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

GAO United States

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.

Results in Brief Our analysis of timber sales activities in fiscal years 1990 through 1996

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.

Background The Forest Service, within the U.S. Department of Agriculture, manages

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.)

The Decline in the

Timber Harvests,

Timber Receipts, and

Returns to the

Treasury

For fiscal years 1990 through 1996, the key indicators of the timber

program—harvested volumes, timber receipts, and amounts available for

return to the Treasury—decreased dramatically. As can be seen in table 1,

for timber sales—the largest component of the Forest Service’s

receipts—harvested volumes decreased by 65 percent, receipts decreased

by 55 percent, and the amounts available for return to the 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

Return to the Treasury, Fiscal Years

1990 Through 1996

Dollars in millions; volume in billions of board feet

Fiscal year

Harvest

volume

Timber

receipts

Amount

distributed

to NFF

Amount

distributed

from NFFa

Amount

available for

return to

Treasury

1990 10.5 $1,368.8 $822.7 $410.3b $412.4

1991 8.5 1,157.2 649.8 373.6c 276.2

1992 7.3 1,090.8 504.6 363.7c 140.9

1993 5.9 989.0 416.0 339.7c 76.3

1994 4.8 910.2 420.9 340.4c 80.5

1995 3.9 681.1 294.2 292.7c 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.

aDistributions 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.

bNo spotted owl payment in fiscal year 1990.

cSpotted owl payment made out of the NFF.

dIncludes 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.

eInsufficient 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.

gIncludes the timber portion of the spotted owl payment of $133.7 million.

hThis 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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NFF lacked 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.

Actions Taken by the

Forest Service to

Maintain a Positive

NFF Balance in Fiscal

Year 1996

In fiscal year 1996, the Forest Service was faced with having insufficient

funds available in the NFF to make its payments to the states—including

the spotted owl guarantee—and to meet its other required obligations. The

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

be deposited in the Salvage Sale Fund and the Knutson-Vandenberg Fund.

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

$56.1 Million to the NFF

The Forest Service’s first analysis—performed in May 1996—of the

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

$135 Million Spotted Owl

Guarantee Appropriation

According to Forest Service officials, several situations arose after the

initial analysis of the NFF shortfall. In early summer, the Pacific Northwest

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

Management Contributed

to the NFF Shortfall in

Fiscal Year 1996

Our review of the fiscal year 1996 timber balances in the NFF revealed that

many forests—especially in the Pacific Northwest Region—had negative

year-end balances in their NFF accounts. According to the Forest Service’s

records, the negative balances at the forest level resulted when these

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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Unauthorized Use of

the NFF to Make

Spotted Owl

Guarantee Payments

in Fiscal Years 1994

and 1995

The Forest Service used the NFF in fiscal years 1994 and 1995 for the

required 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 appropriations

specifically made available by the Congress by the Omnibus Budget and

Reconciliation Act of 1993 (P.L. 103-66, as amended) for the spotted owl

guarantee and should continue to use this appropriation until fiscal year

2003, when it expires.

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.

The Forest Service’s

Actions in Fiscal Year

1997 to Improve the

NFF’s Management

On January 29, 1997, the Deputy Chief, National Forest System, issued

initial guidance to the regions on the actions they should take in the short

term and discussed the long-term actions needed to more effectively

manage these funds. In the short term, the regions were asked to

implement a series of distribution priorities for timber sale receipts to

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.

Observations Traditionally, the Forest Service has had a large timber program that

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

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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.

Recommendations Because the Forest Service inappropriately made the spotted owl

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.

Agency Comments We provided a draft of this report to the Forest Service for review and

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

10Forest 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

Fiscal year

Dollars in thousands

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

Roads and trailse 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.

aBased on the Forest Service’s adjusted second quarter projections.

bFigures may not add because of rounding.

cAt 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.

dThese are the amounts of the spotted owl guarantee appropriations for fiscal years 1996 and

1997.

eSince 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

Energy, Resources,

and Science Issues

Linda L. Harmon

John P. Murphy

Victor S. Rezendes

Hugo W. Wolter, Jr.

Office of General

Counsel

Alan R. Kasdan

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