harvest. The volumes of timber prepared for harvest
                       and included in the harvest plans were estimates based on statistical
                       sampling procedures designed to predict the volumes with a sampling
                       error of plus or minus 10 percent. According to region 10 officials, these
                       sampling procedures resulted in overestimating the timber volumes in
                       the areas to be harvested.

                       Deletions of timber can result in unnecessary costs to the government.
                       Although some deletions may be justified-for    example, deletions may
                       be necessary to maintain habitat for fish and wildlife resources-keep-
                       ing them to a minimum is imperative. Otherwise, unnecessary costs are
                       incurred preparing that timber for harvest.

                       Backlogged timber is timber the Forest Service has available for harvest
Timber Backlog Could   but has not yet been harvested by the contractor. The Subcommittee
Be Verified            expressed concern that in the past the Forest Service had a Tongass tim-
                       ber backlog that was too large; consequently, the Forest Service was
                       spending money sooner than necessary to prepare the timber for

                       Forest Service officials told us that the Tongass timber backlog has been
                       reduced slightly. In July 1988, the Forest Service reported that the back-
                       log for the two contracts as of the end of fiscal year 1987 was 565 mil-
                       lion board feet. In January 1989, region 10 personnel completed
                       obtaining and evaluating the detailed support for this figure and found

                       ‘Under this act, passed by the Congress in 1971, Alaska natives were entitled to choose various   par-
                       wls of federal land a.8partml settlement for their aboriginal claims to land in Alaska.

                       Page 6                                                GAO/RCED90-87 Alaskan Timber Contracts

Figure 1: Tongass Timber Volumes
Harvested, Deleted, and Backlogged
                                                                                        Backkgged (565 million board feet)
(Fiscal Years 1977-87)

                                                                                        Harvested (2,442 million board feet)

                                                                                        Deleted (81s million board feet)
                                     Source: Prepared by GAO us,“g Forest Serwce data

                                     The timber volumes in the data furnished by the Forest Service served
                                     as the basis for our examination.

                                     During fiscal years 1977-87, the Forest Service reported that more than
Accuracy of the                      2.4 billion board feet of timber had been harvested under two 50-year
Volume of Timber                     contracts. We traced the reported harvested figure to the 1977-87 region
Harvested Not                        10 summary reports and verified the reported 1987 volume to support-
                                     ing documentation. However, we were unable to ensure the accuracy of
Ensured                              the reported figure because the Forest Service had not conducted all of
                                     the log accountability audits required by its internal control procedures.

                                     Log scaling performed by a third-party organization determines the
                                     amount of timber harvested which is then used to bill the contractor. To
                                     help ensure that third-party scalers accurately determine harvested tim-
                                     ber volumes, Forest Service policy requires the use of two internal con-
                                     trol mechanisms. The main mechanism is unannounced “check scales.”
                                     The Forest Service periodically makes unannounced checks to verify
                                     that the individual scalers are performing their functions properly. This
                                     check scaling determines whether third-party scalers are (1) complying
                                     with measuring and testing standards, (2) properly recording logs har-
                                     vested, and (3) accurately measuring the volume harvested. If a check
                                     scale determines that a third-party scaler is not complying with scaling

                                     Page 4                                             GAO/RCJXMW37 Alaskan Timber (‘ontracts

             the accuracy of the figure because the Forest Service had not complied
             with all of its internal controls for documenting harvested timber
             volumes. Compliance with such controls is necessary to ensure that har-
             vested timber is accounted for correctly.

             For the same period, the Forest Service reported that 819 million board
             feet of timber had been deleted from the amounts that had been made
             available to the companies for harvest. We could not verify this amount
             primarily because the Forest Service’s documentation and records were

             The Forest Service initially reported that the volume of timber backlog
             for the two contracts totalled 565 million board feet at the end of fiscal
             year 1987. In January 1989, the Forest Service completed obtaining and
             evaluating the detailed support for this figure and found that it was
             understated by 9 million board feet. We were able to verify the revised
             figure to supporting documentation.

             The Forest Service has recently taken or proposed steps to improve its
             system of internal controls to better account for all timber that had been
             prepared for harvesting. These steps, when implemented, will help
             improve the timber program. We believe, however, that additional
             actions are needed to ensure that (1) forest supervisors comply with the
             internal controls for documenting harvested timber volumes and (2) the
             information needed to support and report changes in timber sale activi-
             ties is accurately recorded.

             The Tongass National Forest, located in southeast Alaska, is the nation’s
Background   largest national forest with over 16.7 million acres. Under the jurisdic-
             tion of the Forest Service, the Tongass is managed for multiple uses such
             as timber production, outdoor recreation, fish and wildlife habitat, and
             wilderness. The Forest Service’s Region 10, headquartered in Juneau,
             Alaska, carries out the management responsibilities. Region 10 main-
             tains three area offices and nine district offices to carry out the daily
             operational functions for the Tongass.

             In the 195Os, the federal government awarded two 50-year contracts for
             the harvest of Tongass timber-one to the Ketchikan Pulp Company
             and the other to the Alaska Pulp Corporation.J The contracts stipulate

             ‘In addiuon to the two Xl-year contracts, the Forest Service sells timber to other compares on a
             short-term bass. These sales are not addressed in this report.

             Page 2                                                GAO/RCRIHO-!37 Alaskan Timber Contracts