oversight

Forest Service: Unauthorized Use of the National Forest Fund

Published by the Government Accountability Office on 1997-08-29.

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

                  United States General Accounting Office

GAO               Report to the Chairman, Committee on
                  Agriculture, House of Representatives



August 1997
                  FOREST SERVICE
                  Unauthorized Use of
                  the National Forest
                  Fund




GAO/RCED-97-216
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Resources, Community, and
                   Economic Development Division

                   B-277560

                   August 29, 1997

                   The Honorable Robert F. Smith
                   Chairman, Committee on Agriculture
                   House of Representatives

                   Dear Mr. Chairman:

                   This report responds to your request for information on the Forest
                   Service’s use of its National Forest Fund. You were concerned whether,
                   with the declining receipts from the sale of federal timber, the Forest
                   Service will have sufficient funds available in the future to meet its
                   National Forest Fund obligations, including its required payments to the
                   states. You pointed out that although the Forest Service had historically
                   returned large sums of money from the sale of timber to the U.S. Treasury,
                   it found itself in a deficit position in fiscal year 1996 and had to use
                   appropriated funds to fund the shortfall.

                   As agreed with your office, we provided information on (1) the timber
                   harvest volumes, the timber receipts for fiscal years 1990 through 1996,
                   and the timber sale funds returned to the Treasury from the National
                   Forest Fund; (2) the actions taken by the Forest Service toward the end of
                   fiscal year 1996 to cover the shortfall in the National Forest Fund;
                   (3) whether the Forest Service has been using the proper funding source
                   for the spotted owl guarantee payment; and (4) the Forest Service’s plans
                   for fiscal year 1997 to ensure that the National Forest Fund has sufficient
                   funds to make the payments to the states.


                   Our analysis of timber sales activities in fiscal years 1990 through 1996
Results in Brief   showed that the key indicators of the timber program—harvested
                   volumes, timber receipts, and amounts available for return to the U.S.
                   Treasury—have dramatically decreased. Harvested volumes decreased
                   65 percent; timber receipts decreased 55 percent; and the funds available
                   for return to the Treasury decreased 86 percent.

                   In fiscal year 1996, the Forest Service was faced with having insufficient
                   funds available in the National Forest Fund to make the required payments
                   to the states—including the legislatively required payment to compensate
                   certain counties in California, Oregon, and Washington for the listing of
                   the northern spotted owl as a threatened species (spotted owl
                   guarantee)—and to meet its other required obligations. The Forest Service




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             took two actions to remedy this problem. First, in August and September
             1996, the Forest Service transferred to the National Forest Fund a total of
             $56.1 million in timber sale receipts originally intended for deposit in other
             specific Forest Service funds.1 However, even with this adjustment, a
             shortfall of $17.8 million remained. In mid-September, the Forest Service
             requested that the Treasury make available $135 million appropriated
             under the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66, as
             amended), for the 1996 payment of the spotted owl guarantee. The Forest
             Service received approval for the appropriation on November 26, 1996. As
             of August 12, 1997, the National Forest Fund had a balance of about
             $116 million for fiscal year 1996 activities; the Forest Service plans to
             return this amount to the Treasury’s General Fund.

             The Forest Service used the National Forest Fund in fiscal years 1994 and
             1995 to make the spotted owl guarantee payments to certain counties in
             California, Oregon, and Washington. This was an unauthorized use of the
             fund. Instead, the Forest Service was required to use the spotted owl
             guarantee appropriation specifically enacted for this purpose. In addition,
             the Forest Service must continue to use this appropriation until fiscal year
             2003.

             On January 29, 1997, the Forest Service (1) provided initial guidance to its
             regions on the priority for the distributions of receipts to ensure that funds
             are available to make the payments to the states and to meet other
             obligations and (2) required the regions to initiate a review process to
             ensure that the receipts were managed in accordance with these priorities.
             In May 1997, the Forest Service established a National Task Force for
             Trust Funds and Payments to the States. The task force was charged with
             developing a national policy for the management of receipts and trust
             funds so that there would be sufficient receipts available in the National
             Forest Fund to make the payments to the states and to meet other
             mandatory obligations.


             The Forest Service, within the U.S. Department of Agriculture, manages
Background   the 192-million-acre national forest system with its 155 national forests.
             The national forests generate receipts from a variety of resources,
             including recreation, grazing, and minerals; however, timber sale receipts

             1
              Timber sale receipts are deposited in the Timber Sale Deposit Fund, and once the timber is harvested
             and the receipts become “earned,” these funds are transferred to the National Forest Fund and other
             forest funds. Originally, the Forest Service had intended that this $56.1 million in timber sale receipts
             be deposited in the Salvage Sale Fund, which is used for preparing and administering future salvage
             sales, and in the Knutson-Vandenberg Fund, which is used for reforestation activities after the timber
             has been harvested.



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                       have traditionally generated more than 90 percent of the total receipts. For
                       example, in fiscal year 1996, timber sale receipts totaled about
                       $576 million of the Forest Service’s $638 million in receipts from all
                       resources.

                       Receipts from all resources, except timber, are deposited directly in the
                       National Forest Fund (NFF),2 which is a receipts-holding account from
                       which the Forest Service’s obligations are distributed. For timber sale
                       receipts, the Forest Service first distributes a portion of the receipts to two
                       funds that are used for various timber sale activities, such as reforestation
                       or preparing and administering future salvage sales. The remaining timber
                       sale receipts are deposited in the NFF and combined with the receipts from
                       other resources. Each forest has its own sub-NFF account that is
                       accumulated at the regional level, and all regional NFF accounts are
                       accumulated to develop the national NFF. At the end of the fiscal year, any
                       amount not distributed from the NFF is deposited in the General Fund of
                       the U.S. Treasury. (App. I provides additional information about the NFF
                       and its receipts and distributions for fiscal years 1990 through 1996 and the
                       Forest Service’s projections for fiscal year 1997.)


                       For fiscal years 1990 through 1996, the key indicators of the timber
The Decline in the     program—harvested volumes, timber receipts, and amounts available for
Timber Harvests,       return to the Treasury—decreased dramatically. As can be seen in table 1,
Timber Receipts, and   for timber sales—the largest component of the Forest Service’s
                       receipts—harvested volumes decreased by 65 percent, receipts decreased
Returns to the         by 55 percent, and the amounts available for return to the Treasury
Treasury               decreased by 86 percent.




                       2
                       The NFF is an “indefinite appropriation,” which is an appropriation of an unspecified amount of
                       money.



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Table 1: Harvested Volumes, Timber
Receipts, and Amounts Available for    Dollars in millions; volume in billions of board feet
Return to the Treasury, Fiscal Years                                                                                             Amount
1990 Through 1996                                                                                  Amount             Amount available for
                                                                  Harvest           Timber      distributed       distributed   return to
                                       Fiscal year                volume           receipts          to NFF        from NFFa    Treasury
                                       1990                            10.5        $1,368.8           $822.7           $410.3b         $412.4
                                                                                                                              c
                                       1991                             8.5         1,157.2            649.8            373.6           276.2
                                       1992                             7.3         1,090.8            504.6            363.7c          140.9
                                                                                                                              c
                                       1993                             5.9           989.0            416.0            339.7             76.3
                                       1994                             4.8           910.2            420.9            340.4c            80.5
                                                                                                                              c
                                       1995                             3.9           681.1            294.2            292.7              1.5
                                       1996                             3.7           609.3            186.8e           264.4           –77.6e
                                       1996 adjusted                    3.7           609.3            320.5d,f         264.4g            56.1h
                                       Note: This table does not reflect the additional funds that may have been available for return to
                                       the Treasury in fiscal years 1994 and 1995 had the spotted owl payments been made pursuant to
                                       P.L. 103-66, as amended.
                                       a
                                        Distributions from the NFF related to timber normally include the payments to the states, the
                                       roads and trails fund, and the purchaser-elect roads account. Any funds remaining are available
                                       for return to the Treasury. These receipts relate only to the timber resource and not other receipts.
                                       b
                                           No spotted owl payment in fiscal year 1990.
                                       c
                                       Spotted owl payment made out of the NFF.
                                       d
                                        Includes the Knutson-Vandenberg Fund and the Salvage Sale Fund collections of $20.5 million
                                       and $35.6 million, respectively, from August and September 1996 that were transferred to the
                                       NFF.
                                       e
                                       Insufficient funds remaining in the NFF to make the spotted owl payment for timber.
                                       f
                                        Includes the timber portion of the General Fund Appropriation—$133.7 million— pursuant to P.L.
                                       103-66, as amended.
                                       g
                                           Includes the timber portion of the spotted owl payment of $133.7 million.
                                       h
                                        This amount is included in the total balance of $116 million that the Forest Service plans to return
                                       the Treasury. As of August 12, 1997, these funds were still in the NFF.



                                       One of the reasons for the decline in the level of harvests was the listing of
                                       the northern spotted owl as a threatened species, which virtually halted all
                                       timber sales in the Pacific Northwest. The listing was followed by a
                                       decline in timber receipts and returns to the Treasury. However, the
                                       decline in the amounts available for return to the Treasury was even more
                                       severe because the Forest Service chose to make the payments for the
                                       spotted owl guarantee from the NFF during fiscal years 1994 and 1995. In
                                       fiscal year 1995, the amount available for return to the Treasury from the
                                       timber program dropped to a low of $1.5 million. In fiscal year 1996, the



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                             NFFlacked sufficient funds to meet its obligations—including the spotted
                             owl payments—by a deficit of $77.6 million. Therefore, the Forest Service
                             exercised its authority to use the General Fund Appropriation—Northern
                             Spotted Owl Guarantee—provided for by P.L. 103-66, as amended.


                             In fiscal year 1996, the Forest Service was faced with having insufficient
Actions Taken by the         funds available in the NFF to make its payments to the states—including
Forest Service to            the spotted owl guarantee—and to meet its other required obligations. The
Maintain a Positive          Forest Service took two actions to remedy this problem. First, the Forest
                             Service transferred to the NFF a total of $56.1 million originally intended to
NFF Balance in Fiscal        be deposited in the Salvage Sale Fund and the Knutson-Vandenberg Fund.
Year 1996                    However, even with this additional money, a shortfall of $17.8 million still
                             remained in the NFF. The Forest Service’s next action was to request the
                             appropriation of about $135 million for the 1996 payments for the spotted
                             owl guarantee authorized by the Omnibus Budget and Reconciliation Act
                             of 1993 (P.L. 103-66, as amended).


Forest Service Transferred   The Forest Service’s first analysis—performed in May 1996—of the
$56.1 Million to the NFF     estimated receipts for fiscal year 1996 showed that the NFF’s anticipated
                             receipts were dangerously low. The analysis, generally performed to
                             estimate the payments to the states, resulted in the Forest Service’s
                             beginning a series of internal discussions to identify why the receipts were
                             so low. While the Forest Service estimated that it would be able to cover
                             the payments to the states, it also estimated that only $33.6 million would
                             be available in the NFF to cover all other needs.

                             Even though the Forest Service was aware as early as May 1996 that the
                             NFF  was projected to be dangerously low at the end of 1996, and informally
                             discussed the potential shortage internally between April and August, it
                             did not formally initiate procedures to activate the spotted owl guarantee
                             appropriation until September 1996. Instead, on August 27, 1996, the
                             Forest Service instructed its regions to transfer the funds to the NFF that
                             had been originally intended for deposit in the Salvage Sale Fund and
                             Knutson-Vandenberg Fund for the remainder of the fiscal year to make up
                             for the shortfall. The memorandum pointed out that the problem was
                             occurring for several reasons, including the reduction in total receipts, the
                             requirement for the spotted owl guarantee payments to some states, the




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                           setting aside of funding for tripartite land exchanges3 by the national
                           forests covered by the spotted owl guarantee, and the deposit of receipts
                           in both the Salvage Sale Fund and the Knutson-Vandenberg Fund. The
                           memorandum pointed out that the regions needed to review the balances
                           in their NFF, Salvage Sale Fund, and Knutson-Vandenberg Fund and
                           stressed that if the regions had a deficit in their NFF accounts, it should be
                           offset by a transfer of funds from one of the other accounts. These
                           adjustments resulted in a total of $56.1 million being transferred to the
                           NFF—$35.6 million that would have been deposited in the Salvage Sale
                           Fund and $20.5 million that would have been deposited in the
                           Knutson-Vandenberg Fund. According to the Forest Service’s records, the
                           regions used a variety of approaches to make these accounting
                           adjustments. While most regions made the adjustments at the regional
                           level, some were made at the forest level, and one region was granted
                           permission to make no adjustments at all.

                           Although the regions and forests were told that the August and September
                           accounting adjustments would be reversed, thus allowing them to deposit
                           the funds into the Salvage Sale Fund and the Knutson-Vandenberg Fund as
                           originally intended, this was not possible because the balance in the NFF is
                           unavailable for disbursement after the close of the fiscal year. These funds
                           must be returned to the Treasury, and therefore, the Forest Service’s
                           Salvage Sale Fund and the Knutson-Vandenberg Fund lost this amount for
                           fiscal year 1996.


Forest Service Received    According to Forest Service officials, several situations arose after the
$135 Million Spotted Owl   initial analysis of the NFF shortfall. In early summer, the Pacific Northwest
Guarantee Appropriation    Region sharply curtailed its timber harvesting program because of the
                           extensive fire season it was experiencing, which reduced the estimated
                           receipts from that region. In addition, several internal deliberations raised
                           concerns about the budget implications of requesting the spotted owl
                           guarantee appropriation, which necessitated additional discussions with
                           congressional committees. Also, according to Forest Service officials,
                           external concerns arose about the interpretation of the statutory amounts
                           allowed under the legislation—that is, Office of Management and Budget
                           (OMB) attorneys questioned whether the Forest Service was entitled to the

                           3
                            Tripartite land exchanges are authorized by the General Exchange Act of 1922 and the Weeks Act of
                           1911. A tripartite land exchange involves three parties: the landowner, the Forest Service, and the
                           purchaser of the timber. Under these authorities, the Forest Service can make timber sales contracts
                           that contribute a portion of receipts to a suspense account to fund the land exchanges. Because these
                           amounts are captured before any distributions to the NFF they are, in effect, a direct deduction from
                           any amount otherwise being deposited into the NFF. The Forest Service instructed its regional offices
                           not to initiate these exchanges in fiscal year 1996.



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entire spotted owl guarantee or just the shortfall.4 Because of the
uncertainty about whether the Forest Service would receive the
appropriation, the Forest Service needed to assure the U.S. Department of
Agriculture that all external parties would agree to the request before it
could be submitted.

Thus, in early September 1996, the Forest Service started working with
OMB to obtain its concurrence with the request for the spotted owl
guarantee appropriation from the Treasury because of the $17.8 million
shortfall in the NFF. In a letter dated September 19, 1996, the Forest Service
requested that the Treasury provide the spotted owl guarantee
appropriation for fiscal year 1996 of $135 million as authorized by P.L.
103-66, as amended. In its request, the Forest Service stated that its
national forest receipts had declined significantly in fiscal year 1996 and
would not be sufficient to cover the full payments due the states, including
the spotted owl guarantee.

On October 3, 1996, the Treasury advised the Forest Service that while the
Forest Service had the authority to obtain the spotted owl guarantee
appropriation, funds could not be deposited directly into the NFF as
requested and that the request must be resubmitted for a new General
Fund expenditure account.5 Five weeks later, on November 7, 1996, the
Forest Service resubmitted its request to the Treasury for a new General
Fund expenditure account entitled “Payments to the States, Northern
Spotted Owl Guarantee, Forest Service.” According to a Forest Service
official, this delay in resubmitting the request to Treasury resulted from
higher-priority tasks of year-end closings. Because they were assured that
they would be receiving the appropriation and that the moneys would be
received in fiscal year 1997 for the fiscal year 1996 payments, the Forest
Service considered the year-end closings a higher priority.

On November 26, 1996, the Treasury—with the concurrence of
OMB—approved      the request and provided a warrant of $135 million to the
Forest Service to make the spotted owl guarantee payments. Because the
deficit in the NFF was only $17.8 million, when the Forest Service placed
the $135 million into the NFF, it created a balance of $115.9 million after
final adjustments. Forest Service officials told us that they will return this

4
 According to Forest Service officials, the Treasury made the determination that the entire $135 million
should be requested and agreed that any balance remaining should be returned to the Treasury.
5
 According to the Treasury, the spotted owl guarantee appropriation comes from the General Fund of
the Treasury and as such, is not a receipt and therefore could not be deposited into the NFF, which is a
receipt account. This appropriation had to be deposited into its own account, from which
disbursements could be made.



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                          amount to the Treasury; however, as of August 12, 1997, the Forest Service
                          still retained the money in the NFF.


Poor Financial            Our review of the fiscal year 1996 timber balances in the NFF revealed that
Management Contributed    many forests—especially in the Pacific Northwest Region—had negative
to the NFF Shortfall in   year-end balances in their NFF accounts. According to the Forest Service’s
                          records, the negative balances at the forest level resulted when these
Fiscal Year 1996          forests transferred funds from the NFF to the Salvage Sale Fund and the
                          Knutson-Vandenberg Fund during the year, even if sufficient receipts had
                          not been received on the particular sale in the current fiscal year.
                          According to a Forest Service official, the forests and regions were not
                          aware that the NFF is closed out annually. The Salvage Sale Fund and the
                          Knutson-Vandenberg Fund, however, remain open.

                          A negative balance in the NFF is very similar to writing a check without any
                          money in the bank. The forests with negative NFF balances were forests
                          that relied on the fact that other forests would have sufficiently large
                          positive balances to counteract their negative amounts.6 For example,
                          while 10 of the 19 forests in the Pacific Northwest Region had negative
                          balances of about $37 million, the overall region had a positive balance of
                          about $24 million.

                          While we do not know the extent of all of these types of adjustments
                          nationwide, we have reason to believe that their total amount would
                          exceed $37 million. However, even if the amount was only $37 million, it
                          still would mean, in effect, that over 10 forests in the Pacific Northwest
                          Region deposited nothing in the NFF for the entire fiscal year. We believe
                          that these adjustments contributed to the overall shortfall in the NFF and
                          portray a lack of sound financial management by the Forest Service. It is
                          our view that such adjustments, if permitted, should be limited to the
                          current year’s receipts.




                          6
                           When these negative balances were rolled up to the regional level, however, each region had a
                          positive balance at the year’s end. According to the Forest Service, only a positive national NFF
                          balance is required—each region’s and each forest’s balance need not be positive.



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                       The Forest Service used the NFF in fiscal years 1994 and 1995 for the
Unauthorized Use of    required spotted owl guarantee payments to certain counties in California,
the NFF to Make        Oregon, and Washington. This was an unauthorized use of the fund.
Spotted Owl            Instead, the Forest Service was required to use the appropriations
                       specifically made available by the Congress by the Omnibus Budget and
Guarantee Payments     Reconciliation Act of 1993 (P.L. 103-66, as amended) for the spotted owl
in Fiscal Years 1994   guarantee and should continue to use this appropriation until fiscal year
                       2003, when it expires.
and 1995
                       The Forest Service is required to pay the states 25 percent of the gross
                       receipts earned on national forests for the use by the counties in which the
                       receipts were earned.7 For specific counties in California, Oregon, and
                       Washington, the listing of the northern spotted owl as a threatened species
                       accounted for a substantial drop in the size of timber harvests—and
                       therefore a substantial drop in the receipts that the counties would have
                       received. To reduce this fiscal impact, the Congress included the “safety
                       net” spotted owl guarantee legislation in the yearly appropriations for
                       fiscal years 1991, 1992, and 1993, and provided that the payments to the
                       states be made out of the NFF—an indefinite appropriation. The Omnibus
                       Budget Reconciliation Act of 1993 provided appropriations to make such
                       payments to these states beginning in fiscal year 1994 through fiscal year
                       2003 and established the formulas for calculating the payments. The
                       Forest Service did not use this authority in 1994 and 1995; rather, it elected
                       to make the spotted owl guarantee payments from the NFF as it made its
                       normal payments to the states.8 The Forest Service chose this method of
                       payment because ample receipts were available in the NFF, which, if not
                       used for the payment, would have been returned to the Treasury. The
                       Forest Service also told us that its decision not to use the spotted owl
                       appropriation was articulated in its budget explanatory notes approved by
                       OMB and submitted to the House and Senate Committees on
                       Appropriations.

                       The Forest Service should have used the spotted owl appropriation rather
                       than the NFF to make the spotted owl guarantee payment for fiscal years
                       1994 and 1995. This specific appropriation was enacted in lieu of the
                       Congress’s prior practice in fiscal years 1991, 1992, and 1993 of providing
                       annual appropriations from the Forest Service’s receipts for this purpose.


                       7
                        Gross receipts are defined as the amount of moneys deposited in the Salvage Sale Fund and the
                       Knutson-Vandenberg Fund, the amount of Purchaser Road Credits used, and deposits to the NFF from
                       all resources.
                       8
                        P.L. 103-66, as amended, also authorized the spotted owl guarantee appropriation for the Bureau of
                       Land Management, which has been using its authority since fiscal year 1994.



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                         Using the specific appropriation is in keeping with 31 U.S.C. 1301(a),
                         which provides that public funds may be used only for the purpose or
                         purposes for which they were appropriated. This provision prohibits
                         charging authorized items to the wrong appropriation and unauthorized
                         items to any appropriation. Moreover, the Forest Service’s disclosure in its
                         budget submission to the Congress is not a substitute for legislation and,
                         therefore, did not authorize continued payments from the NFF.


                         On January 29, 1997, the Deputy Chief, National Forest System, issued
The Forest Service’s     initial guidance to the regions on the actions they should take in the short
Actions in Fiscal Year   term and discussed the long-term actions needed to more effectively
1997 to Improve the      manage these funds. In the short term, the regions were asked to
                         implement a series of distribution priorities for timber sale receipts to
NFF’s Management         ensure that funds are available to make the payments to the states and to
                         meet other obligations, as well as to support critical elements of the
                         reforestation and salvage sale programs.9 The guidance also required that
                         each region initiate a sale review process within the region to ensure that
                         the trust funds and timber sale accounts are being managed in accordance
                         with these priorities. According to Forest Management and Financial
                         Management officials, the intent of the guidance was not to dictate a
                         specific priority or action for each individual timber sale. Rather, the
                         guidance was intended to establish a framework for managing overall
                         receipts and to make the regions and the forests aware of their obligations
                         and of the need to manage their programs to meet these obligations.

                         For the long term, the January 29, 1997, guidance pointed out that
                         solutions to the problem will require changes in both work processes and
                         patterns of behavior and that effective controls will also require changes in
                         accounting procedures. The Deputy’s memorandum concluded that,
                         clearly, actions are needed at all levels to tackle the problem. At the
                         national level, an improved process is needed for program-level decisions
                         to cover the required payments. To make progress in these areas, the
                         Deputy said that he would appoint a task force in early 1997 to focus on
                         the long-term solutions that would ensure that sufficient money is
                         available to make the 25-percent payments to the states.

                         We contacted each of the regions to gain an understanding of how they
                         were implementing the short-term actions discussed in the January 29,
                         1997, guidance. All of the regions told us that they would manage the

                         9
                          Historically, regions and forests did not consider the obligations for the payments to the states and
                         other NFF obligations as part of their funds management requirements.



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timber receipts and corresponding deposits to the NFF from a forest or
regional perspective rather than on a sale-by-sale basis. Most of the
regions have instituted monitoring procedures, such as developing a
spreadsheet showing projected total receipts and balances for each
forest’s NFF after required obligations are met. However, four regions said
that because they had not experienced any problems in the past, they had
instituted no special procedures.

On May 2, 1997, the Forest Service provided additional guidance to the
regions on how to correct some of the accounting adjustments made in
August and September 1996. As pointed out earlier, these adjustments
created a multitude of problems. For example, some of the regional and
forest adjustments resulted in overpayments to the states of about
$730,000 in fiscal year 1996. According to the Forest Service, these
overpayments will be adjusted in the states’ fiscal year 1997 payments.

In addition, this guidance formally advised the regions that the amounts
transferred to the NFF in fiscal year 1996 that had originally been intended
for deposit in the Salvage Sale Fund and the Knutson-Vandenberg Fund
would not be returned to each forest but instead would be returned to the
Treasury. However, the guidance permitted each region to recover these
funds out of fiscal year 1997 receipts to the extent that the region was able
to meet all of its NFF requirements. In other words, if a forest earned fiscal
year 1997 receipts beyond those needed for the payments to the states and
for other NFF obligations that normally would have been deposited in the
NFF, the forest could deposit that excess into the Salvage Sale Fund and
the Knutson-Vandenberg Fund to the extent that it had transferred funds
originally intended for those accounts in fiscal year 1996. Forest Service
officials told us that the regions had sufficient receipts in fiscal year 1997
to recover the $56.1 million they had transferred to the NFF in fiscal year
1996. The Forest Service is also projecting that there will be a balance in
the NFF at the end of the fiscal year of $127.5 million to be returned to the
Treasury.

The Forest Service also told us that in early October 1997, it would request
the fiscal year 1997 spotted owl guarantee appropriation amounting to
$129.9 million. According to Forest Service officials, because the Treasury
account is already established, they should not experience the same types
of problems for fiscal year 1997.

A final long-term action involved establishing, in late May 1997, the
National Task Force for Trust Funds and Payments to the



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               States—composed of regional and headquarters fiscal, accounting, and
               forest management representatives. The task force was charged with
               developing a national policy on the management of receipts and trust
               funds so that sufficient receipts would be available in the NFF to make the
               payments to the states along with meeting the Forest Service’s other
               mandatory obligations. According to the task force leader, the task force
               plans to provide definitive guidance on periodic monitoring of NFF
               balances; adjustments among the NFF, the Salvage Sale Fund, and the
               Knutson-Vandenberg Fund; and the allowable uses of excess NFF balances.
               The task force estimates that it will issue its final report in August 1997. In
               addition, the Forest Service told us that it eventually plans to incorporate
               the results of the task force’s report into the Forest Service’s Manual and
               its fiscal and timber management handbooks.


               Traditionally, the Forest Service has had a large timber program that
Observations   returned hundreds of millions of dollars to the U.S. Treasury. However, the
               magnitude of receipts returned to the Treasury masked some of the Forest
               Service’s underlying financial management weaknesses. Only in recent
               years, with the drastic reduction in timber sales and corresponding
               decreases in receipts, has it become more apparent that the Forest
               Service’s financial management of its receipts and trust funds is in need of
               improvement.

               Lured into a false sense of security by the historically large returns to the
               Treasury, the Forest Service was unprepared to handle the crises it faced
               in fiscal year 1996. The problems of insufficient funds in its NFF and the
               loss of $56.1 million to other timber-related funds could have been
               lessened, if not mitigated, if the Forest Service had better financial
               controls over the adjustments made among the Salvage Sale Fund, the
               Knutson-Vandenberg Fund, and the NFF and more oversight of its funds’
               management practices. The inability of the Forest Service to initiate the
               spotted owl guarantee appropriation in a timely manner greatly
               contributed to the problems experienced at the forest, regional, and
               national levels. However, the fiscal year 1996 occurrences are an
               illustration of the much larger fiscal accountability problems facing the
               Forest Service.

               In short, because the Forest Service does not now have the benefit of
               hundreds of millions of dollars as a cushion, it is now incumbent on the
               Forest Service to establish sound financial management controls. We have
               pointed out some of these weaknesses in two of our recent reports on the



               Page 12                                     GAO/RCED-97-216 National Forest Fund
                  B-277560




                  Knutson-Vandenberg Fund.10 On balance, while we believe that the
                  establishment of the task force to review the management of the trust
                  funds is a good first step, we also believe that the Forest Service has a long
                  way to go toward solving its fiscal and accountability problems.


                  Because the Forest Service inappropriately made the spotted owl
Recommendations   guarantee payments out of the National Forest Fund in fiscal years 1994
                  and 1995, its accounting records do not properly reflect the operations of
                  the National Forest Fund for these years. Therefore, we recommend that
                  the Secretary of Agriculture request that the Secretary of the Treasury
                  establish the spotted owl appropriations account for fiscal years 1994 and
                  1995, pursuant to P.L. 103-66, as amended, and continue to use this
                  authority until the termination of the statute in fiscal year 2003.

                  We also recommend that the Secretary of Agriculture direct the Chief of
                  the Forest Service to make the necessary accounting adjustments to
                  properly reflect the use of the spotted owl appropriation in lieu of the
                  National Forest Fund to make the spotted owl payments in fiscal years
                  1994 and 1995.


                  We provided a draft of this report to the Forest Service for review and
Agency Comments   comment. We met with Forest Service officials, including the Deputy
                  Director, Forest Management; the Director, Financial Management; the
                  Director, Program Development and Budget Staff; the Acting Associate
                  Deputy Chief, Operations; and a representative of the U.S. Department of
                  Agriculture’s Office of General Counsel. The Forest Service said that the
                  information in our report accurately presented the operations of the
                  National Forest Fund during fiscal years 1990 through 1997. The Forest
                  Service acknowledged that it should have used the spotted owl guarantee
                  appropriation instead of the NFF during fiscal years 1994 and 1995, and
                  agreed with the recommendations for corrective action.


                  We conducted our review at the Forest Service’s headquarters and each of
                  its regional offices. We interviewed officials and reviewed and analyzed
                  records of the Forest Service’s headquarters fiscal, budget, and forest
                  management staffs. We also interviewed and obtained information from
                  the Division of Funds Management, U.S. Treasury; and the Agriculture

                  10
                   Forest Service: Management of Reforestation Program Has Improved, but Problems Continue
                  (GAO/RCED-94-257, Sept. 15, 1994); Forest Service’s Reforestation Funding: Financial Sources, Uses,
                  and Condition of the Knutson-Vandenberg Fund (GAO/RCED-96-15, June 21, 1996).



                  Page 13                                                  GAO/RCED-97-216 National Forest Fund
B-277560




Branch of the Office of Management and Budget. We did not
independently verify the reliability of the data provided nor of the systems
from which they came. In addition, we did not attempt to determine what
the results would have been if the Forest Service had used the proper
appropriation to make the spotted owl guarantee payments in fiscal years
1994 and 1995 because we were specifically asked to provide a historical
view of what actually occurred in fiscal years 1990 through 1996. We
conducted our review from May 1997 through August 1997 in accordance
with generally accepted government auditing standards.

As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 15 days after the
date of this letter. We will then send copies to the Secretary of Agriculture
and the Chief of the Forest Service. We will also make copies available to
others on request.

If you or your staff have any questions about this report, please call me at
(206) 287-4810. Major contributors to this report are listed in appendix II.

Sincerely yours,




James K. Meissner
Associate Director, Energy, Resources,
  and Science Issues




Page 14                                     GAO/RCED-97-216 National Forest Fund
Page 15   GAO/RCED-97-216 National Forest Fund
Appendix I

The National Forest Fund and Its
Distributions, Fiscal Years 1990 Through
1996
                  The National Forest Fund (NFF)—an indefinite appropriation—was
                  established pursuant to the Act of March 4, 1907 (P.L. 59-242, as amended,
                  16 U.S.C. 499). This act provides that all moneys received from the
                  national forests are deposited into a Department of the Treasury
                  miscellaneous receipts account—the NFF. For timber sale receipts, the
                  Forest Service first distributes a portion of the receipts into two funds that
                  are used for various timber sale activities, such as reforestation or
                  preparing and administering future salvage sales. The remaining timber
                  sale receipts are deposited into the NFF and combined with the receipts
                  from other resources. Moneys from the NFF are transferred to other
                  specified Treasury accounts or funds to satisfy various legal obligations.
                  Moneys remaining after meeting these obligations must be transferred to
                  the Treasury at year-end. Basically, the NFF serves as a holding account for
                  national forest receipts from such resources as grazing, mining, recreation,
                  and timber—after payments are made to the Salvage Sale Fund and the
                  Knutson-Vandenberg Fund from the timber receipts—and are available for
                  use by the Forest Service. The statutes listed below provide the authority
                  for making the distributions:

              •   Payments to the States (Act of May 23, 1908, P.L. 60-136, as amended, 16
                  U.S.C. 500). This act requires that 25 percent of all receipts from each
                  national forest be paid to the state in which the forest is located to be used
                  to benefit roads and schools in the counties where the receipts were
                  earned. This payment was established as a substitute for property taxes on
                  national forest lands because the federal government cannot be taxed by
                  state or local governments. For purposes of calculating the payments to
                  the states, receipts are defined as the amount of receipts deposited in the
                  Salvage Sale Fund, the Knutson-Vandenberg Fund, the amount of
                  Purchaser Road Credits used, and the amount deposited in the NFF from all
                  resources.

              •   Payments to States Concerning Northern Spotted Owl (Department of the
                  Interior and Related Agencies Appropriations Acts, 1991, 1992, and 1993,
                  P.L. 101-512, P.L. 102-154, and P.L. 102-381, respectively). The Forest
                  Service’s appropriations acts for fiscal years 1991 through 1993 provided
                  for payments to California, Oregon, and Washington, for counties that had
                  lost portions of the 25-percent payments to the states because of the listing
                  of the northern spotted owl as a threatened species. These payments,
                  which are in lieu of the 25-percent payments to the states, are based on an
                  average of the receipts from prior years. The Forest Service continued to
                  make these payments from the NFF in fiscal years 1994 and 1995. The
                  Forest Service was not authorized to make these payments from the NFF



                  Page 16                                     GAO/RCED-97-216 National Forest Fund
    Appendix I
    The National Forest Fund and Its
    Distributions, Fiscal Years 1990 Through
    1996




    and should have used the spotted owl guarantee appropriation established
    specifically for that purpose by the Congress in the Omnibus Budget
    Reconciliation Act of 1993 (P.L. 103-66, as amended).

•   Payments to Minnesota (Act of June 22, 1948, 16 U.S.C. 577g). This act
    provides a special payment to the state of Minnesota for lands in the
    Boundary Waters Canoe Area in St. Louis, Cook, and Lake counties. Under
    the act, the Secretary of Agriculture pays 0.75 percent of the appraised
    value of certain Superior National Forest lands for distribution to the
    counties.

•   Roads and Trails Fund (Act of March 4, 1913, as amended, 16 U.S.C. 501).
    This provision specifies that 10 percent of all moneys received—except
    salvage sale receipts—from the national forests during each fiscal year are
    to be expended for the construction and maintenance of roads and trails
    within the national forests in the states where the receipts were collected.
    Since fiscal year 1982, the amount deposited into the Roads and Trails
    Fund has been transferred to the General Fund of the Treasury to offset
    annual appropriations for road and trail construction and maintenance.

•   Purchaser-Elect Roads (National Forest Management Act of 1976, P.L.
    94-588, 16 U.S.C. 472a(i)). This act allows certain timber purchasers
    —designated as small business concerns—to elect to have the Forest
    Service build the roads required by the timber sale contracts. If the
    purchaser makes the election, the price paid for the timber will include the
    estimated cost of the roads. The Forest Service transfers this amount from
    the NFF to the purchaser-elect account.

•   Acquisition of National Forest Lands Under Special Acts (Act of June 11,
    1940, 54 Stat. 297; Act of June 11, 1940, 54 Stat. 299, Act of May 26, 1944, 58
    Stat 227; and Act of Dec. 4, 1967, P.L. 90-171, 81 Stat. 531, 16 U.S.C. 484a).
    The first three acts provide for a special fund to acquire lands within
    critical watersheds to provide soil stabilization and the restoration of
    vegetation. The funds are available only for certain national forests in
    Utah, Nevada, and southern California. The final act provides for the
    replacement of National Forest System lands acquired by state, county, or
    municipal governments or public school authorities in land exchanges.

•   Range Betterment Fund (Federal Land Policy and Management Act of
    1976, P.L. 94-579, as amended by the Public Rangelands Improvement Act
    of 1978, P.L. 95-514, 43 U.S.C. 1751). This act provides that 50 percent of all
    moneys received as fees for grazing domestic livestock on national forest



    Page 17                                     GAO/RCED-97-216 National Forest Fund
    Appendix I
    The National Forest Fund and Its
    Distributions, Fiscal Years 1990 Through
    1996




    lands in the 16 western states is to be credited to a separate account in the
    Treasury. These funds are authorized to be appropriated and made
    available for use for on-the-ground rehabilitation, protection, and
    improvements of such lands.

•   Recreation Fee Collection Costs (Land and Water Conservation Fund Act
    of 1965, P.L. 88-578, 78 Stat. 897, as amended by the Omnibus Budget
    Reconciliation Act of 1993, P.L. 103-66, 16 U.S.C. 4601-6a(i)(1)). These acts
    authorize the Secretary of Agriculture in any fiscal year to withhold from
    certain fees collected an amount equal to the cost of collecting such fees,
    but not more than 15 percent of the fees collected. Such amounts shall be
    retained by the Secretary and shall be available for expenditure without
    further appropriation to cover such fee collection costs.

•   Tongass Timber Supply Fund (Alaska National Interest Lands
    Conservation Act of 1980, P.L. 96-487, 94 Stat. 1761, as amended). This act
    was intended to maintain the timber supply from the Tongass National
    Forest to the dependent industry at a rate of 4.5 billion board feet per
    decade and to protect the existing timber industry in southeast Alaska
    from possible reductions in the timber sale program as a result of
    wilderness and national monument designations in the Tongass National
    Forest. This fund was eliminated by the Tongass Timber Reform Act (P.L.
    101-626), enacted in November 1990.

•   Timber Sales Pipeline Restoration Fund (Omnibus Consolidated
    Rescissions and Appropriations Act of 1996, P.L. 104-134). This act created
    a fund to receive a portion of the receipts from certain timber sales
    released under the fiscal year 1995 Supplemental Appropriations for
    Disaster Assistance and Rescissions Act, to be used for the preparation of
    additional timber sales that are not funded by annual appropriations and
    for the backlog of recreation projects.

    In fiscal years 1990 through 1996, the Forest Service received almost $3.9
    billion in national forest fund receipts and distributed about $2.6 billion to
    these various funds or accounts. The remaining $1.3 billion was returned
    to the U.S. Treasury. In addition, the $378 million deposited in the Roads
    and Trails Fund was also returned to the U.S. Treasury. Table I.1 provides
    the details, by fiscal year, of these transactions.




    Page 18                                     GAO/RCED-97-216 National Forest Fund
                                           Appendix I
                                           The National Forest Fund and Its
                                           Distributions, Fiscal Years 1990 Through
                                           1996




Table I.1: National Forest Fund Receipts and Distributions, Fiscal Years 1990 Through 1996
Dollars in thousands
                                                                                Fiscal year
NFF activity                                1990        1991        1992        1993          1994      1995       1996        1997a
Receipts
Timber                                   $822,700    $649,801   $504,592    $416,005      $420,854   $294,222   $186,776    $212,611
Grazing                                     9,133       9,753      9,464       9,268         9,779      7,780      6,572       5,845
Land use                                    4,748       4,740      4,983       5,282         5,760      6,051      4,485       6,950
Recreation—special uses                    27,483      27,952     14,948      36,102        36,785     36,774     37,526      33,544
Recreation user fees                       13,734      14,958     31,542      13,186        10,870      9,547      9,977       7,675
Minerals                                   32,369      19,145      9,107       1,600         1,156      1,422      1,616       1,391
Power                                        982        1,134      1,245       1,426         1,648      1,597      1,885       1,846
Quartz crystals                               26            0         26          25            32        22          36            0
NFF totalb                                911,175     727,482    575,908     482,894       486,884    357,416    248,873     269,862
End-of-year adjustmentsc                   15,134      –6,150     68,865     –37,723        20,012      1,262     30,651            0
NFF to be distributed                     926,309     721,332    644,773     445,171       506,896    358,678    279,524     269,862
Spotted owl appropriation                      0            0           0             0          0         0     135,022d    129,894d
Total to be distributed                   926,309     721,332    644,773     445,171       506,896    358,678    414,546     399,756
Distributions
Payments to states                        344,835     152,189    169,001     159,243       162,620    132,069    119,524      98,579
Spotted owl guarantee payment                  0      169,348    153,822     145,279       145,276    140,149    135,022     129,894
Payments to Minnesota                       1,251       1,252      1,255       1,263         1,267      1,267      1,267       1,267
                  e
Roads and trails                           91,010      72,642     57,480      48,187        48,569     35,609     24,784      27,680
Special acquisitions                        1,103       1,148      1,190       1,212         1,252      1,317      1,069       1,069
50-percent grazing                          4,489       4,796      4,647       4,545         4,800      3,811      3,212       2,882
Purchaser-Elect Program                     4,859       5,806      8,546       8,457         5,945      5,945      5,945       5,945
Recreation user fees                        8,927       9,723      9,716       8,571         7,065      6,206      6,485       4,989
Tongass Timber Supply Fund                 42,887           0           0             0          0         0           0            0
Timber Sales Pipeline Restoration Fund         0            0           0             0          0         0       1,400            0
Returned to the U.S. Treasuryb            426,948     304,429    239,117      68,414       130,103     32,306    115,839f    127,451

                                                                                                            (Table notes on next page)




                                           Page 19                                             GAO/RCED-97-216 National Forest Fund
Appendix I
The National Forest Fund and Its
Distributions, Fiscal Years 1990 Through
1996




Note: This table does not reflect the $145 million from fiscal year 1994 and the $140 million from
fiscal year 1995 that could have been returned to the Treasury had the spotted owl payment been
made pursuant to P.L. 103-66, as amended.
a
Based on the Forest Service’s adjusted second quarter projections.
b
    Figures may not add because of rounding.
c
 At the end of the fiscal year, some adjustments are made to other funds before a final amount is
determined as the amount in the NFF to be distributed.
d
 These are the amounts of the spotted owl guarantee appropriations for fiscal years 1996 and
1997.
e
 Since fiscal year 1982, the amount distributed to the Roads and Trails Fund has been returned to
the Treasury to offset appropriations for road and trail construction.
f
 According to Forest Service officials, this amount will be transferred back to the Treasury.
However, as of August 12, 1997, the transfer had not been made.

Source: Forest Service ASR-08 reports and Computation for Distribution of Moneys Received
From National Forests for Fiscal Years 1990 to 1996.




Page 20                                                    GAO/RCED-97-216 National Forest Fund
Appendix II

Major Contributors to This Report


                     Linda L. Harmon
Energy, Resources,   John P. Murphy
and Science Issues   Victor S. Rezendes
                     Hugo W. Wolter, Jr.


                     Alan R. Kasdan
Office of General
Counsel




(141056)             Page 21               GAO/RCED-97-216 National Forest Fund
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