United States General Accounting Office

GAO Report to the Chairman, Committee on

the Budget, House of Representatives

February 1998 FOREST SERVICE

Status of Progress

Toward Financial

Accountability

GAO/AIMD-98-84

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-279017 

February 27, 1998

The Honorable John R. Kasich

Chairman, Committee on the Budget

House of Representatives

Dear Mr. Chairman:

This is our third report to you on the financial problems of the Forest

Service initially identified in the U.S. Department of Agriculture (USDA)

Inspector General’s (IG) audit report on the Forest Service’s fiscal year

1995 financial statements. Due to the severity of the problems identified,

you asked that we continue to monitor, and periodically report on, the

Forest Service’s effort to correct its accounting and financial reporting

deficiencies. Specifically, you asked us to monitor the Forest Service’s

(1) implementation of a new financial accounting system, (2) correction of

certain accounting deficiencies, (3) resolution of key staffing and financial

management organizational issues, and (4) commitment to achieving

financial accountability.

Background In July 1996, the USDA IG concluded that the Forest Service’s financial

statements for fiscal year 1995 were unreliable. The IG’s report cited

numerous shortcomings in the Forest Service’s accounting and financial

data and information systems that precluded the agency from presenting

accurate and complete financial information. For example, in reporting its

fiscal year 1995 financial results, the Forest Service could not determine

for what purposes $215 million of its $3.4 billion in operating and program

funds were spent. In December 1996, we reported1

 on how the inaccuracy

of the financial statement data precluded the agency and the Congress

from using this financial data to help make informed decisions about

future funding for the Forest Service and raised questions about the

reliability of program performance measures and certain budget data.

Forest Service officials determined that corrective actions could not be

completed in time to improve the Forest Service’s fiscal year 1996

financial data. As a result, the agency did not prepare financial statements

for fiscal year 1996. Instead, the Forest Service agreed to a three-party

effort (the Forest Service, USDA’s Office of the Chief Financial Officer

1

Letter dated December 20, 1996, to the Chairman, House Committee on the Budget

(GAO/AIMD-97-11R).

Page 1 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

(OCFO), and the IG) to correct the problems identified in the fiscal year 1995

IG audit report.

On December 23, 1994, the Office of the Chief Financial Officer purchased

a new accounting system, the Foundation Financial Information System

(FFIS), to implement USDA-wide. Because of the reported financial

deficiencies at the Forest Service, it was decided that the Forest Service

would be one of the first USDA agencies to implement FFIS. While the

overall responsibility and oversight for implementing FFIS rests with the

USDA OCFO, implementation at the Forest Service is a joint effort between

the Forest Service and the USDA OCFO. Forest Service management is

responsible for the other corrective measures that are required to achieve

financial accountability.

The Forest Service’s goal was to correct some of the deficiencies during

fiscal year 1997 and to achieve financial accountability by the end of fiscal

year 1999. In August 1997, we reported to your Committee2

 that it is

doubtful that the Forest Service can achieve financial accountability by

the end of fiscal year 1999 if management and staff commitment waver,

planned tasks are not accomplished, and sufficient resources are not

provided.

Results in Brief The Forest Service has taken some positive steps to address the

accounting deficiencies cited in the IG’s fiscal year 1995 audit report. For

example, the Forest Service has completed its equipment inventories.

However, much work remains. Most significantly, serious problems have

been encountered in the initial implementation of the new financial

accounting system. For example, while the OCFO and the Forest Service

piloted the new financial accounting system, FFIS, in three units as

scheduled on October 1, 1997, problems with FFIS processing data and

transferring data between FFIS and other feeder systems have hampered

the implementation efforts. Also, the pilot units have not been able to use

FFIS to produce certain critical budgetary and accounting reports that track

the Forest Service’s obligations, assets, liabilities, revenues, and costs.

These problems occurred because (1) while most individual components

of the system were tested, a complete integrated test was not

accomplished prior to implementation, (2) the FFIS reporting mechanism,

which was not fully tested prior to implementation, was not functioning

properly, (3) certain report specifications and calculations were incorrect,

2

Financial Management: Forest Service’s Progress Toward Financial Accountability

(GAO/AIMD-97-151R, August 29, 1997).

Page 2 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

and (4) budget balances had not yet been brought forward from the old

accounting system, which is no longer functional for the pilot units.

Failure to correct these problems will jeopardize successful

implementation of FFIS in the remaining Forest Service units. The Forest

Service’s ability to produce reliable financial reports hinges on successful

operation of the new system. In addition, the version of FFIS purchased by

the USDA OCFO in December 1994 is not Year 2000 compliant.3

 Therefore,

additional challenges exist for the OCFO and the Forest Service to ensure

that FFIS, as well as all its mission critical computer systems, complies with

Year 2000 requirements prior to the millennium.

While the Forest Service has corrected some of the accounting

deficiencies cited in the IG’s 1995 audit report, it continues to have certain

accounting problems, in addition to those related to the FFIS system, that

will hamper its ability to produce reliable financial information and could

expose the agency to mismanagement and misuse of its assets. For

example, while some progress has been made, the Forest Service cannot

yet establish reliable account balances for its land, buildings, and roads

because it has not yet completed inventories and valuations of these

assets. According to Forest Service officials, these inventories are

scheduled to be completed by June 30, 1998.

In addition, the Forest Service still lacks supporting records (a subsidiary

ledger system) to substantiate, at a detailed level, amounts the agency

either owes or is owed by others. Moreover, an IG official told us in

February 1998 that the Forest Service still lacks adequate controls to

ensure that all billings for timber sales and other revenue-generating

activities are submitted and accurately recorded and recognized as

revenue in a timely manner. Forest Service managers’ ability to accurately

report program performance measures as well as monitor revenue and

spending levels will be hampered until these shortcomings are addressed.

The Forest Service has not yet completed an evaluation of its financial

management structure and workload requirements at all levels. Thus, it

has no basis for determining if its current overall financial management

organizational structure and resources are sufficient to accomplish the

remaining tasks necessary to correct financial deficiencies and maintain

3

Year 2000 compliant relates to how computers will handle the date change from December 31, 1999,

to January 1, 2000. According to USDA’s Acting CFO, at the time the system was purchased from the

General Services Administration’s Financial Management System Software Multiple Award Schedule,

no Year 2000 compliant version was available.

Page 3 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

accountability. Further, although the Forest Service has filled some key

financial management positions, vacancies exist in other key positions.

The Forest Service’s top management has taken some steps to correct the

financial problems reported by the IG in the fiscal year 1995 audit report.

However, the Forest Service’s autonomous organizational structure may

hinder top management from making needed improvements in all regions

by fiscal year 1999. For example, one region has not demonstrated the

level of commitment needed to effectively carry out planned corrective

measures because of other priorities of the Regional Forester. Strong

leadership and participation by all regions are key to ensuring that planned

improvements are made by the end of fiscal year 1999.

Objectives, Scope,

and Methodology

Our objectives were to monitor and report on the Forest Service’s

(1) implementation of a new financial accounting system, (2) correction of

certain accounting deficiencies, (3) resolution of key staffing and financial

management organizational issues, and (4) commitment to achieving

financial accountability. We reviewed steps taken by the Forest Service,

USDA OCFO, and USDA IG to correct deficiencies in the Forest Service’s

accounting and financial data and systems since we last reported to you

on August 29, 1997.

To assess the status of the Forest Service’s (1) effort to improve the

reliability of its accounting and financial data and (2) its commitment to

improvement, we reviewed the Forest Service’s financial health

monitoring reports, the Forest Service’s Financial Management Strategy

and Action Plan, project management plans, and other documents

outlining improvement initiatives and their status. We also attended

planning conferences where progress and critical tasks were identified,

and interviewed regional and headquarters Forest Service officials. In

addition, we reviewed two internal USDA assessments of FFIS

implementation problems. We also interviewed IG officials and USDA’s

Acting CFO about the status of the Forest Service’s corrective actions. We

performed our review from September 1997 through February 1998 in

accordance with generally accepted government auditing standards. We

requested comments on a draft of this report from the Special Assistant to

the Chief, Forest Service; the Acting Deputy Chief of Operations, Forest

Service; the Acting Director of Financial Management, Forest Service; the

Acting Chief Financial Officer, USDA, and his staff; and staff from the IG’s

office. These comments are discussed in the “Agency Comments and Our

Evaluation” section.

Page 4 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

Newly Piloted

Accounting System

Faces Major Hurdles

The new accounting system, FFIS, being implemented at the Forest Service

is designed to be a fully integrated financial accounting and reporting

system that the Forest Service is counting on to correct many of the

agency’s current financial shortcomings. FFIS was piloted at the Forest

Service in three units, representing about one-third of all Forest Service

transactions, as scheduled on October 1, 1997. However, the pilot units

experienced many problems, primarily related to transferring data from

other feeder systems to the new FFIS system. For example:

• FFIS initially rejected 45 percent of the data transferred to it from the

procurement system, and the data had to be re-entered. These rejects

occurred for various reasons, including the two systems maintaining

inconsistent vendor data such as different purchase order numbers for the

same item.

• The timber sales system could not transfer data to FFIS; therefore, sales

data had to be entered into FFIS manually.

• About 1,200 outstanding travel orders had to be rekeyed because the data

in the new travel system could not be automatically transferred to FFIS.

The agency is continuing to address these types of problems as they are

identified during the implementation process. In addition, the agency’s

fiscal year 1998 first quarter budget execution reports that are required by

the Office of Management and Budget contained estimated rather than

actual amounts because FFIS could not generate actual information.

Unforeseen problems also have precluded the pilot units from using FFIS to

produce other critical budgetary and financial reports that the Congress

and the agency need to track obligations, assets, liabilities, revenues, and

costs.

These problems occurred, in part, because budgetary information had not

yet been brought forward from the old accounting system, which is no

longer functional in the pilot units. Also, the FFIS system generates

accounting information at the detailed transaction level, but is currently

unable to produce summary-level data needed to carry prior year balances

forward as well as to determine current balances. The Forest Service

subsequently discovered that its reports contained errors in the logic used

to compute summary balances. These errors are being corrected. The

overall problems with the system implementation are reflective of the lack

of complete integrated testing of the system, including its reporting

Page 5 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

capability, prior to implementation in the pilot units. Our prior work4 at

other agencies has shown that the lack of adequate testing of systems

before piloting and implementation is one of the primary causes of new

systems implementation failures.

As a result of the reporting problems, the OCFO and the Forest Service are

revising the scheduled completion of FFIS implementation in the pilot units

from February 23, 1998, to March 30, 1998. The Acting Director of

Financial Management has a team, including region and forest-level staff,

at the National Finance Center working on correcting the identified

reporting deficiencies. According to the USDA Acting CFO, the team plans to

initially focus on monthly and quarterly reporting requirements and will

address year-end and other reporting demands later in the fiscal year. If

these problems are not resolved, FFIS cannot be successfully implemented

in the remaining units as scheduled on October 1, 1998. Further, the

inability to produce budget and financial reports for the three pilot units

subjects the assets of these units to a high level of risk and vulnerability to

misuse.

Another issue that must be addressed is to ensure that FFIS, as well as all

other mission critical computer systems, is Year 2000 compliant. The Year

2000 problem is rooted in the way dates are recorded and calculated in

many computer systems. For the past several decades, systems have

typically used two digits to represent the year in order to conserve on

electronic data storage and reduce operating costs. With this two-digit

format, however, the year 2000 is indistinguishable from the year 1900. As

a result, system or application programs that use dates to perform

calculations, comparisons, or sorting may generate incorrect results when

working with years after 1999.

The version of FFIS purchased in 1994 and piloted in October 1997 is not

Year 2000 compliant. Forest Service officials and the USDA Acting CFO told

us that the FFIS pilot would have been delayed up to 1 year if the agency

had waited for the vendor to release a Year 2000 compliant version of FFIS.

We did not assess the decision-making process for procuring FFIS or the

level of effort required to make the system Year 2000 compliant. The

Office of Management and Budget reported that as of November 15, 1997,

4

Defense IRM: Critical Risks Facing New Material Management Strategy (GAO/AIMD-96-109,

September 6, 1996); Department of Energy: Poor Management of Nuclear Materials Tracking System

Makes Success Unlikely (GAO/AIMD-95-165, August 3, 1995); and Executive Guide: Improving Mission

Performance Through Strategic Information Management and Technology (GAO/AIMD-94-115,

May 1994).

Page 6 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

USDA had demonstrated insufficient evidence of adequate Year 2000

progress. However, the USDA Acting CFO said that USDA is taking steps to

ensure that FFIS, as well as all other mission critical financial systems,

becomes Year 2000 compliant before January 1, 2000. He further stated

that FFIS will be Year 2000 compliant by the summer of 1998. We are

initiating another assignment which will examine Year 2000 issues in USDA.

Some Accounting

Deficiencies

Corrected but Others

Remain

The Forest Service has corrected some of the accounting deficiencies

identified in the IG’s fiscal year 1995 audit report, but many of the serious

shortcomings that we reported on in December 1996 still remain. The

agency has implemented procedures and begun cleaning up some of the

erroneous data recorded in its old accounting system, such as amounts

other agencies owe to the Forest Service for work performed on a

reimbursable basis. This process should help ensure that invalid data are

not transferred to the new FFIS system. However, the reported $7.8 billion

in land, buildings, roads, and equipment is still questionable because

reliable values and quantities for many of these assets have not been

established. Therefore, as we reported in December 1996, the Forest

Service continues to be exposed to mismanagement and misuse of these

assets.

Each region was scheduled to complete equipment inventories verifying

that all items are accounted for by July 31, 1997. Written certifications

were due from the units to Financial Management staff by September 30,

1997. However, one of the Forest Service’s 10 regions5

 did not complete its

certification until February 12, 1998. The remaining inventories of land,

buildings, and roads are to be completed and certified by June 30, 1998.

Until these counts are completed and recorded in the accounting records,

the correct quantities and costs of these assets will not be determinable.

Therefore, the Congress cannot be assured that Forest Service requests for

funds related to roads and buildings are fully warranted.

In addition, the Forest Service still lacks supporting records (a subsidiary

ledger system) to substantiate, at a detailed level, amounts the agency

owes to others (accounts payable) or is owed by others (accounts

receivable). Also, an IG official told us in February 1998 that the Forest

Service still lacks adequate controls to ensure that all billings for timber

sales and other revenue-generating activities are submitted and accurately

recorded and recognized as income in a timely manner.

5

The Forest Service has 10 regions, including the Washington Regional Office, and 7 Research Stations.

Page 7 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

Good internal controls over accounts payable and accounts receivable are

critical to effective cash management. For example, if the Forest Service

underbills a customer, does not bill a customer, or does not collect from a

customer because of weak controls over its accounts receivable, it may

have fewer funds to carry out its mission or it may require additional

appropriations from the Congress. For fiscal year 1995, the Forest Service

reported accounts receivable of $192 million and accounts payable of

$298 million.

Further, until the Forest Service completes its asset inventories and

valuations and implements better controls over receivables and payables,

Forest Service managers’ ability to accurately report program performance

measures as well as monitor revenue and spending levels will be

hampered.

Some Staffing Issues

Resolved but Key

Positions Still Vacant

The Forest Service has a designated staff person to direct Forest Service

aspects of FFIS implementation activities on a full-time basis. This

individual is responsible for working closely with the Forest Service, OCFO,

and an outside contractor to oversee implementation of the new system.

In addition, key vacant financial management positions have been

advertised and job offers have been made to some applicants. However,

the Director and Deputy Director positions for Financial Management in

Washington, D.C., have been vacant since October 3, 1997, and January 1,

1998, respectively, due to retirements. A Regional Fiscal Director is

currently serving as Acting Director until this Senior Executive Service

position, which is not within the exclusive hiring authority6

 of the Forest

Service, is filled. These positions require staff possessing a strong financial

management background, including experience in accounting, budgeting,

and financial systems. These positions are important to the

implementation of FFIS as well as continuation of day-to-day Forest Service

operations. Forest Service officials said they anticipate that all key

financial management vacancies will be filled by March 1998.

The Forest Service still has not concluded its evaluation of the agency’s

overall financial management structure and workload requirements at all

levels. Under the Forest Service’s current financial management

organizational structure, the budget office reports to the Deputy Chief for

Programs and Legislation, while the financial management office reports

6

According to a Forest Service official, Senior Executive Service positions must be recommended by a

panel composed of Forest Service staff and representatives from other USDA agencies.

Page 8 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

to the Deputy Chief for Operations.7 An accounting firm is currently

evaluating the financial management organizational structure, workload,

and staffing levels for the Forest Service. According to the Acting Director

of Financial Management, this firm is scheduled to issue its report in

March 1998. As we reported in August 1997, until this evaluation is

completed, the Forest Service cannot determine if its current overall

financial management organizational structure and resources are

sufficient to accomplish the remaining tasks required to achieve financial

accountability within established time frames.

Sustained Leadership

and Commitment of

All Key Staff Are

Needed

Top management (Forest Service Chief, Special Assistant to the Chief, and

Acting Deputy Chief of Operations) has taken several steps to make

needed improvements. For example, Forest Service officials have

dedicated resources to implement corrective measures, participated in

numerous planning sessions where critical tasks were discussed and

milestones were established, and emphasized to staff the need to establish

financial accountability.

In addition, top management has initiated bimonthly meetings with Fiscal

Directors from the 10 Forest Service regions and 7 Research Stations to

monitor the overall financial management improvement effort, including

FFIS implementation activities, and ensure that (1) initiatives are

implemented as planned and (2) obstacles are identified and removed.

Further, management has continued to stress the importance of financial

management by including it as a performance rating element for both

Fiscal Directors and Regional Foresters.

Fiscal Directors or other key fiscal staff from 9 of the 10 regions

participated in a recent planning meeting where the three pilot units

presented information on implementation problems and provided advice

on how the remaining regions could better prepare for successful FFIS

implementation. Participants also reviewed the agency’s FFIS

implementation plan, identified and discussed remaining activities, and

discussed ways to address staff shortages. Given the importance of this

meeting to the success of implementing FFIS agencywide, the absence of

one region—which accounts for 12 percent of the Forest Service’s

budget—raises concern about the region’s commitment and top

management’s ability to effectively lead this effort toward financial

accountability.

7

USDA as a whole has the same financial management organizational structure.

Page 9 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

The Forest Service’s autonomous structure may hinder top management’s

ability to get all Regional Fiscal Directors to participate. Regional Fiscal

Directors are under the direct authority of their respective Regional

Foresters, who report to the Chief of the Forest Service rather than to the

Deputy Chief of Operations. The Deputy Chief of Operations, located in

the national office, oversees implementation of FFIS for the Forest Service.

We were told that the Fiscal Director from the one region—the same

region that was about 5 months late certifying equipment

inventories—was absent due to other priorities of the Regional Forester.

Strong leadership in resolving the remaining obstacles and participation by

all regions are required throughout the effort for the Forest Service to

achieve and sustain financial accountability by the end of fiscal year 1999

and thereafter.

Conclusions While corrective measures are underway, few of the problems reported by

the IG in the fiscal year 1995 audit report and that we analyzed in our initial

report to you have been fully resolved. In addition, new hurdles such as

FFIS’ current inability to generate budgetary and financial reports and the

need to satisfactorily resolve the Year 2000 issue must be addressed. It is

not yet clear whether the Forest Service will be successful in its efforts to

resolve these problems by the end of fiscal year 1999. Much work still

remains to be done before this goal can be achieved.

Agency Comments

and Our Evaluation

We received oral comments from the Special Assistant to the Chief, Forest

Service; the Acting Deputy Chief of Operations, Forest Service; the Acting

Director of Financial Management, Forest Service; the Acting Chief

Financial Officer, USDA, and his staff; and staff from the IG’s office. The

following issues were raised during our discussion.

• Forest Service and OCFO officials stated that, as with any major system

implementation, they anticipated problems with implementing FFIS in the

pilot units and stated they are moving to deal with problems identified.

• Forest Service officials did not agree with our assessment of the agency’s

autonomous structure and how that might hinder top management’s ability

to ensure that all Regional Fiscal Directors participate in the financial

management improvement effort. The Acting Deputy Chief of Operations

said that the current structure does not prevent him from achieving his

financial management goals because he works very closely with all the

Regional Foresters on these issues. Also, he stated that discussions have

Page 10 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

been held with the Regional Forester and Fiscal Director of the region that

has not fully participated in the financial improvement efforts. He added

that this region will fully participate from now on.

• Forest Service and OCFO officials believed that more emphasis on the

progress they have made in correcting the identified financial management

deficiencies should have been included in the report.

Regarding the first issue, the number and nature of problems encountered

during the FFIS pilot indicate that additional testing was needed. Such

testing should have identified many of these problems, which could have

been resolved before FFIS was piloted. Second, we believe that for this

effort to be successful the Deputy Chief for Operations must take

whatever action is necessary to ensure that Regional Fiscal Directors

focus their priorities on correcting the identified financial management

deficiencies. Finally, we agree that some progress has been made in

correcting financial management deficiencies and revised certain sections

of the report to better reflect this.

These officials also provided clarifying comments that we incorporated

into our report as appropriate.

We are sending copies of this report to the Ranking Minority Member of

your Committee; the Secretary of Agriculture; the Chief of the Forest

Service; the Special Assistant to the Chief; USDA’s Acting Chief Financial

Officer; the Acting Deputy Chief of Operations; the Acting Director of

Financial Management; the Director of the Office of Management and

Budget; and other interested parties. Copies will also be made available to

others upon request.

Page 11 GAO/AIMD-98-84 Forest Service Financial Management Progress
B-279017 

We will continue to monitor the Forest Service’s effort and report to you.

If you have any questions about this report, please call me at

(202) 512-8341 or McCoy Williams, Assistant Director, at (202) 512-6906.

Major contributors to this report are listed in appendix I.

Sincerely yours,

Linda M. Calbom

Director, Resources, Community,

 and Economic Development, Accounting

 and Financial Management Issues

Page 12 GAO/AIMD-98-84 Forest Service Financial Management Progress
Page 13 GAO/AIMD-98-84 Forest Service Financial Management Progress
Appendix I 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D. C.

McCoy Williams, Assistant Director

Meg Mills, Communications Analyst

Kansas City Regional

Office

Anita Lenoir, Auditor-in-Charge

Maria Rodriguez, Auditor

(913820) Page 14 GAO/AIMD-98-84 Forest Service Financial Management Progress
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100