United States General Accounting Office

GAO Report to Congressional Requesters

August 1998 FOREST SERVICE

Better Procedures and

Oversight Needed to

Address Indirect

Expenditures

GAO/RCED-98-258

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-280732 

August 28, 1998

Congressional Requesters

In response to your interest in overhead costs at the Forest Service, we

examined the issue in a May 1998 report and found that such costs—called

“indirect” by the Forest Service—had risen over time.1

 According to the

Forest Service’s data, these costs grew from 16 percent to 27 percent of

total expenditures between fiscal years 1993 and 1997 for the five funds we

reviewed—the Brush Disposal Fund, the Salvage Sale Fund, the

Reforestation Trust Fund, the Cooperative Work—Other Fund, and the

Cooperative Work—Knutson-Vandenberg (K-V) Fund.2

 In response to this

increase, you next requested that we identify (1) the reasons why indirect

costs rose; (2) actions taken by the Forest Service and others to control

these costs; and (3) other actions that may help the Forest Service control

these costs in the future.

We based this portion of our review on work at the Forest Service’s

Washington Office and in four of its nine regions—the Southwestern,

Rocky Mountain, Pacific Southwest, and Pacific Northwest regions. These

regions were selected because together they represented a mix of high and

low indirect costs and small and large timber sale programs. Additional

information on the offices reviewed is provided in appendix II.

Results in Brief Inconsistencies in the Forest Service’s accounting system make it difficult

to ascertain specifically why indirect costs rose for these five funds during

fiscal years 1993-97. According to the Forest Service, indirect costs rose

for four main reasons: the implementation of a congressionally established

program to increase the amount of salvage timber offered for sale,

additional costs associated with downsizing, the allocation of costs

incurred in previous years but not charged against the funds at the time,

and computer modernization. However, during this same time period, the

Forest Service was changing its policies about how to account for indirect

costs, and individual regions and forests were implementing these policies

in markedly different ways. As a result, the accounting system produced

information that was not consistent from year to year or location to

location. Neither we nor the Forest Service is able to say how much

indirect costs increased as a result of the factors the Forest Service cites

and how much they changed because of these accounting inconsistencies.

1

Forest Service: Indirect Expenditures Charged to Five Funds (GAO/RCED-98-164R, May 6, 1998).

2

See app. I for a description of each of these funds.

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To control costs, the Forest Service took a number of actions, most of

which were aimed at reducing costs generally and not targeted specifically

at indirect costs. In particular, the agency reduced its permanent staff by

14 percent, and individual regions used a variety of other measures,

including closing some district offices; consolidating others; and

centralizing certain administrative functions, such as contracting and

procurement. For their part, congressional appropriation committees

reduced the budget line item for some indirect costs. One way the Forest

Service responded to the reductions was to reclassify some indirect costs

to other accounts.

An essential step for controlling indirect costs is establishing clear

definitions for them and applying the definitions consistently over time

and across locations. If implemented properly, a new accounting standard

released by the Financial Accounting Standards Advisory Board, which

recommends accounting principles for the federal government, will go a

long way towards providing consistent and reliable data on the Forest

Service’s indirect costs. Just as important is ensuring that all of the

agency’s offices consistently implement guidance on these costs. Once the

problems with the Forest Service’s accounting system are solved and the

agency’s indirect costs are clearly known, there is the opportunity for

informed decisions to be made on how to control them.

Background In fiscal year 1996, the Forest Service reported that, for the first time, the

expenses associated with preparing and administering timber sales

exceeded the receipts generated by the sale of the timber. This loss

heightened the interest in the financial status and spending practices of

the Forest Service. After we reported that indirect expenditures had nearly

doubled in 5 years,3

 legislation was introduced in the House of

Representatives (H.R. 4149) to improve the fiscal accountability of the

Forest Service through an improved financial accounting system. This

legislation would first limit, and then eliminate, all indirect costs that

could be charged to the funds. In addition, H.R. 4193, the appropriations

bill for the Department of the Interior and related agencies for fiscal year

1999, contains provisions that would limit indirect costs to 25 percent of

total costs for the Salvage Sale Fund and eliminate them entirely for the K-V

Fund.

The Forest Service separates indirect costs into three main categories: line

management, common services, and program support (see fig. 1). Within

3

See app. III for a summary chart of indirect expenditures for each fund for fiscal years 1993-97.

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each of these categories, its accounting system further divides such costs

into two subcategories, differentiated on the basis of whether the cost can

readily be identified with a specific project or function. For example,

personnel support provided to the timber program can be readily

identified with a single program, while a management position providing

leadership for many programs (e.g., a forest supervisor) cannot. Costs that

can be readily identified with a project or program are called “benefiting

function” costs; costs that cannot be so identified are called “general

administration” costs.

Figure 1: Overview of Forest Service’s Accounting for Indirect Support Costs

Indirect Support Activities

Line management: Covers costs 

related to line officers and their 

identified staff. Line officers include 

district rangers, forest supervisors, 

regional foresters, and specifically 

named positions. Costs that can be 

assigned include salary, travel, 

training, vehicle-use, and secretarial 

support costs.

Common services: Covers 

nonpersonnel costs associated with 

providing space and a working 

environment for employees. It 

includes such costs as those for 

rent, utilities, communications, radio, 

office and computer equipment, mail 

and postage, office supplies, and 

forms.

Program support: Covers costs to 

coordinate, manage, and execute 

business activities, community 

involvement, and common service 

activities. It includes such costs as 

those for salaries, travel, and vehicle 

use for employees involved with 

coordinating and managing program 

support.

Benefiting 

function 

costs

General 

administration 

costs

Benefiting 

function 

costs

General 

administration 

costs

Benefiting 

function 

costs

General 

administration 

costs

The Forest Service derives its funding from two main

sources—congressional appropriations and trust and permanent funds

such as the five we reviewed.4

 Both sources of funding are used to pay for

4

In general, funding from trust and permanent funds covers certain activities for which the funds were

specifically established, such as reforestation or trail building.

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relevant indirect costs, but the funding mechanisms operate somewhat

differently for each source.

• When indirect costs are charged to appropriations, benefiting function

costs are charged to the appropriations made specifically for a program,

while general administration costs are charged to a separate budget line

item that covers general administration costs for all programs.

• When indirect costs are charged to a trust or permanent fund, both the

general administration and benefiting function costs are paid for by the

fund. Since 1995, Forest Service’s guidance has called for offices to

separate the accounting of these costs into the two subcategories of

general administration and benefiting function, although doing so is not

mandatory.

Factors Increasing

Indirect Costs

The Forest Service identified four main factors that have contributed to

the increase in indirect expenditures. However, year-to-year and

office-to-office differences in the accounting system hamper any effort to

determine the effect of any of these factors. Neither we nor Forest Service

officials can isolate the effect of these factors from the effects of

inconsistencies in the way the accounting system was implemented.

Factors Identified by the

Forest Service

According to the Forest Service, the four factors contributing most to

indirect cost increases during the 5-year review period were the

implementation of the emergency salvage timber sale program, employee

buyouts, the late assignment of costs, and a new computer system.

Emergency Salvage Timber

Sale Program

In July 1995, the Congress established the emergency salvage timber sale

program, commonly called the salvage rider. It was intended to increase

the amount of salvage timber offered and sold by instituting an expedited

sale process. As a result, regions with a large need for salvage sales

(among the regions we reviewed, the Pacific Southwest and Pacific

Northwest regions) experienced a sharp increase in both direct and

indirect expenditures to the Salvage Sale Fund. The rider ended on

December 31, 1996, but indirect expenditures continued to increase in two

of the four regions we reviewed through fiscal year 1997. A regional

official attributed this continued increase to the time lag between when

the direct “on-the-ground” work ended and when the work necessary to

administer and close the contracts and finish other administrative tasks

was completed.

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Employee Buyouts The Federal Workforce Restructuring Act of 1994 (Pub.L.

103-226) authorized executive agencies, including the Forest Service, to

conduct a buyout of employees who met certain criteria and wanted to

leave the agency. A buyout incentive payment of up to $25,000 per

employee was to be paid from appropriations or funds available to pay the

employee. The act also required agencies to pay the Office of Personnel

Management: (1) for fiscal years 1994 and 1995, 9 percent of the basic pay

for each employee that left and (2) for fiscal years 1995 through 1998, $80

for each remaining permanent employee (termed a “head tax”).

Consequently, Forest Service regions with large staffs in positions

classified as indirect have experienced increases in indirect expenditures.

For example, for the 5 years we reviewed, the Pacific Northwest Region

had more employees—some of them in indirect positions—than any other

region and accounted for almost half of the $2.5 million charged to the

funds since fiscal year 1994 for the head tax in the offices we reviewed.

Similarly, indirect expenditures for the Salvage Sale Fund at the

Washington Office increased almost $1.1 million between fiscal year 1994

and 1995. Of this amount, the Forest Service’s accounting records show

that $211,423 was the result of the head tax. For fiscal year 1995, Forest

Service officials stated that the National Finance Center5

 requested that

the agency account centrally for the head tax because the Center’s

computer system could not appropriately account for it. As a result, the

Washington Office funded the entire $2.6 million assessed to the agency in

that year, which included the $211,423 indirect cost charged to the Salvage

Sale Fund.

Late Assignment of Costs The Pacific Southwest Region experienced an increase in indirect

expenditures charged to the K-V, Brush Disposal and Salvage Sale funds in

fiscal year 1997. According to regional office officials, this increase

occurred because the Washington Office billed the region for about

$5 million in charges for rent, telephones, and unemployment and

disability payments that the region had incurred in fiscal years 1992, 1993,

and 1994. The region had not expected to be billed for these costs at such

a late date, so it had dismissed the associated obligations for those years.

Other offices were also affected by this late assignment of costs.

New Computer System The regions and most funds experienced a rise in expenditures in fiscal

years 1995, 1996, and 1997 due to a modernization of the Forest Service’s

computer system. Agency officials stated that the software license fee

contract associated with this modernization is funded centrally through

5

The National Finance Center provides financial and administrative management services.

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the Washington Office. For the funds reviewed, this license fee increased

the Washington Office’s indirect expenditures by $762,000 in fiscal year

1996 and $885,000 in fiscal year 1997. Regions are assessed for their share

of the hardware and related technical support costs. Between fiscal years

1993 and 1997, charges for computer related indirect expenditures to the

Salvage Sale Fund in the Pacific Northwest Region, for example, increased

from $22,000 to $556,000.

Accounting System’s

Inconsistencies

Although Forest Service officials could broadly quantify the rise in indirect

expenditures associated with the four major factors just discussed, they

could not separate what increases were specifically attributable to these

factors from those caused by inconsistencies in the way indirect costs are

recorded. During the 5-year review period, definitions of indirect costs

changed, and offices often decided how, when, and whether to implement

guidance issued by the Washington Office. Changing definitions and

inconsistent implementation of accounting system guidance created data

that were not comparable from year to year or office to office.

Changing Definitions and

Policies

In order to determine why costs increased, it is necessary to have data that

are comparable from year to year. However, over our 5-year review period,

the instructions explaining how to account for indirect costs changed

several times. For example, agency officials stated that prior to fiscal year

1994, there was no central and specific policy on how rent, utilities, and

communications costs were to be charged. While the majority of the cost

for rent charged to the funds was classified as a direct cost, some offices

classified rent as an indirect cost, and still others classified it as both. The

Forest Service recognized that a better system was needed to track

indirect costs. Towards this end, the Forest Service established the

common services category for rent, utilities, and communications costs in

that fiscal year.

However, the impact of this new account cannot be clearly measured. For

example, in fiscal year 1993, rent charged to the Salvage Sale Fund in the

Southwestern Region included $12,000 classified as direct and $1,000

classified as indirect. In fiscal year 1994, the Salvage Sale Fund had no rent

classified as direct and $23,000 classified as indirect. Although rent costs

charged to this fund nearly doubled, it is unclear how much of this change

was attributable to an actual increase in rent and how much was

attributable to the use of the new common services account.

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Other changes were brought about by policy decisions. For example, in

fiscal year 1993, indirect expenditures as a percentage of total

expenditures were less than 1 percent for the Reforestation Trust Fund.

After determining that not all regions were assessing this fund for general

administration costs, the Washington Office directed that the fund be

assessed starting in fiscal year 1994. After the Washington Office’s request,

national indirect expenditures for this fund jumped to 13 percent of its

total expenditures in fiscal year 1994. However, a Washington Office

official stated that the Office inadvertently excluded this fund from its own

general administration assessments until fiscal year 1996. Again, we

cannot determine the extent to which the increase reflects a cost increase

or simply the assessment of the fund for general administration costs.

Inconsistent Application of

Policies by Forest Service

Offices

Even when provided with direction from the Washington Office, individual

offices will often determine how, when, and whether to implement various

aspects of the current accounting system for recording indirect

expenditures. This independence adversely impacted the Forest Service’s

ability to provide us with the specific amounts associated with the reasons

given for cost increases. For example, although instructed to start

assessing the Reforestation Trust Fund for general administration costs

starting in fiscal year 1994, the Rocky Mountain and Southwestern regions

did not start doing so until fiscal year 1995. Such choices produce

inconsistencies that affect the comparability of data and the ability to

isolate specific reasons for expenditure increases. To similar effect,

individual offices make many of the decisions regarding how to assess and

allocate indirect costs to the funds and whether to classify certain costs as

direct or indirect, as these examples show:

• The Pacific Southwestern Region lets its forests decide how to allocate

unemployment costs, according to an official there. Some forests consider

these costs direct, and others consider them indirect. As a result, the

expenditures reported by the region contain amounts that are classified

differently from forest to forest.

• In the Rocky Mountain Region, almost no indirect expenditures are

charged to the Cooperative Work—Other Fund because, according to a

regional official, some managers are reluctant to burden the fund’s

contributors—such as commercial users of forest roads—with indirect

costs. The regional supplement to the Forest Service Manual supports this

decision by saying that “Contributors do not need to be assessed for

overhead charges if the contributors are unwilling to accept them.”

• Since fiscal year 1995, the Rocky Mountain Region has classified rent

charged to the Brush Disposal Fund entirely as an indirect cost, whereas

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the Southwestern Region has classified rent charged to the same fund both

as a direct and an indirect cost.

• In the Pacific Southwest Region, an official stated that expenses for timber

resource clerks in some forests are classified as a direct cost to the funds

but in other forests are classified as an indirect cost.

• At the Washington Office, officials told us that the majority of the increase

in the indirect expenditures to the Salvage Sale Fund in fiscal years 1996

and 1997 occurred to charge the correct amount and to compensate for

what were determined to be underassessments for general administration

during fiscal years 1993-95.

Impact of All Factors

Cannot Be Quantified

Although the Forest Service can trace some of the increases in indirect

costs to the four major factors discussed above, changing definitions and

inconsistent implementation of policies hamper the agency’s efforts to

explain all the increases. For example, in the Pacific Southwest Region,

four indirect expenditure categories in the Salvage Sale Fund increased

$2.5 million from fiscal year 1995 to 1996. Financial records show that

indirect automated data processing (ADP) expenditures rose $221,000; rent

by $103,000; salaries by $251,000; and materials, supplies, and other

services by $1.9 million. While the increase in ADP expenditures might be

explained by the additional expenditures associated with the

modernization of the computer system, regional officials cannot

specifically isolate the amount that rent or salaries rose because of factors

such as the salvage sale rider from increases that may have resulted from

policy changes.

The explanation of why the region had such a sharp increase in materials,

supplies, and other services illustrates another reason why indirect cost

increases are so difficult to isolate. Agency officials explained that this

increase occurred because it was the Salvage Sale Fund’s turn to pay for

the “pooled” general administration assessment for the Forest Service’s

contract with the National Finance Center. Forest Service regions often

“pool” the assessment to simplify budgeting procedures. For example,

instead of assessing each fund individually for its share of costs from the

National Finance Center, each fund places its allotted share for general

administration into a pool, with the entire cost then being shown as

charged against one fund instead of five. In this case, it was the Salvage

Sale Fund’s year to bear the pooled amount for the National Finance

Center. While pooling may simplify budgeting procedures, it has hindered

efforts to isolate and explain individual cost increases.

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Actions Taken to

Control Costs

Overall, the Forest Service reduced its permanent staff by 14 percent

during the 5-year period of our review, and individual offices implemented

additional measures designed to reduce costs. Most of these efforts have

been aimed at reducing costs generally and have not been targeted

specifically at indirect expenditures. The congressional appropriations

committees also reduced the budget line item for general administration

during the period, but one way the Forest Service responded to the

decrease was by reclassifying some general administration activities as

benefiting function activities.

Actions Initiated by the

Forest Service

The regions actively participated in the Forest Service’s national

downsizing effort. In the four regions we reviewed, the downsizing

resulted in staff reductions ranging from 8 to 23 percent. However, during

the 5-year period, indirect salary expenditures charged to the five funds

dropped appreciably only in the Rocky Mountain Region. They decreased

slightly in the Pacific Southwest and Pacific Northwest regions and rose

slightly in the Southwestern Region. The Washington Office also saw an

increase. Because of the combined effect of the other factors already

discussed, we cannot isolate the extent of the impact that downsizing had

on indirect expenditures charged to these funds.

Regions and forests also pursued other measures designed to reduce both

direct and indirect costs. These included closing offices, consolidating

offices, and centralizing administrative functions.

Office Closures During our 5-year review period, a total of five district offices were closed

in the four regions we visited. Estimates of cumulative savings from these

five closures totaled about $1.6 million, but the savings were not identified

as direct or indirect costs. Regional officials stated that closing offices is a

very effective way to reduce costs, but they consider it a time-consuming

and complicated process. A Washington Office official noted that for fiscal

years 1996 and 1997, provisions in the appropriations law prohibited the

agency from closing offices without specific congressional approval.6

 He

also stated that even before being submitted to the Congress for approval,

the proposed closures must first be approved by the Washington Office.

The whole approval process can take 2 years or more to complete.

Office Consolidations and

Centralization of Functions

Compared with office closures, office consolidations and the

centralization of certain administrative functions were more commonly

6

The prohibition against closing offices was not included in the 1998 appropriations law, and an official

in one of the four regions we reviewed said that the region is following through with a previously

studied closure.

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used in an effort to reduce total costs. While the Washington Office must

approve office consolidations, the process is less complicated than the one

for closures. In fiscal year 1998, the Washington Office has approved 15

ranger district consolidations involving 31 district offices in the regions we

reviewed. During our 5-year review period, examples of specific

consolidations and efforts to centralize administrative functions included

these:

• For the Black Hills National Forest, we were told that three district ranger

positions were eliminated when six districts were consolidated. The

remaining three district rangers oversee the six offices.

• According to a regional official, in fiscal year 1996 the Southwestern

Region received approval to consolidate two districts in one forest. Both

offices would remain open, and they would share a district ranger.

• According to a Rocky Mountain Regional official, in fiscal year 1996 the

region organized its forests into three administrative zones. By combining

16 units into three zones and thereby centralizing such administrative

processing functions as contracting and procurement, the region was able

to reduce administrative costs.

• According to a regional official, in fiscal year 1994 the Pacific Southwest

Region instituted its “Excellence in Administrative Organization” project

in an effort to control indirect costs. The region was divided into five

provinces, and certain types of administrative operations, such as

accounting, budgeting, and contracting, were centralized.

• In the Southwestern Region, as a result of consolidation, we were told that

three forests share a contracting officer and personnel staff. Also, the

region no longer has its own aircraft safety officer; it now shares one with

the Rocky Mountain Region.

Actions Taken by the

Congress

The Senate and House appropriations committees, in their committee and

conference reports, recommended a specified amount each year for the

general administration budget line item within the National Forest System

appropriation. This budget line item applies only for general

administration activities associated with appropriations and cannot be

used to fund general administration activities applicable to the trust and

permanent funds.

Between fiscal year 1993 and fiscal year 1997, the committees reduced the

recommended amount for general administration costs by about

14 percent. However, this reduction did not result in a corresponding

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decrease in indirect costs.7 One way that the Forest Service has been able

to comply with the reduction was by reclassifying costs previously

considered general administration costs to other indirect cost categories.

In doing so, the agency also implemented recommendations made by the

National Forest System General Administration Task Force in a 1992

report that was provided to the appropriations committees, and the Forest

Service described the reclassifications in the explanatory notes of its

budget. Reclassifications included these:

• In fiscal year 1993, for each forest supervisor’s office, the expenses for the

forest supervisor, deputies, and their secretarial support were classified as

general administration costs. By 1995, only the costs for the forest

supervisor and one secretary could be charged as general administration.

The other positions were reclassified and are now charged to other

indirect cost categories.

• In fiscal year 1993, up to five district ranger positions were included in

general administration. In fiscal year 1997, all such district support could

not be included in general administration and was reclassified.

The general administration budget line item cannot be used to fund

general administration activities in the permanent and trust funds;

therefore, the Forest Service has developed a method of assessing the

funds for such charges. The method used results in a percentage reflecting

the portion of the budget that general administration represents. If the

general administration budget line item is 12 percent of the total budget to

which it applies, then the Forest Service limits the general administration

costs that may be assessed to the funds to 12 percent of each fund’s annual

program level. Amounts that can be charged for other indirect cost

categories are limited by budget constraints. We were told by agency

officials that, in practice, many forests have chosen not to separately

identify general administration costs from other indirect costs charged to

the funds. Agency officials stated that forest officials found the distinction

confusing and unnecessary because all the costs charged to a fund are

paid for by that fund.

Actions Essential in

Controlling Indirect

Costs

In an effort to reduce overall costs, the Forest Service has closed and

consolidated offices, downsized, and centralized certain administrative

functions. However, these measures were not enough to keep indirect

expenditures from almost doubling in 5 years. Because individual offices

7

We discussed how this action did not result in reduced indirect costs in Forest Service: Effect of H.R.

4149 on Indirect Expenditures Charged to Four Funds (GAO/T-RCED-98-251, July 28, 1998).

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will often decide how to account for indirect costs, the accounting system

will not yield the data necessary to measure the savings in indirect costs

resulting from these actions. This condition is made worse by definitional

and other shifts that allow costs simply to be reclassified. Only after

consistent and reliable indirect cost data are produced can trends and

comparisons be studied and informed decisions made. An essential first

step for the Forest Service in controlling indirect costs is to know clearly

what these costs are from year to year and office to office.

A starting point for this effort involves establishing clear definitions for

indirect costs and applying them consistently over time. In this regard, the

Forest Service can be helped by a recent addition to the federal financial

accounting standards. In July 1995, the Financial Accounting Standards

Advisory Board, the group that recommends accounting principles for the

federal government, released Statement of Federal Financial Accounting

Standard (SFFAS) No. 4, Managerial Cost Accounting Concepts and

Standards for the Federal Government. Effective for federal agencies

starting with fiscal year 1998, this standard is “aimed at providing reliable

and timely information on the full cost of federal programs, their activities,

and outputs.”

Although the Forest Service was required to use the principles set forth in

SFFAS No. 4 on October 1, 1997, we were told by a Washington Office

official that the agency currently has a team discussing the possibility of

applying the principles to its existing accounting system. Properly

implementing this standard will go a long way towards providing cost data

upon which informed decisions about reducing costs can be based. Of

necessity, this endeavor will mean some changes in the way the Forest

Service classifies costs as direct or indirect, as the following examples

show.

Unemployment and Disability Costs. About 59 percent of the total

unemployment and disability costs charged to the five funds we reviewed

were indirect, totaling more than $16 million over the 5 years. If an

employee normally charges his or her time directly, then we believe that

SFFAS No. 4 requires that associated unemployment or disability costs

should also be charged directly. Because 76 percent of all salary costs

charged to the funds during the past 5 years were classified as direct,

proper implementation of SFFAS No. 4 should result in a substantial

lowering of the unemployment and disability costs classified as indirect.

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ADP Costs. In the regions we reviewed, 71 percent of the ADP costs charged

to the five funds were classified as indirect—a total of almost $10 million

in 5 years. Again, under SFFAS No. 4, we believe such costs would be

classified as direct to the degree that the employees associated with the

ADP costs normally charge their time that way. As with the assignment of

unemployment and disability costs, we would expect ADP costs to mirror

those of salaries and to be classified as direct whenever people to whom

they are assigned charge their time directly. Classifying these types of

costs as indirect overstates indirect costs overall and understates direct

costs.

Just as important as clarifying how costs should be classified, however, is

ensuring that Forest Service offices apply these classifications

consistently. If individual offices continue to vary in their decisions about

how, when, and whether to implement accounting policies and definitions,

the data produced will continue to have limited validity, and the Forest

Service will have little reliable information upon which to judge whether

indirect costs are truly rising or falling, let alone why. Because

centralization represents such a change in the Forest Service’s approach of

giving great latitude to local offices, oversight by Forest Service

headquarters and regional officials will be crucial to this effort.

Conclusions Over the 5-year period we reviewed, the Forest Service took many actions

to reduce costs, but indirect expenditures charged to the five funds

reviewed increased nonetheless. Thus far, congressional attempts to affect

indirect costs (through appropriations committees’ reducing the budget

line item recommended for general administration) also appear to provide

little assurance that such costs will actually be reduced. Instead, such

costs have often been redefined into other indirect cost categories.

However, incorporating the principles set forth in the Statement of Federal

Financial Accounting Standard No. 4 would go a long way towards

producing cost data that are consistent and reliable. But even the best

guidance will not produce consistent and reliable data if it is not uniformly

implemented by all offices. Solving these accounting system problems is

an essential first step in controlling indirect expenditures. Once these

problems are solved and indirect costs from year to year and office to

office are clearly known, there is the opportunity for informed decisions

about indirect costs and how to reduce them. At that point, approaches

could include requiring the Forest Service to reduce indirect costs by a set

amount and to report on what it has done or plans to do to achieve that

reduction.

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Recommendations To ensure that consistent and reliable cost data are available upon which

to base management decisions and monitor trends, we recommend that

the Secretary of Agriculture direct the Chief of the Forest Service to take

the following actions:

• Incorporate the Statement of Federal Financial Accounting Standards No.

4 into the Forest Service’s cost accounting system.

• Ensure that all offices consistently implement guidance with respect to

accounting for indirect costs and hold the offices accountable by following

up to make sure that the standards are being consistently used.

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

comment. The Forest Service’s letter commenting on the report (see app.

IV) states that the agency concurs with our recommendations and that it is

committed to developing definitions of indirect costs to be applied on a

national basis.

As we arranged with your offices, unless you publicly announce its

contents earlier, we plan no further distributions of this report until 30

days from the date of this letter. At that time, we will send copies to the

Secretary of Agriculture, the Chief of the Forest Service, and other

interested parties. We will also make copies available to others upon

request.

Major contributors to this report are listed in appendix V. If you or your

staff have any questions or wish to discuss this material further, please call

me at (206) 287-4810.

James K. Meissner

Associate Director, Energy,

 Resources, and Science Issues

Page 14 GAO/RCED-98-258 Indirect Costs at the Forest Service
B-280732 

List of Requesters

The Honorable Slade Gorton

Chairman, Subcommittee on Interior

 and Related Agencies

Committee on Appropriations

United States Senate

The Honorable Larry E. Craig

Chairman, Subcommittee on Forests

 and Public Land Management

Committee on Energy and Natural Resources

United States Senate

The Honorable Robert F. Smith

Chairman, Committee on Agriculture

House of Representatives

Page 15 GAO/RCED-98-258 Indirect Costs at the Forest Service
Contents

Letter 1

Appendix I 

Descriptions of the

Five Funds Examined

18

Brush Disposal Fund 18

Cooperative Work—Other Fund 18

Cooperative Work—Knutson-Vandenberg Fund 18

Reforestation Trust Fund 18

Salvage Sale Fund 18

Appendix II 

Objectives, Scope,

and Methodology

19

Appendix III 

General Summary of

Expenditures, All

Offices Combined

21

Appendix IV 

Comments From the

Forest Service

22

Appendix V 

Major Contributors to

This Report

23

Table Table II.1: Location and Area Administered by the Regions

Reviewed

19

Figure Figure 1: Overview of Forest Service’s Accounting for Indirect

Support Costs

3

Abbreviations

ADP automated data processing

GAO General Accounting Office

K-V Knutson-Vandenberg

SFFAS Statement of Federal Financial Accounting Standard

Page 16 GAO/RCED-98-258 Indirect Costs at the Forest Service
Page 17 GAO/RCED-98-258 Indirect Costs at the Forest Service
Appendix I 

Descriptions of the Five Funds Examined

Brush Disposal Fund A permanent appropriation that uses deposits from timber purchasers to

dispose of brush and other debris resulting from timber harvesting. It was

authorized by the Act of August 11, 1916, ch. 313, 39 Stat. 446, as amended.

(16 U.S.C. 490)

Cooperative

Work—Other Fund

A trust fund that uses deposits from “cooperators”—commercial users of

the forest road system—for the construction, reconstruction, and

maintenance of roads, trails, and other improvements. It was authorized

beginning with the Act of June 30, 1914, ch. 131, 38 Stat. 415, as amended.

(16 U.S.C. 498)

Cooperative

Work—KnutsonVandenberg Fund

A trust fund that uses deposits made by timber purchasers to reforest

timber sale areas. In addition to planting, these deposits may also be used

for eliminating unwanted vegetation on lands cut over by the purchasers

and for protecting and improving the future productivity of the renewable

resources on forest land in the sale areas, including sale area improvement

operations, maintenance, construction, reforestation, and wildlife habitat

management. The fund was authorized by the Act of June 9, 1930, ch. 416,

46 Stat. 527, as amended. (16 U.S.C. 576-576b)

Reforestation Trust

Fund

A trust fund that uses tariffs on imports of solid wood products to prevent

a backlog in reforestation and timber stand improvement work. It was

authorized by sec. 303 of the Recreational Boating Safety and Facilities

Improvement Act of 1980, Pub.L. 96-451, 94 Stat. 1983, as amended. (16

U.S.C. 1606a)

Salvage Sale Fund A permanent appropriation that uses receipts generated by the sale of

salvage timber to prepare and administer future salvage sales. It was

authorized by section 14(h) of the National Forest Management Act of

1976, Pub.L. 94-588, 90 Stat. 2949. (16 U.S.C. 472a (h))

Page 18 GAO/RCED-98-258 Indirect Costs at the Forest Service
Appendix II 

Objectives, Scope, and Methodology

Given the heightened interest in the financial status and spending habits of

the Forest Service, you asked us to provide data on indirect expenditures

charged to five Forest Service funds. We agreed to provide this

information in two phases. In phase one, we provided information on the

amount of indirect expenditures charged to these five funds between fiscal

years 1993 and 1997. This second phase has the three objectives of

identifying (1) the reasons why indirect costs rose, (2) actions taken by the

Forest Service and others to control these expenditures, and (3) other

actions that may help the Forest Service control such expenditures in the

future.

As agreed, we concentrated our detailed review on four regions and the

Washington Office. Because the five funds are mainly timber-related, we

chose the Pacific Southwest and Pacific Northwest regions because they

have large timber programs. We chose the Rocky Mountain Region

because it had lower indirect expenditures than any other region. We

selected the Southwestern Region because it is similar in size to the Rocky

Mountain Region yet had much higher indirect costs. We selected the

Washington Office because its indirect costs fluctuated widely and

increased significantly in some funds. Table II.1 provides each region’s

location and the geographic area it covers.

Table II.1: Location and Area

Administered by the Regions

Reviewed

Region Location Area administered

Rocky Mountain Lakewood,Colorado Colorado, Kansas,

Nebraska, South Dakota,

Eastern Wyoming

Southwestern Albuquerque, New Mexico Arizona, New Mexico

Pacific Southwest San Francisco, California California, Hawaii, Guam,

Trust Territories of the

Pacific Islands

Pacific Northwest Portland, Oregon Oregon, Washington

To obtain information on why indirect costs increased and what had been

done to control them, we interviewed knowledgeable officials at each

location visited. In addition, we reviewed pertinent files, financial records,

studies, reports and manuals and asked follow-up questions as dictated by

the document reviews.

After gathering information on what had caused costs to rise and fluctuate,

we reviewed various financial standards, laws, legislation, studies, and

manuals to determine how the costs might be controlled in the future. We

also interviewed Forest Service officials to obtain their suggestions.

Page 19 GAO/RCED-98-258 Indirect Costs at the Forest Service
Appendix II 

Objectives, Scope, and Methodology

Because of an ongoing lawsuit involving indirect expenditures charged to

the Cooperative Work—Knutson-Vandenberg Fund, you agreed that we

should not include this fund in our analysis of why indirect expenditures

increased.

We conducted our review from May through August 1998 in accordance

with generally accepted government auditing standards.

Page 20 GAO/RCED-98-258 Indirect Costs at the Forest Service
Appendix III 

General Summary of Expenditures, All

Offices Combined

Fund 1993 1994 1995 1996 1997

Brush Disposal Fund

Total expenditures $39,155,531 $32,682,801 $28,516,095 $24,779,148 $21,792,477

Indirect expenditures 7,276,062 8,296,252 9,269,824 7,628,872 7,451,007

Percent of indirect to total

expenditures 18.58% 25.38% 32.51% 30.79% 34.19%

Cooperative Work—Other Fund

Total expenditures $25,366,234 $34,089,814 $36,828,275 $38,449,576 $37,959,632

Indirect expenditures 3,248,775 3,424,970 4,471,326 3,659,738 3,409,289

Percent of indirect to total

expenditures 12.81% 10.05% 12.14% 9.52% 8.98%

Cooperative Work—K-V Fund

Total expenditures $172,845,447 $195,157,437 $182,381,980 $167,816,598 $166,324,646

Indirect expenditures 33,259,078 44,491,025 47,129,820 44,804,956 51,169,263

Percent of indirect to total

expenditures 19.24% 22.80% 25.84% 26.70% 30.76%

Reforestation Trust Fund

Total expenditures $31,868,201 $32,188,968 $26,971,033 30,590,737 $30,977,214

Indirect expenditures 260,642 4,230,938 6,271,400 6,974,873 6,635,364

Percent of indirect to total

expenditures 0.82% 13.14% 23.25% 22.80% 21.42%

Salvage Sale Fund

Total expenditures $144,277,887 $152,326,586 $157,419,033 $203,718,423 $180,135,263

Indirect expenditures 21,921,728 31,598,254 37,830,702 50,989,586 50,079,180

Percent of indirect to total

expenditures 15.19% 20.74% 24.03% 25.03% 27.80%

Note: In addition to the regions and the Washington Office, other offices such as the Forest

Experiment Stations also charge the five funds for indirect expenditures. Because these amounts

are relatively minor, we chose not to include them in the compilation of expenditures.

Page 21 GAO/RCED-98-258 Indirect Costs at the Forest Service
Appendix IV 

Comments From the Forest Service

Page 22 GAO/RCED-98-258 Indirect Costs at the Forest Service
Appendix V 

Major Contributors to This Report

Energy, Resources,

and Science Issues

Jonathan T. Bachman

Jill L. Berman

Victor S. Rezendes

Stanley G. Stenersen

William J. Temmler

Accounting and

Information

Management Division

Carla J. Lewis

Louis J. Schuster

McCoy Williams

Office of the General

Counsel

Doreen S. Feldman

Alysa Stiefel

(141208) Page 23 GAO/RCED-98-258 Indirect Costs at the Forest Service
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