http://www.fs.fed.us/
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FOREWORD

The 2006 Performance and Accountability Report has been prepared in accordance with the

Report Consolidation Act of 2000 and the Office of Management and Budget (OMB) Circular A136, Financial Reporting Requirements. As required by law, this document integrates the Forest

Service’s annual performance report with its annual consolidated and combined financial

statements as of and for the year ending September 30, 2006. It also includes the resulting

KPMG LLP (KPMG) audit report on the agency’s consolidated and combined financial

statements, internal controls over financial reporting, and compliance and other matters.

A summary of Forest Service accomplishments and plans for addressing major management

challenges and program risks, identified through Office of Inspector General (OIG) and

Government Accountability Office (GAO) reports, may be found in the Management’s Discussion

and Analysis section.

All comments regarding this report are welcome. To learn more about the Forest Service, visit

http://www.fs.fed.us.

Address comments to:

Forest Service, USDA

Strategic Planning and Resource Assessment Staff

Mail Stop 1129

1400 Independence Avenue, SW

Washington, DC 20250–1129

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CONTENTS

MESSAGE FROM THE CHIEF i

FOREWORD iii

PART A: MANAGEMENT’S DISCUSSION AND ANALYSIS A-1

Overview A-2

Mission Statement A-2

Organizational Structure A-2

Demands and Risks A-4

Financial Statement Highlights for 2006 A-6

Assets A-6

Liabilities and Net Position A-7

Net Cost of Operations A-8

Expenses A-8

Budgetary Resources A-9

Key Performance Goals and Results for 2006 A-10

Strategies and Resources A-10

Performance and Trends A-10

Reliable Performance Measurement A-12

Procedures over Performance Reporting A-16

President’s Management Agenda A-20

Management Controls, Systems, and Compliance with Laws A-30

FY 2006 Financial Statement Audit Report Results A-30

Federal Managers’ Financial Integrity Act A-30

Federal Financial Management Improvement Act A-32

Financial Management Systems A-34

Federal Information Security Management Act A-35

Inspector General Act Amendments of 1988 A-36

Improper Payments Information Act A-36

Internal Controls Over Financial Reporting (A-123, Appendix A) A-37

Anti-Deficiency Act Compliance A-38

Limitations of Financial Statements A-38

PART B: ANNUAL PERFORMANCE REPORT B-1

Components of the Annual Performance Report B-2

Goal 1: Reduce the Risk of Catastrophic Wildfire B-6

Goal 2: Reduce the Impacts from Invasive Species B-10

Goal 3: Provide Outdoor Recreational Opportunities B-13

Goal 4: Help Meet Energy Resource Needs B-18

Goal 5: Improve Watershed Condition B-21

Goal 6: Conduct Mission-Related Work to Support the Agency’s Goals B-24

External Audits and Reviews B-30

Major Management Challenges B-35

iv
PART C: FINANCIAL SECTION C-1

Message from the Chief Financial Officer C-2

Report of the Office of Inspector General C-3

Independent Auditor’s Report C-5

Management’s Response to Audit Report C-47

Consolidated Balance Sheets C-48

Consolidated Statements of Net Cost C-49

Consolidated Statements of Changes in Net Position C-50

Combined Statements of Budgetary Resources C-51

Consolidated Statements of Financing C-52

Notes to the Consolidated and Combined Financial Statements C-53

PART D: REQUIRED SUPPLEMENTARY INFORMATION D-1

PART E: REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION E-1

APPENDIX A: USDA FOREST SERVICE ORGANIZATIONAL CHARTS APPENDIX

A-1

APPENDIX B: ACRONYMS AND ABBREVIATIONS APPENDIX

B-1

APPENDIX C: FOUNDING LEGISLATION AND HISTORY OF THE FOREST

SERVICE’S TRADITIONAL ROLE

APPENDIX

C-1

APPENDIX D: WASHINGTON OFFICE OVERSIGHT PERFORMANCE REVIEWS APPENDIX

D-1

v
Part A

MANAGEMENT’S DISCUSSION

AND ANALYSIS

A-1
Management’s Discussion and Analysis—Unaudited

OVERVIEW

The Management’s Discussion and Analysis (MD&A) serves as a high-level overview of the U.S.

Department of Agriculture (USDA) Forest Service’s performance in fiscal year (FY) 2006. This report is

designed for those individuals interested in the progress and status of the agency.

The MD&A also discusses the agency’s compliance with legal and regulatory requirements, including the

Federal Managers’ Financial Integrity Act (FMFIA), the Federal Financial Management Improvement Act

(FFMIA), Inspector General Act, and other key legal and regulatory requirements. This MD&A presents

financial and performance highlights and related information, as well as the agency’s progress on the

President’s Management Agenda (PMA).

Mission Statement

The Forest Service operates under the following mission:

Sustain the health, diversity, and productivity of the Nation’s forests and grasslands to meet the

needs of present and future generations.

The Forest Service’s commitment to land stewardship and public service is the framework within which

the national forests and grasslands are managed.

Organizational Structure

The Forest Service operates under the guidance of the USDA Under Secretary for Natural Resources

and Environment. Forest Service policy is implemented through nine regional offices, six research offices,

one State and Private Forestry (S&PF) area office, the Forest Products Laboratory, the International

Institute of Tropical Forestry, with 868 administrative units (which include forests, districts, and research

labs) functioning in 46 States, Puerto Rico, and the Virgin Islands.

Reporting to the Chief are the deputy areas: Business Operations; Research and Development; National

Forest System (NFS); S&PF; as well as the Chief Financial Officer. Please see the Forest Service’s

organizational chart in Appendix A for additional information.

In the later sections of this audit report pertaining to the financial statements and notes, the discussion

revolves around “responsibility segments,” rather than deputy areas. Deputy areas are administrative

groupings while responsibility segments are constructs used to assess net costs.

The Forest Service's mission includes the following four major responsibility segments:

National Forests and Grasslands. This responsibility segment includes protection and management of an

estimated 193 million acres of NFS land, which includes 35 million acres of designated wilderness areas.

In addition, the Forest Service partners with other nations and organizations to foster global natural

resource conservation and sustainable development of the world’s forest resources.

Forest and Rangeland Research. This responsibility segment is responsible for research and

development of forestry and rangeland management practices to provide scientific and technical

knowledge for enhancing and protecting the economic productivity and environmental quality of the

estimated 1.6 billion acres of forests and associated rangelands in the United States.

State and Private Forestry. This responsibility segment uses cooperative agreements with State and local

governments, tribal governments, forest industries, and private landowners to help protect and manage

non-Federal forests and associated rangeland and watershed areas.

A-2
Management’s Discussion and Analysis—Unaudited

Wildland Fire Management. This responsibility segment is responsible for protection of life, property, and

natural resources on an estimated 193 million acres of NFS lands and the estimated 20 million acres of

adjacent State and private lands.

Some of the responsibility segment names are the same as those used for deputy areas, but the terms

are not synonymous.

A-3
Management’s Discussion and Analysis—Unaudited

DEMANDS AND RISKS

Several known demands and unforeseen risks may impact the USDA Forest Service’s organizational

capacity to meet its mission or financial responsibilities in the near term.

The legacy decentralization of the Forest Service proved beneficial from the standpoint of employees who

were highly knowledgeable about the local communities: from appropriate land management to meet the

local natural resource needs to developing local partnerships and handling local politics. Yet, there

proved to be parts of decentralization that were not as positive, such as the redundancy of the agency’s

administrative processes for finances, human resource management, and technical support. This

redundancy required an intensive use of resources and was unnecessarily expensive.

The Business Operations Transformation Program, now in its second year, is an agency wide initiative to

improve the Forest Service’s organizational efficiency over a span of several years. Chief Dale Bosworth

recently called this an “Agency Transformation,” emphasizing that all Forest Service employees are

responsible for the success of these changes to our business operations.

The transformation will standardize and centralize many of the budget and finance processes; improve

the quality and efficiency of the agency’s technology services; and standardize and centralize human

resource (HR) processes into a strategy for human capital management. The design of these

transforming projects will also increase the Forest Service’s ability to meet the needs of its internal and

external customers as the agency redirects critical funds from administrative functions back to missioncritical programs.

But, the newly centralized processes are not yet functioning at their most efficient and effective levels.

The Albuquerque Service Center (ASC) for Budget and Finance, which brought nearly 450 employees to

a consolidated center in FY 2005, continues to identify problems, monitor progress, and create solutions

to challenges, including travel and payment activity. Over the past year, large numbers of payments were

late to contractors, partners, utility companies, and employees, partially due to the consolidation of

services, but also because some services provided by the USDA’s Office of the Chief Financial Officer

(OCFO) in New Orleans, LA, were significantly reduced after Hurricane Katrina. The agency continues to

work diligently in overcoming these issues.

Further, as work with the National Finance Center (NFC) has gone more slowly than planned in

implementing new systems for human capital management, the Forest Service has delayed the move of

these functions to the ASC. Planned completion for the move is September 2007.

The Forest Service continues to have challenges in the early detection of invasive species and in

managing wildfire risks because State and local planning and zoning ordinances provide limited

protection of open spaces. Urban encroachment into large tracts of private forest lands has created a new

kind of rural community, and national forest and grassland program managers struggle to mitigate the

effects of urban sprawl.

The Chief of the Forest Service previously identified invasive species as a major threat to the Nation’s

forest and rangeland resources, but this must now be extended to aquatic invasive species. In a 2004

Program Assessment Rating Tool (PART) assessment, the Office of Management and Budget (OMB)

determined that the agency lacked focus, consistency, and cooperation across all deputy levels in the

development of invasive pest management strategies. Cooperation within the Forest Service and

collaboration with USDA Animal and Plant Health Inspection Service should improve the focus of and

consistency in managing forest pests and decrease the potential risk of infestations.

The Forest Service’s primary focus for invasives is their prevention, early detection, and eradication

before they become widespread and do extensive damage to ecosystems. Ongoing strategies include the

A-4
Management’s Discussion and Analysis—Unaudited

slow-the-spread strategy for gypsy moth infestations; conclusion of the early detection and rapid

response pilot study for bark beetles, with a planned 2007 national implementation; and an update to the

National Insect and Disease Map, with a national risk assessment of tree mortality due to major outbreaks

of insects and diseases.

Rising fire suppression expenditures are driving up the 10-year average suppression costs. These

expenditures are affecting the Forest Service’s ability to deliver an interdisciplinary program within a

constrained budget. Ongoing efforts to address rising suppression costs include a FY 2008 proposal of an

alternative budget process that partitions the suppression account into initial response and emergency

accounts. This proposal mitigates transfers of funds from other agency appropriations that have the

potential to disrupt or eliminate numerous activities and projects to manage forests and grasslands,

conduct research, or help State or private landowners manage their lands.

Although important to the mission, the expansion of National Response Plan assignments brings a

tremendous impact on the agency’s ability to meet its mission. Long-term participation in hurricane

recovery efforts and other assignments will further impede the agency’s primary firefighting mission and

may compromise attainment of the agency’s performance goals.

Law suits filed against the fire program may also impact the agency’s ability to fight wildland fire. Courts

have instructed the Forest Service to rethink the fire planning process as two fire management plans

have been determined to be decision-making documents and, therefore, are subject to the National

Environmental Policy Act (NEPA). The Forest Service is addressing this challenge by retooling the

existing format for fire management plans, separating NEPA decisions from those on staffing and budget.

The agency has also been required to complete a NEPA assessment on the use of retardant in fire

suppression. If regulatory agencies determine through an endangered species consultation that current

safeguards are not adequate, there is the potential for a reduced use of fire retardant, which may hinder

Forest Service effectiveness in limiting the size of some wildland fires.

A-5
Management’s Discussion and Analysis—Unaudited

FINANCIAL STATEMENT HIGHLIGHTS FOR 2006

The Forest Service produces a series of financial statements on a quarterly basis to summarize the

activity and associated financial position of the agency. The five principal statements are as follows:

 Balance Sheet

 Statement of Net Cost

 Statement of Changes in Net Position

 Statement of Budgetary Resources

 Statement of Financing

In producing these statements, the agency seeks to provide relevant, reliable, and accurate financial

information related to Forest Service activities. Analysis of the agency’s September 30, 2006, financial

statements provides the following highlights. The exhibits below reflect the comparative amounts for FY

2006 and FY 2005.

Assets

The Forest Service reports $7.7 billion in assets at the end of September 30, 2006. This represents a

decrease of 5 percent from FY 2005 amounts and is partially attributed to a decrease in Fund Balance

with Treasury (FBwT). FBwT for the periods ending September 30, 2006 and 2005, decreased $310

million, or 7 percent, due to catastrophic wildland fire activity.

The three major asset categories are shown in Exhibit 1.

Exhibit 1: Assets (in millions)

Difference ASSET 2006 2005

Dollars Percentages

General Property, Plant, and Equipment $3,585 $3,695 ($110) (3%)

Fund Balance with Treasury 3,877 4,187 (310) (7%)

Accounts Receivable, Intragovernmental, and

Non-Intragovernmental 254 269 (15) (6%)

Total of Major Categories $7,716 $8,151 ($435) (5%)

Other Asset Categories 25 20 5 25%

Grand Total Assets $7,741 $8,171 ($430) (5%)

General Property, Plant, and Equipment (General PP&E) consists primarily of forest road surface

improvements, culverts, bridges, campgrounds, administrative buildings, other structures, and equipment.

General PP&E also includes assets acquired by the Forest Service to be used for conducting business

activities, such as providing goods or services. General PP&E does not include the value of heritage

assets1 or stewardship assets2.

Heritage and stewardship assets do not have a readily identifiable financial value and are not recorded

within the financial statements of the Forest Service. A more in-depth discussion of heritage and

stewardship assets is presented in the Financial Statement Note 5 Heritage Assets and Stewardship

Land, and also the Required Supplementary Information.

 1

 Heritage assets are assets that are historical or significant for their natural, cultural, aesthetic, or other important attributes that are

expected to be preserved indefinitely.

2

 Stewardship assets are primarily land held by the agency as part of the NFS and not acquired for, or in connection with, other

General PP&E.

A-6
Management’s Discussion and Analysis—Unaudited

FBwT consists primarily of funds derived from congressional appropriations and funds held in trust for

accomplishing purposes specified by law. FBwT is available to the agency to pay authorized expenses

and to finance purchase commitments based on apportionments by the OMB. “Accounts receivable”

consists of amounts due from other Federal entities or the public as a result of the delivery of goods,

services, and specific activities performed by the Forest Service.

Liabilities and Net Position

Liabilities

The Forest Service reported $2.3 billion in liabilities as of September 30, 2006, representing probable

future expenditures arising from past events. This amount represents an increase of 15 percent from

September 30, 2005. This change was partially due to an increase in Other Liability Categories. For the

periods ending September 30, 2006 and 2005, the balance increased $347 million, or 37 percent,

primarily due to increased fire accruals.

The major liability amounts for accounts payable, unfunded leave, Federal Employees’ Compensation Act

(FECA) benefits, payments to States, and other liabilities appear in Exhibit 2.

Exhibit 2: Liabilities (in millions)

Difference LIABILITIES 2006 2005 Dollars Percentages

Accounts Payable, Intragovernmental and NonIntragovernmental $55 $134 ($79) (59%)

Unfunded Leave and FECA Benefits 592 579 13 2%

Payments to States 398 378 20 5%

Other Liability Categories 1,282 935 347 37%

Grand Total Liabilities $2,327 $2,026 $301 15%

Federal agencies, by law, cannot make any payments unless Congress has appropriated funds for such

payments and OMB has apportioned the funds. A portion of liabilities reported by the Forest Service

however, is currently not funded by congressional appropriations. For example, the unfunded amounts

include employees’ annual leave (earned, but not yet taken) and FECA benefits that have accrued to

cover liabilities associated with employees’ death, disability, medical, and other approved costs that have

not yet been appropriated.

A major program generating unfunded liabilities is the Payments to States, which is a program authorizing

annual revenue-sharing payments to States for public schools and public roads in the county or counties

in which the national forests are located. A portion of the Payments to States program is funded with

agency receipts; the balance is recorded as an unfunded liability for which the Department of Treasury

(Treasury) general receipts are apportioned in the following year when the payments are made.

The agency receipts are funds held by the Forest Service in special receipt accounts, pending transfer to

the appropriate party. A portion of the Payments to States to be paid in the next fiscal year is based on

receipts collected during the current fiscal year, while the remaining liability is funded by Treasury general

receipts.

Net Position

The Forest Service reported a net position of $5.4 billion for FY 2006, representing a decrease of 12

percent from FY 2005 amounts. The change is attributed to numerous factors, including a decrease in

Appropriations Received and an increase in Appropriations Used. Net position represents unexpended

appropriations consisting of undelivered orders, as well as unobligated funds and the cumulative results

A-7
Management’s Discussion and Analysis—Unaudited

of operations. In accordance with SFFAS 27 Identifying and Reporting Earmarked Funds, earmarked

funds that the USDA Forest Service has program management responsibility for are presented separately

on the Statement of Changes in Net Position, and both earmarked and other fund totals are included in

Exhibit 3.

Unexpended appropriations reflect the spending authority that is made available by congressional

appropriation, but has not been used. Cumulative results of operations reflect the cumulative effect of

financing in excess of expenditures.

Exhibit 3: Net Position (in millions)

Difference NET POSITION 2006 2005 Dollars Percentages

Unexpended Appropriations $1,054 $1,792 ($738) (42%)

Cumulative Results of Operations 4,360 4,353 7 1%

Total Net Position $5,414 $6,145 ($731) (12%)

Net Cost of Operations

The Forest Service’s net cost of operations was $5.9 billion for the year ended September 30, 2006.

Earned revenue from the public includes such items as the sale of forest products (timber and firewood);

recreational opportunities (campgrounds); mineral resources; livestock grazing; and special land use fees

for power generation, resorts, and other business activities conducted on NFS lands. The Forest Service

also performs reimbursable activities, such as work completed mainly for other Federal agencies, in

accordance with the Economy Act.

The Forest Service distributes a portion of its earned revenues to eligible States in accordance with laws

such as the Secure Rural Schools and Community Self-Determination Act of 2000, to benefit public

schools and roads in communities hosting national forests. These payments also pay for local forest

stewardship projects.

Expenses

Forest Service program costs are $6.9 billion for the year ended September 30, 2006, representing a 19-

percent increase from FY 2005. The agency spent significantly more fighting wildfires in 2006, during one

of the biggest fire seasons in recent years.

Exhibit 4 illustrates program costs by responsibility segment for the years ended September 30, 2006,

and September 30, 2005.

Exhibit 4: Gross Expenses (in millions)

Difference GROSS EXPENSES 2006 2005

Dollars Percentages

Program Costs

National Forests and Grasslands $3,521 $3,419 $102 3%

Forest and Rangeland Research 357 329 28 9%

State and Private Forestry 416 389 27 7%

Wildland Fire Management 2,643 1,694 949 56%

Total Program Costs $6,937 $5,831 $1,106 19%

A-8
Management’s Discussion and Analysis—Unaudited

Budgetary Resources

The Forest Service had budget authority of approximately $5.4 billion in FY 2006 and $5.8 billion in FY

2005. The funding received in FY 2006 represents a decrease of 7 percent from that received in FY 2005.

This is due primarily to a decrease in fire appropriations in FY 2006.

A-9
Management’s Discussion and Analysis—Unaudited

KEY PERFORMANCE GOALS AND RESULTS FOR 2006

Strategies and Resources

The Government Performance and Results Act (GPRA) provides a framework under which Federal

agencies prepare strategic plans, annual plans, and performance reports to set performance goals and

then report on the extent to which they are achieved. Within GPRA’s framework, Forest Service’s

executive leadership selected a set of key performance measures, the Executive Priorities, to measure

the agency’s effectiveness and results in the FY 2006 Audit Report. Several of these Executive Priorities

are long-standing measures of performance for the agency and its stakeholders. The remaining Executive

Priorities were developed in collaboration with USDA and OMB in several PART3 assessments since

2002. Please see the FY 2006 Annual Performance Report section of the Performance and Accountability

Report (P&AR), which will be issued during the first quarter of 2007 and available on the USDA Forest

Service’s web-site, for additional information on PART assessments. This report will be issued at a later

date.

Performance accountability is an integral part of the Forest Service’s operating standards for work

planning and accomplishment reporting. The agency assigns performance targets to Washington Office

Staffs, regions, stations, and the Northeast Area based on the Forest Service’s Strategic Goals and

Objectives, as well as input from executive leaders as to on-the-ground capability. Each Forest Service

unit then develops a program of work consisting of that unit’s specific projects, creating project plans in

the agency’s WorkPlan system that align with the strategic plan, congressional direction, resource

management plans, and budget allocation. Program managers and staffs are able to monitor and update

the WorkPlan projects throughout the fiscal year to reflect changed conditions.

The agency enters its performance data in designated systems or databases, and summarizes at the

regional level. The quality of the reported accomplishment data is reviewed at the regional level, requiring

regional foresters to certify that the Executive Priorities are complete and reliable, and document those

data items that do not meet the standard. Each region submits the certified regional performance to the

Washington Office Programs and Budget Analysis (P&BA) Staff prior to the agency reporting to USDA,

OMB, and Congress. The Associate Chief of the Forest Service then uses this certified performance

reporting in the individual performance evaluations for regional foresters and other senior executives.

Performance and Trends

The Forest Service projects fiscal yearend accomplishments for the Executive Priorities. Targets and

projected performance for FY 2006, actual performance for the Executive Priorities in FY 2005, and

trends for FYs 2002-2005, if available, may be found in Exhibit 5, Performance and Trends 2002—2006.

It is important to note that the FY 2006 achievements are preliminary and may change when the full 12

months of accomplishments are reported to P&BA in the first quarter of FY 2007.

In the FY 2007 Forest Service Budget Justification, the agency’s performance budget, program managers

provided explanations for unmet Executive Priority Measures from FY 2005, based on 12-month actual

accomplishments, reported in December 2005. See Chapter 3, Performance Management of the Budget

Justification, at http://www.fs.fed.us/aboutus/budget/.

Explanations for unmet 2005 Executive Priorities included:

 The success or failure of partnerships, with the Forest Service experiencing unexpected

opportunities or unpredictable results;

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 OMB’s PART is a systematic method to assess performance, focusing on a program’s contribution to achieving an agency’s

strategic and program performance goals.

A-10
Management’s Discussion and Analysis—Unaudited

 Measures not performing well against annual outputs, as they demonstrate unpredictable

variation year to year, and should be viewed as outcomes over multiple years; and

 Complex planning requirements for which meeting the target is conditional, or dependent upon

the approval of an unpredictable planning process.

At midyear in FY 2006, the regional offices reported their potential for meeting, or not meeting, the

Executive Priorities. National Program Managers could then take corrective action to attain these key

performance goals by fiscal yearend.

The Forest Service made progress in FY 2006 toward the strategic objective of “restoring and maintaining

species diversity in the terrestrial and aquatic ecosystems” in watersheds on NFS lands. Partnerships

attributed to over-accomplishment for “acres of terrestrial habitat enhanced or restored” due to leveraging

funds with contributions, while implementing projects that also reduced hazardous fuels. Often, it is the

case that the NEPA process and other prework were completed in FY 2005.

While some regions anticipated accomplishing less than the targeted amount at midyear for “miles of

stream enhanced or restored,” or “acres of lake habitat enhanced or restored,” the preliminary

performance reporting for the entire agency dispels this at 123.5 and 124.5 percent, respectively. The

Executive Priorities for “acres of terrestrial habitat enhanced” and “acres of lake habitat enhanced” were

also overachieved in FY 2005, but no further action was needed, as reported in the Forest Service’s FY

2007 Budget Justification. The agency attributed this overachievement to favorable weather conditions

and reconstruction of a nonfunctioning fish ladder, respectively.

Performance for the individual components of “acres of land adjustments to conserve the integrity of

undeveloped lands and habitat quality” varies from year to year, causing the trend to fluctuate. It is

reasonable to expect complex processes, such as conveyances and donations of land to extend longer

than a 12-month period; more often, these processes take a minimum of 18 months. In midyear

performance reporting, several regions anticipated unmet targets for this Executive Priority. Regions

reported that several expected land purchases proved unsuccessful:

 An offer was rejected by the landowner as being insufficient compensation;

 Difficulty in getting private owners to agree on a final sale configuration for appraisal; and

 Reconfiguration of an acquisition, resulting in the per acre purchase price being higher than initially

anticipated, resulting in fewer acres acquired.

However, by fiscal yearend, the preliminary combined performance was 151 percent, with “acres of

donations” and “acres protected by the Forest Legacy Program” over-accomplishing, and “acres of

conveyance” under-accomplishing its target.

Natural processes, such as long-term drought, affected the Executive Priority for “acres of hazardous

fuels treated,” resulting in fluctuations in annual performance and trend. Some regions reported underaccomplishment at midyear, stating that the risk was too great that prescribed fire treatments could

escape and, under current conditions, cause inadvertent consequences to local communities.

At midyear, the regions expected under-accomplishment for the “number of land management plans

(LMPs) developed and revised.” Those national forests and grasslands currently revising the LMPs under

the new planning rule reported needing more time for review by the regional offices and the national

program managers. The regions were experiencing schedule delays as the Forest Service interpreted the

new planning rule. The preliminary performance reporting for this Executive Priority supports the regions’

assertion with only 10 of the planned 20 LMPs completed by fiscal yearend.

There were other conditional constraints reported at midyear. One region reported that a level of funding

was not authorized to meet the targets for facilities maintained to standard, rights-of-way (ROW) acquired,

and trails maintained to standard. The lack of funding did not seriously affect the agency’s overall

A-11
Management’s Discussion and Analysis—Unaudited

accomplishment for these measures, with preliminary performance at 97.5 percent for “number of facilities

to standard,” 92 percent for “number of ROW acquired,” and 100 percent for “miles of trail maintained to

standard.” The over-accomplishment for “miles of trail maintained to standard” may have been due to the

shifting priority to the planning and implementation of the off-highway vehicle rule, as reported by another

region.

Reliable Performance Measurement

In 2005, the Forest Service issued an interim directive to improve internal control over performance data

reporting. The directive clarified the roles and responsibilities of line officers and Forest Service staff

positions, including staff directors and program managers. During FY 2005, every regional office

conducted two field reviews (at a national forest or grasslands) to assess the quality of data reported by

the field for the Executive Priorities. The same process was employed for FY 2006 in combination with

the Washington Office Oversight Reviews, performed by the P&BA Staff. Five regions performed

Performance Measure Review and Validation—the internal control reviews, and four regions hosted the

Washington Office for the Oversight Reviews. Please see the Annual Performance Report section of the

P&AR, which will be issued during the first quarter of FY 2007 and available on the USDA Forest

Service’s web-site, for the results of these reviews.

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Management’s Discussion and Analysis—Unaudited

Exhibit 5: Performance and Trends for 2002-2006

Trend in Actual Accomplishments Performance

2006 Preliminary 2006

Executive Priorities 2002 2003 2004 2005

Targets4 Effective 9/30 Results

Goal 1: Reduce the risk from catastrophic wildland fire

1.1.

a-c

Number of acres of hazardous fuels treated 1) in the wildland/urban interface (WUI); and 2) in Condition Classes 2 or 3 in Fire Regimes 1,2, or 3

outside the WUI

Acres treated with Direct Hazardous

Fuels dollars—WUI 764,367 1,114,106 1,320,317 --

Acres treated with Direct Hazardous

Fuels dollars—outside WUI 493,536 339,239 418,135 --

--

Acres treated within—WUI 1,581,302 1,383,000 1,181,470 85.4%

Acres treated—outside WUI 535,602 417,000 402,677 96.6%

Acres treated other dollars—WUI -- -- 274,330 --

Acres treated other dollars—outside

WUI -- -- 215,400 --

TOTAL acres treated 1,800,000 1,584,1475 88.0%

Percent of acres identified as high priority through collaboration 100% 100%

1.1.g Number of acres brought into

stewardship contracts -- -- 41,834 35,478 0 71,604 N/A

1.3.a

Percent of communities at risk6 with

completed and current fire

management plans or risk

assessments from National

Association of State Foresters

(NASF)

-- -- Protocol in

development 11,413 23% 22% 95.6%

1.3.b Number of acres covered by

partnership agreements -- 125,000 145,979 152,750 76,750 50.2%

For final numbers, see http://www.fs.fed.us/plan/par/2006/docs/revised-table-5.pdf

 4

 Forest Service adjusted FY 2006 targets after Congress appropriated the funding requested in the President’s Budget. Therefore, the targets will not match those in the Forest

Service’s FY 2006 Budget Justification—the agency’s performance budget.

5

 These Executive Priorities have changed in FY 2006, no longer requiring that acres treated in non-WUI be in Fire Regime 1, 2, or 3 and Condition Class 2 or 3.

6 The State Foresters are ultimately responsible for community hazard mitigation plans. They are not required to report the number of plans expected for completion in a current

fiscal year, as Forest Service reported in FY 2005.

A-13
Management’s Discussion and Analysis—Unaudited

Trend in Actual Accomplishments Performance

2006 Preliminary 2006

Executive Priorities 2002 2003 2004 2005

Targets4 Effective 9/30 Results

Goal 2: Reduce the impacts from invasive species

2.1.b Acres treated for selected invasive

species -- -- 1,066,921 1,083,566 574,351 -- --

-- Noxious weeds acres treated 130,868 138,742 103,703 120,040 80,800 -- --

Acres treated for selected invasive

species, noxious weeds, and

invasive plants on NFS, State, and

private lands

-- -- -- 1,203,606 655,151 931,0007 142.1%

Goal 3: Provide high-quality recreation while sustaining natural resources

3.1.a The 3-year average number of fatalities on the passenger car network

-- Miles of road maintained to standard

(high-clearance and passenger) 76,798 110,676 103,748 72,376 65,508 62,542 95.5%

3.1.a Miles of trail maintained to standard 30,649 30,608 23,160 25,208 20,557 22,599 110.0%

3.1.b Number of facilities to standard -- -- 15,465 26,238 26,970 26,289 97.5%

3.1.e Number of ROW acquired to provide

public access 182 229 172 158 91.9%

3.2.a

Percent of NFS lands covered by

travel management implementation

plans

-- -- -- -- Not targeted8 1,176,0009 N/A

Goal 4: Consider opportunities for energy development and the supporting infrastructure

4.1.a Percent of energy facility and corridor applications approved within prescribed timeframes

-- Percent of energy facility applications -- -- 65% 17% 45% 70% 155.5%

-- Percent of oil and gas applications -- -- 33% 12% 45% 28% 62.2%

For final numbers, see http://www.fs.fed.us/plan/par/2006/docs/revised-table-5.pdf

 7

This measure was tracked separately prior to FY 2006. The accomplishments for previous years and the FY 2006 individual targets are identified in the two lines above.

 FY 2006 accomplishments are now combined into one measure.

8

 The implementation schedule was not known at the time the Program Direction was published. The final implementation schedule was released in a letter from the Chief, dated

June 8, 2006 and assigned a target of 3 million acres for FY 2006.

9

 Percent of NFS lands, at 193 million acres would equal 0.6 percent. This is 1 percent in FY 2008 Department Estimate.

A-14
Management’s Discussion and Analysis—Unaudited

Trend in Actual Accomplishments Performance

2006 Preliminary 2006

Executive Priorities 2002 2003 2004 2005

Targets4 Effective 9/30 Results

Goal 5: Improve watershed condition

5.1.a

Number of inventoried forest and

grassland watersheds in fully

functioning condition as percentage

of all watersheds

-- -- 30% 30% 40% 31% 77.5%

5.1.b

Acres of nonindustrial private forest

land under approved stewardship

management plans

1,640,000 1,717,000 1,450,000 1,590,464 1,575,000 1,600,000 101.5%

5.3.a

Acres of terrestrial habitat enhanced

to achieve desired ecological

conditions

209,472 230,528 218,727 230,867 196,716 247,217 125.6%

5.3.a Miles of stream habitat enhanced to

achieve desired ecological conditions 2,001 1,375 1,788 1,623 1,457 1,799 123.4%

5.3.a Acres of lake habitat enhanced to

achieve desired ecological conditions 18,217 16,429 12,451 19,250 13,743 17,116 124.5%

Goal 6: Improve productivity and efficiency

6.1.a

Percent of Nation for which current10

Forest Inventory and Analysis (FIA)

is accessible to external customers

-- -- 76% 76% 72% 88% 122%

6.2.c Extent to which performance data

are current and complete -- -- 86% Baseline Not targeted 100% N/A

6.5.a

Number of Land and Resource

Management Plans developed and

revised

12 10 20 10 50%

6.3.a Acres of land adjustments to conserve the integrity of undeveloped lands and habitat quality

-- Acres adjusted (conveyed) 15,553 29,171 56,948 353,770 20,824 16,697 80.2%

-- Acres acquired (donated) 42,817 75,476 45,884 48,216 37,545 60,353 160.7%

-- Acres protected by Forest Legacy

Program 57,009 128,349 563,186 46,181 230,000 358,500 156%

TOTAL acres of land adjustments 114,749 232,996 666,018 448,167 288,369 435,550 151%

6.5.b Proportion of data in information

systems that is current to standard -- -- Protocol indevelopment

Protocol in

development Not targeted 44.48% N/A

6.5.c Number of forest plan monitoring

reports completed 92 91 96 105 90 92 102.2%

KPMG Grazing allotments with decisions

signed (NEPA) 543 317 48411 534

For final numbers, see http://www.fs.fed.us/plan/par/2006/docs/revised-table-5.pdf

 10

 FIA data made available to the public are quality assured and current (defined as less than 2 years old). Congressional hearings in 1999 exempted Alaska and Hawai’i from the

total land base (denominator) used for this measure. These lands were included in the total for FY 2004, creating a false decrease in the percent accomplished.

A-15
Management’s Discussion and Analysis—Unaudited

Procedures over Performance Reporting

In FY 2005, USDA Office of Inspector General (OIG) found that the usefulness of performance

measures and the accuracy of reporting processes within the Forest Service are often flawed.

This was attributed to the agency’s decentralized management structure and willingness to

delegate broad authority without having an adequate system of internal control to ensure that

policies established by top management are followed. In response, an interim directive (February

2005) implemented the first annual review by the regions, stations, and area (RSAs) to verify the

interpretation of the measures, adherence to standards and reporting schedules, and that data

quality or its limitations were recorded in supporting documentation. Through these reviews,

program managers across the agency identified inconsistencies in the field’s interpretation of

management’s direction. The results of these reviews were certified by line officers to assure

completeness and reliability.

Exhibit 6 is management’s direction to the field for reporting accomplishments for the Executive

Priorities.

Exhibit 6: Priority Measures, Data Sources, and Accomplishment Reporting

Executive

Priority

Data

Source How Accomplishments Are Reported

Number of acres of highpriority hazardous fuels

treated

The percent of these

acres that were identified

as “high priority” as

defined in the 10-Year

Implementation Plan

National Fire

Plan Operations

and Reporting

System

(NFPORS)

Timber

Information

Management

(TIM)

The Forest Service tracked this Executive Priority using these measures:

 Acres of non-wildland/urban interface (non-WUI) high-priority

hazardous fuels treated

 Acres of wildland/urban interface (WUI) high-priority hazardous

fuels treated

 Acres of forest lands treated to achieve healthier conditions

New in FY 2006 is the “forest lands treated to achieve healthier

conditions.” This measure is the number of acres of forest lands treated

using timber sales, with a primary purpose of achieving healthier

conditions or other desired conditions. This does not include timber sales

where the primary purpose is forest products production.

Field units report accomplishments when completed or contracted.

Number of acres covered

by stewardship contracts;

agreements awarded

Corporate Data

Warehouse

(CDW)

This measure is the number acres brought into stewardship contracts

based on either contract-awarded acres or executed agreement acres.

Percent of communities

at risk with completed

and current fire

management plans or

risk assessments

Washington

Office Staff

NFPORS

This measure is the number of completed projects that meet the standard

as identified in the National Fire Plan. The number of communities-at-risk

is published in the Federal Register.

The National Association of State Foresters (NASF) and State Foresters

are responsible for providing Community Wildfire Protection Plans

(CWPP) performance information to Forest Service regional office

contacts or NFPORS.

Number of acres covered

by partnership

agreements

Washington

Office S&PF

Staff

The measure is the number of acres of non-Federal hazardous fuels

treated through partnership agreements.

Number of acres treated

for selected invasive

species, noxious weeds,

and invasive plants on

NFS lands and S&PF

cooperators’ lands

Forest Health

Protection

(FHP) Database

NFPORS

WorkPlan

This measure is the total for acres of Federal and acres of S&PF

cooperators’ lands protected by one or more treatments to control

invasive pests and weeds. If thinning follows spraying, the acres count

only once.

The treatment and retreatment of invasive plant infestations, including

noxious weeds, contribute to this Executive Priority.

Accomplishment is reported either when the Forest Service completes

the treatment, or when contracted.

A-16
Management’s Discussion and Analysis—Unaudited

Executive

Priority

Data

Source How Accomplishments Are Reported

Miles of trails maintained

to standard WorkPlan This measure is the miles of trails receiving the annual amount ofmaintenance performed with the annual appropriation.

Miles of road maintained

12-month actual

performance

reported in

Roads

Accomplishment

Report (RAR)

This measure is the miles of road (passenger and high-clearance) on

which at least one maintenance activity is performed during the fiscal

year, measured without regard to width of road or number of lanes.

Performing a condition survey is not maintenance.

Number of facilities

maintained to standard Infra Number of facilities maintained to standard, including recreation sites.

Number of ROW

acquired WorkPlan

The Forest Service tracks the total number of road and trail Right of Way

(ROW) easements acquired, resolved through other lands activities, or by

cooperative effort. These activities coincide with Categories I, II, and III

on the existing annual Rights-of-Way Acquisition Report (FS-5400-25

4/92).

Number of acres of NFS

lands covered by travel

management

implementation plans

WorkPlan

This accomplishment is the acres of NFS lands on administrative units or

ranger districts for which a motor vehicle use map has been published in

conformance with new travel management regulation in 36 CFR 212.56.

Accomplishment is reported for all NFS acres when a unit has completed

the designation of routes and areas for motor vehicle use in conformance

with 36 CFR 212.51, and identified those designations in a motor vehicle

use map pursuant to 36 CFR 212.56.

There is no accomplishment until the use map is completed.

Number of oil and gas

applications processed in

prescribed timeframes

WorkPlan

This measure tracks the processing for applications within prescribed

timeframes:

 60 days, if the land availability decision is made

 18 months, if requiring a land availability decision

 180 days, if requiring an environmental assessment (EA)

 18 months, if requiring an environmental impact statement (EIS).

Units report a potential nomination as 1,000 acres if the lease application

is not filed. This is the numerator for the strategic plan measure, which is

a percent.

Number of energy facility

applications processed

within prescribed

timeframes

WorkPlan

This measure is the number of special use applications processed within

the projected timeline, as determined by the authorizing officer for electric

transmission lines, oil or gas pipelines, and renewable energy generation

facilities.

This is the numerator for the strategic plan measure, which is a percent.

Percent of watersheds in

fully functioning condition WorkPlan

Forests use coarse filter watershed analysis to assign fifth-level

hydrologic units into three condition classes. The focus is on watershed

stability and the ability to attain beneficial uses.

Acres of terrestrial

habitat restored or

enhanced WorkPlan

This measure is the total number of threatened and endangered species

and non-threatened and endangered species acres restored or enhanced

to achieve desired future condition of habitat. Management activities may

include prevention, control, and mitigation against infestations of invasive

species (plants, vertebrates, invertebrates, or pathogens) that impact

terrestrial wildlife and associated habitats.

Accomplishment is reported when the improvement is complete. If work

is contracted, the accomplishment is reported when the work is obligated.

Miles of streams restored WorkPlan

This measure reports the miles of anadromous and inland fish bearing

rivers and streams that were restored or enhanced using structural or

nonstructural improvements.

A-17
Management’s Discussion and Analysis—Unaudited

Executive

Priority

Data

Source How Accomplishments Are Reported

Acres of lakes restored WorkPlan

This measure reports the surface acres of anadromous and inland fishbearing lakes, ponds, and reservoirs, which were enhanced using

structural or non-structural improvements.

Number of acres of

nonindustrial private

forest (NIPF) under

approved stewardship

management plans

Performance

Measures

Accountability

System (PMAS)

This measure reports the number of acres of NIPF forest lands that are

covered by newly approved forest stewardship management plans.

Percent of the Nation for

which FIA information is

accessible to external

customers

FIA Staff Forest Inventory & Analysis (FIA) data available to the public are quality

assured and current (less than 2 years old).

Acres of lands acquired

or adjusted, including fee

title and conservation

easements, to conserve

the integrity of

undeveloped lands and

habitat quality on NFS

lands and S&PF

cooperators’ lands

WorkPlan,

Forest Legacy

Information

System (FLIS)

The Forest Service tracked this Executive Priority using these measures:

 Number of acres acquired through land purchase or donation,

including conservation easements or interests in land, for NFS

purposes.

 Number of acres acquired and conveyed, through land

exchanges, transfers, interchanges and conveyances, including

acres acquired and conveyed under the Small Tracts Act and

Townsite Act.

 Number of acres protected by the program through fee simple

purchases or conservation easements.

Accomplishments are reported when the documents of conveyance are

recorded within the fiscal year.

Number of LMP

revisions/new plans

completed

WorkPlan

This measure reports an accomplishment when a regional forester signs

a Record of Decision, based on a Final EIS. If multiple LMPs exist for an

administrative unit, it is possible for a unit to report more than one

accomplishment.

LMP monitoring and

evaluation reports WorkPlan

This accomplishment is reported when a unit completes an "Annual

Monitoring and Evaluation Report" in accordance with respective plan

requirements; regional direction; Forest Service Manual (FSM), Forest

Service Handbook (FSH), and planning regulation guidance on what to

monitor; and associated Washington Office policy direction.

Reports are based on monitoring data and information gathered during

the previous fiscal year; focus on evaluation of plan implementation; and

provide an overview of resource conditions and trends as they relate to

indicators and criteria for sustainability, with specific attention to the

effects of management on ecological system structure and function.

Extent to which

performance data are

current and complete

Washington

Office P&BA

Staff

The accomplishment is the percent of RSAs providing certification forms

that their unit’s accomplishment data is current and complete.

Proportion of data within

information systems that

are current to standard

Washington

Office Business

Operations Staff

The Forest Service Strategic Plan includes the strategic objective,

“Develop and maintain the processes and systems to provide and

analyze scientific and technical information to address agency priorities.”

The performance measure for this objective became the Executive

Priority, “proportion of data which is current to standard.”

FY 2006 is the first year the Forest Service had the capability to capture

this information, using both the Standard Data Evaluation Tool (SDET)

and the Resource Mapping Evaluation Toolset (RMET).

SDET measures tabular databases in certain developed national

applications. RMET measures Geographic Information Systems (GIS)

data at a national forest or grassland administrative unit. The Executive

Priority directly measures quantity, but not quality of these data. The

accomplishment reports:

A-18
Management’s Discussion and Analysis—Unaudited

Executive

Priority

Data

Source How Accomplishments Are Reported

 Automated Lands Project (ALP), selected core portions

 Resource Information System (NRIS), selected core portions

 Infra, for roads and trails, as they are significant components of

wildlife habitat

 GIS, for datasets with established Forest Service-wide standards

A-19
Management’s Discussion and Analysis—Unaudited

PRESIDENT’S MANAGEMENT AGENDA

The Deputy Chief for Business Operations provides oversight for the President’s Management

Agenda (PMA) implementation within the USDA Forest Service. These PMA initiatives are

integral to the strategy to improve the management and performance of the Federal Government

in the following five areas:

 Strategic Management of Human Capital

 Competitive Sourcing

 Improved Financial Performance

 Expanded Electronic Government

 Budget and Performance Integration

The PMA includes three scores toward its standards for achievement: green, yellow, and red. The

Forest Service is “Getting to Green” when it successfully demonstrates achievement for OMB’s

green standards for success. The following discussion demonstrates the agency’s results.

Strategic Management of Human Capital

OMB’S GREEN

STANDARD STATUS AND PROGRESS

Implemented a comprehensive Human Capital

Plan, analyzed the results, and integrated

them into decision making processes to drive

continuous improvement.

Prior to the implementation of the PMA, the Forest Service developed and

implemented a comprehensive Human Capital Management process in

partnership with the National Academy of Public Administration. One outcome of

the Human Capital Management process was the initiation of the agencywide

and regional workforce planning in FY 2001 and FY 2004, respectively, which

identified several key Human Capital issues:

 Projected attrition and hiring with a focus on staff and skill shortages in

key disciplines

 Impacts of an aging workforce

 Alignment of the workforce to meet mission priorities.

These issues were especially evident in the agency’s Business Operations

workforce, where attrition-based downsizing, increased retirements, and

geographic dispersion had created significant competency gaps, age-distribution

imbalances, and budget misalignments. In response, the agency implemented

the Business Operations Transformation Program, using the tools of competitive

sourcing and business process reengineering (BPR) as drivers of the process.

Throughout FY 2006, the Forest Service continued monitoring for improved

program delivery, realigned budgets, and reduced indirect costs; improved

tracking and evaluation of business process; and an increased capability to

develop key competencies, recruit trainees, and focus on priorities. The

increased number of retirements and the resulting skills deficits are drivers for

several agencywide initiatives for continuous improvement: the National Incident

Management Organization; the Leadership Success Program; and an ambitious

competitive sourcing program.

A-20
Management’s Discussion and Analysis—Unaudited

OMB’S GREEN

STANDARD STATUS AND PROGRESS

Analyzed and optimized existing

organizational structures from service and cost

perspectives, using redeployment and

delayering as necessary and integrating

competitive sourcing and E-Gov solutions; and

has process(es) in place to address future

changes in business needs.

Past BPR and competitive sourcing studies have recommended major

restructuring and, in some cases, centralization of business functions. This

restructuring is currently underway and will continue through FY 2008 for Budget

and Finance (B&F), IT, and Human Resource Management (HRM).

The former B&F organization of about 1,175 full-time equivalents (FTEs) has

been restructured at the ASC, to a centralized service center of approximately

450 employees. The business plan for this restructuring projects annual ongoing

steady-state savings of $38 million.

The former IT organization of about 1,200 FTEs has been restructured and fully

implemented into a new ISO, which successfully competed for the work under an

A-76 Competitive Sourcing process. This fully functional organization includes

approximately 600 employees in several centers and in the Washington Office.

The business plan for this restructuring projects an annual steady state savings

of $29 million.

The BPR study for HRM recommended that the former organization of about 800

FTEs be restructured into a centralized organization of 400 employees, most

would be in a central service center. The phased transition to the new HR

Service Center began operations of Phase I functions in the summer of 2006,

and will continue through completion in September 2007. The business plan for

this restructuring projects an annual steady state savings of $22 million.

Succession strategies, including structured

executive development programs, result in a

leadership talent pool and continuously

updated to achieve results.

The Forest Service has developed succession strategies and implemented

structured executive development programs to ensure a talented pool of future

leaders for the agency. In 2007, under the new centralized HR organization, a

training and development Center of Excellence will be established to provide a

strategic focus to Forest Service training and development. USDA’s AgLearn

learning management system will support employees as they develop their

individual development plans, register for courses, and record their professional

development.

The Senior Leader Development Program, a comprehensive year-long focus on

Office of Personnel Management’s leadership competencies, is the first in a

series of new leadership development programs that the Forest Service is

implementing over the next few years. In FY 2005, the first class of 40

participants graduated and, in FY 2006, there were two classes of 74

participants.

In addition to the long-term development program, the Forest Service offers

future leaders the opportunity to develop their potential through a national

curriculum designed for managers and supervisors. A total of 733 students were

reached by these courses in FY 2006: HR Management: What Supervisors and

Managers Need to Know, Practical Leadership Skills for New Managers and in

Leadership Skills for Experienced Supervisors and Managers.

The Forest Service also encourages its employees to apply for competitive

leadership development programs offered outside of the agency. Employees

from across the Forest Service compete for available slots in a variety of longterm programs. In FY 2006, 59 employees attended leadership development

programs outside the Forest Service: 31 are participating in USDA Graduate

School programs; 1 in Brookings – LEGIS; 11 in Leadership in a Democratic

Society; and 15 in Senior Executive Service (SES).

For any and all employees new to the Forest Service, a national New Employee

Orientation program provides Web-based orientation to complement the annual

New Employee Conference.

Has performance appraisal plans and awards

programs for all SES and managers, and more

than 60% of the workforce, that effectively:

 Link to agency mission, goals and

outcomes;

Both the Strategic Management of Human Capital and the Budget and

Performance Integration PMA initiatives require that Federal agencies: link to

agency mission, goals, and outcomes; hold employees accountable for results

appropriate for their level of responsibility; differentiate between various levels of

performance; and provide consequences based on performance.

A-21
Management’s Discussion and Analysis—Unaudited

OMB’S GREEN

STANDARD STATUS AND PROGRESS

 Hold employees accountable for results

appropriate for their level of

responsibility

 Differentiate between various levels of

performance (i.e., multiple performance

levels with at least one summary rating

above Fully Successful).; and

 Provide consequences based on

performance. The agency is working to

include all agency employees under

such systems.

USDA issued direction in FY 2004 that at least 60 percent of employees’

performance plans must align with agency mission and goals. The Forest

Service subsequently issued direction that 100 percent of agency employees

will have credible measures of performance, aligned with the mission and their

units’ performance goals and objectives.

In order to differentiate between various levels of performance, the Forest

Service planned to transition to a multilevel performance management system in

FY 2006. A framework was established within the existing pass/fail performance

appraisal program that is migrated to the multilevel plan. This transition has been

delayed until first quarter of FY 2007.

Reduced under representation, particularly in

mission-critical occupations and leadership

ranks; established processes to sustain

diversity.

The Forest Service’s National Recruitment Council coordinates recruitment

efforts, develops planning and recruitment tools, and provides direction for a

system of National Recruitment Initiatives, based at 12 targeted universities.

Since FY 2003, a system of monitoring and accountability has measured agency

progress in addressing key workforce planning issues. Results indicate minority

hiring in FY 2004 increased by over 50 percent over previous years and the use

of the Student Career Experience Program (SCEP) hiring authority had more

than doubled. Similar results continued through FY 2005 and into 2006. These

results enable the Forest Service to focus its hiring decisions and improve

diversity hiring.

Significantly reduced skill gaps in mission

critical occupations and competencies,

integrated competitive sourcing and E-Gov

solutions into gap reduction strategy.

A skill-gap analysis was conducted for 10 key occupations using the Logistics

Management Institute Workforce Analysis Model. After adjusting for program

shifts, the model indicated no skill-gaps projected in these 10 occupations

through FY 2008. Therefore, at this time, it is not anticipated that the Forest

Service will need to close skill gaps in mission critical occupations.

However, the agency plans to conduct competitive sourcing feasibility studies on

21,000 FTEs by FY 2009. The decisions that result from these studies could

result in changes in skill requirements and the shifting of some skills

requirements to outside of the agency increasing workforce flexibilities in times

of program shifts.

The Forest Service is maintaining an internal talent pool, for which competencies

for the mission-critical occupations were imported into the AgLearn system. Online and traditional classroom courses will be associated with these

competencies, so that employees can quickly and efficiently enroll in the courses

that best address their individual competency gaps.

The Forest Service and USDA are currently developing the capability of AgLearn

to measure competency gaps and track progress in closing them systemically on

an agencywide basis. For example, in FY 2006, a fire competency assessment

was conducted for teams responding to various types of emergencies. This

assessment identified the skill gaps in fire suppression activities, which justified

the need to establish the specialized National Incident Management

Organization teams on a permanent, rather than ad hoc basis.

Continuing through FY 2007, the Forest Service will undertake a major skill

transformation strategy involving its fire suppression workforce. The end result of

this strategy will be an increase in the agency’s professional workforce, focused

on the General Biological Science (401) occupational series. In the past 3

years, this series has shown a net annual growth rate of 8 percent per year

increasing from 1,451 permanent employees in 2003 to 1,807 permanent

employees at the beginning of 2006. Projections of attrition and accessions over

the next 5 years indicate no significant skill gaps even with a continued 8 percent

growth rate in the occupational series.

Has made significant progress and

demonstrates continued improvement toward

meeting agreed-upon aggressive hiring

timeline goals.

Approximately 80 percent of permanent staffing actions are accomplished using

the Avue Digital Service (ADS) On-line Classification and Staffing System.

Overall hiring cycles average 20 days from the closing date of the

announcement to job offer. Forest Service provided an analysis of SES actions

to USDA, identifying issues and opportunities to streamline the process for filling

SES positions.

A-22
Management’s Discussion and Analysis—Unaudited

OMB’S GREEN

STANDARD STATUS AND PROGRESS

timeline goals. SES positions.

Uses outcome measures to make human

capital decisions, demonstrate results, make

key program and budget decisions, and drive

continuous improvement in the agency.

The Forest Service was a key member of the team that successfully developed

the USDA Human Capital Accountability System. The agency continues to use

this tool to monitor progress in achieving milestones set down in the plan. Since

FY 2003, the Forest Service has reported quarterly in a detailed Human Capital

Management Report on its accomplishments in Human Capital Management

program areas.

The Office of Personnel Management conducted a Human Capital Management

and HR Accountability Review of the Forest Service’s headquarters and three

field offices in FY 2005, and acknowledged positive accomplishments in Talent

Management, Performance Culture, Leadership/Knowledge Management and

HR Accountability.

The Forest Service has designed the Performance Accountability System (PAS)

to integrate performance data and budget data systems into a single automated

tracking and reporting system. Once implemented, PAS will provide a vehicle

through which key performance metrics in all program areas, including Human

Capital Management, can be established, tracked, and reported in a

comprehensive and integrated system. Currently, several components of the

system are being piloted with full operations scheduled to begin in October 2006.

A-23
Management’s Discussion and Analysis—Unaudited

Competitive Sourcing

OMB’S GREEN

STANDARD STATUS AND PROGRESS

Has an OMB approved “green” competition

plan to compete commercial activities

available for competition.

The agency is currently revising its 2006-2010 “Green Plan” for submission to

USDA and subsequent OMB approval. The USDA has been supportive of all

studies undertaken by the agency.

The Forest Service competitive sourcing program focuses on:

 Identifying and evaluating functions for competition that are likely to result

in significant savings;

 Conducting feasibility studies to assess the viability of conducting an A76 competition on the function;

 Planning for and carrying out competitive sourcing competitions in

accordance with Congressional and OMB guidelines;

 Reviewing, if necessary, competitive sourcing performance decisions;

 Implementing decisions; and,

 Measuring and reporting on competition and implementation results.

Publicly announces standard competitions in

accordance with the schedule outlined in the

agency “green” competition plan.

The standard competition for Communication Functions was publicly announced

on June 29, 2006 consistent with the agency’s plan.

The schedule in the “Green Plan” focuses primarily on feasibility studies, which

are the means to examine the practicality of conducting a public-private

competition. Feasibility studies are conducted in accordance with the “Green

Plan” schedule within the constraints of the competitive sourcing appropriations

cap. Follow-on competitions are based on management decisions as a result of

feasibility study findings and in consideration of appropriation limitations.

Since January 2001, has completed at least

10 competitions (no minimum number of

positions required per competition) or has

completed a sufficient number of large

competitions to demonstrate meaningful use

of competitive sourcing.

The agency has completed at least 10 competitions since 2001.

The IT Infrastructure competition has led to major improvements as to how these

services are delivered within the agency. It is estimated that the 541-FTE ISO

will generate savings greater than $100 million over 5 years.

Two roads maintenance studies that were completed in 2003 are generating a

combined savings of over $1.785 million per year.

Streamlined maintenance studies conducted in 2003 which resulted in the MEO

being the lowest cost did not produce the savings and performance

enhancements anticipated. As a result, these studies were not implemented.

Lessons learned from this process helped the agency to better focus its

competitive sourcing efforts towards more promising studies.

In the past four fiscal quarters, completed 90%

of all standard competitions in a 12-month

timeframe or timeframe otherwise approved in

accordance with OMB Circular A-76.

No standard competitions were completed in the last four fiscal quarters. The

Standard Competition for Communication Activities, announced June 29, 2006,

is on schedule to be completed in the 12-month timeframe.

In the past four fiscal quarters, completed 95%

of all streamlined competitions in a 90-day

timeframe or timeframe otherwise approved in

accordance with OMB A-76.

No streamlined competitions were conducted in the last four fiscal quarters.

In the past year, canceled fewer than 10% of

publicly announced standard and streamlined

competitions.

No publicly announced standard or streamlined competitions were cancelled in

the last four fiscal quarters.

A-24
Management’s Discussion and Analysis—Unaudited

OMB’S GREEN

STANDARD STATUS AND PROGRESS

Has OMB reviewed written justifications for all

categories of commercial activities determined

to be unsuitable for competition.

The agency submitted written justifications for all categories of commercial

activities determined to be unsuitable for competition with its 2006 FAIR Act

inventory submission to USDA. These categories included “Commercial Reason

Code A” and “Inherently Governmental.” To date, the justifications have not

been disapproved or approved and whether they have been reviewed by OMB is

unknown. The agency worked closely with Department of the Interior to ensure

consistency in coding and justifications for positions related to fire activities.

Structures competitions in a manner to

encourage participation by both private and

public sectors as typically demonstrated by

receipt of multiple offers and/or by

documented market research, as appropriate.

Market research is conducted as a part of the feasibility study process and is a

factor in determining whether a competition should be announced. Documented

market research is a basis for competition structure.

Regularly reviews work performed once

competitive sourcing studies are implemented

to determine if performance standards in

contract or agreement with agency provider

are met and takes corrective action when

provided services are deficient.

Quality Assurance Surveillance Plans are implemented and performance

continuously monitored for all service providers. Performance information is

monitored by the contracting officers and overseen by the headquarters

Competitive Sourcing Program Office (CSPO). The CSPO also conducts

periodic field reviews to assess service provider performance. Corrective

actions are taken, as appropriate, when provided services are deficit.

In May 2006, an agency contracting officer terminated a contract service

provider after serious performance issues identified by the agency were not

rectified by the provider.

For FY 2007: Review of ISO Competitive Sourcing Study, and Review of Road

Maintenance Competitive Sourcing Study.

To maintain green status, agency:

Has positive anticipated net savings and/or

significant performance improvements from

competitions completed either in last fiscal

year for which data has been officially reported

to Congress by OMB or in the past three

quarters, and

Not applicable; no competitions were completed in last fiscal year or in the past

three quarters.

Performance improvements and positive actual achieved savings are being

realized from studies completed prior to FY 2005.

Through sampling, independently validates

that savings to be achieved for the prior fiscal

year were realized.

Achieved savings are calculated based on actual expenditures and are validated

independently by the CSPO. Actual, not anticipated, savings are recognized and

reported as realized savings. The agency is reviewing its processes for

monitoring, collecting, and reporting performance information and will strengthen

the processes currently in place.

A-25
Management’s Discussion and Analysis—Unaudited

Improved Financial Performance

OMB’S GREEN

STANDARD STATUS AND PROGRESS

Receives an unqualified audit opinion on its

annual financial statements.

For the fifth consecutive year, the Forest Service received an unqualified audit

opinion on its financial statements.

Meets financial statement reporting deadlines. In FY 2006, the Forest Service met its reporting deadlines.

Reports in its audited annual financial

statements that its systems are in compliance

with the Federal Financial Management

Improvement Act.

The Forest Service reported in its FY 2006 annual assurance statement that the

agency was in substantial compliance with the FFMIA. Some of the agency’s

systems were not in compliance with Section 1 that requires certification and

accreditation of the financial management systems but the agency was in

compliance with Sections 2, 3, and 4. The FY 2006 Financial Statement Audit

Report identified one area of noncompliance with Section 2. Overall, the Forest

Service believes it is in substantial compliance with the FFMIA for its systems.

Has no chronic or significant Anti-Deficiency

Act Violations.

The Forest Service has no known chronic or significant Anti-Deficiency Act

violations for FY 2006.

Has no material auditor-reported internal

control weaknesses.

OIG Audit Reports No. 08401-3-FM and 08401-2-FM identified a material

weakness regarding the Forest Service IT General Controls Environment.

Significant progress has been made to resolve this material weakness. The

agency has developed policy and procedures to manage its general controls

environment and is working to implement and monitor compliance with the new

policy.

Has no material noncompliance with laws or

regulations; AND

Various instances of noncompliance were identified in the FY 2005 Financial

Statements Audit report related to Federal Accounting Standards. As of

September 30, 2006, the Forest Service has no material noncompliance with

laws and regulations. The Forest Service issued policy and procedures for the

proper accounting treatment of leases, the proper accounting treatment of

internal use software, and plans to conduct Associated training during FY 2007.

Monitoring of these areas will be performed as part of the normal quality

assurance review process of agency programs.

Has no material weaknesses or nonconformances reported under Section 2 and

Section 4 of the Federal Managers’ Financial

Integrity Act that impact the agency’s internal

control over financial reporting or financial

systems.

The Forest Service has two material weaknesses under the headings

“Information Technology General Controls Environment” and “Financial

Management and Reporting Process”.

Is implementing a plan to continuously expand

the scope of its routine data use to inform

management decision-making in additional

areas of operations.

The implementation of GPRA, called Managing for Results (M4R) in the Forest

Service, is progressing. The Performance Accountability System (PAS) is in its

third year of a 5-year rollout to integrate budget, financial, and performance data

to support improved management decision-making. The Forest Service had two

releases of PAS during FY 2006, providing timely access to planning, financial,

and accomplishment information for managers at all agency levels. During FY

2007, the Forest Service will expand PAS to integrate performance and

accomplishment data from additional sources.

Currently produces accurate and timely

financial information that is used by

management to inform decision-making and

drive results in key areas of operations.

The initial release of the PAS provided widespread access to budget, financial,

planning, and accomplishment data. This system will allow managers to monitor

budget planning, execution, and performance for improved management

decision-making.

A-26
Management’s Discussion and Analysis—Unaudited

Expanded Electronic Government

OMB’S GREEN

STANDARD STATUS AND PROGRESS

Has an Enterprise Architecture linked to the

Federal Enterprise Architecture (FEA) rated

“effective” using OMB’s EA Assessment tool.

The Forest Service Enterprise Architecture repository captures the models,

business rules, statements of strategic intent, stakeholder identification and

exchange information, and related information for the agency’s e-Gov initiatives.

In FY 2006, the agency attached Performance Reference Model (PRM)

classifications to its applications with business case documentation and through

interviews of the application sponsors and requirements teams by Forest Service

Enterprise Architecture Staff.

The Forest Service Enterprise Architecture repository incorporates the FEA

reference models and these classification schemes are being applied to artifacts

stored in the Forest Service Enterprise Architecture Repository.

Has acceptable business cases (security,

measures of success linked to the Enterprise

Architecture, program management, risk

management, and cost, schedule, and

performance goals) for all major systems

investments.

Elements of a business case include security; enterprise architecture measures;

program management; risk management; and cost, schedule, and performance

goals narrative.

Major Forest Service IT system investments were considered acceptable to

OMB as of June 30, 2006, and in particular had completed IT Security

Certification and Accreditation (C&A).

Has demonstrated, using earned value

management (EVM) or operational analysis,

cost and schedule overruns, and performance

shortfalls, that average less than 10% for all

major IT projects

As of April 2006, USDA’s Chief Information Officer reported that three IT

investments meet the EVM threshold, while 5 investments do not. Investments

meeting this threshold are: ConnectHR; FPA’s Analysis System, Phase 2; and

Infra. IT investments that did not meet this threshold are: NRIS, ROSS, TIMFACTS, the FPA Preparedness Module, and PAS.

USDA’s EVM requirement to monitor and correct cost and schedule overruns

was implemented as of June 30, 2006.

Submits quarterly status reports in remediating

IT security weaknesses Forest Service is current with IT Security weakness remediation reporting.

Inspector General verifies the effectiveness of

the Department-wide IT Security Remediation

Process

OIG Audit Reports No. 08401-3-FM and 08401-2-FM identified a material

weakness regarding the IT general controls environment, but significant

progress to resolve it has been made.

The agency developed policy and procedures to manage its general controls

environment and is working to implement and monitor compliance with the new

policy. The agency expects this will result in more efficient financial

accountability, and will redirect all cost savings toward programs.

Has 90% of all IT systems properly secured

(certified and accredited); Forest Service has achieved 100 percent of its IT C&A targets.

Has implemented all of the appropriate E-Gov

initiatives rather than creating redundant or

agency unique IT projects.

The Forest Service is using and/or developing agency interfaces to all

applicable Federal and USDA E-Gov initiatives including:

• e-Authentication

• e-Learning

• e-Grants

• USDA Portal

• USDA Web Content Management

• USDA Document Management

• USDA Integrated Acquisition System

• Federal Travel System

• Geospatial One-Stop

• Recreation One-Stop

• USDA Universal Telecommunications Network

• FirstGov.gov and USDA.gov Web page branding

• USDA Employee Services Web site

• USA Jobs Web site

A-27
Management’s Discussion and Analysis—Unaudited

Budget and Performance Integration

OMB’S GREEN

STANDARD STATUS AND PROGRESS

Senior agency managers meet at least

quarterly to examine reports that integrate

financial and performance information that

covers all major responsibilities of the

Department. Agency demonstrates

improvement in program performance and

efficiency in achieving results.

Forest Service implemented a new budget formulation process in FY 2005,

providing the National Leadership Team (NLT) the opportunity to integrate

budget and performance information in several alternative scenarios prior to

preparing the FY 2007 budget request.

At the 2006 NLT meeting, leadership again assessed the agency’s prior year

performance results in annual budget and performance documents.

Preliminary performance was published in the 2005 P&AR, while 12-month

actual performance information was reported in the FY 2007 Budget

Justification.

As the agency continues to improve its program effectiveness and reduce

operational costs, the focus moves from performance accountability weaknesses

to achieving results for mission-critical natural resource priorities.

Strategic plans contain a limited number of

outcome-oriented goals and objectives.

Annual budget and performance documents

incorporate measures identified in the PART

and focus on the information used in the

senior management report described in the

first criterion.

Currently, the Forest Service’s Strategic Plan 2004-2008 contains few outcomeoriented goals and objectives. The agency continues to move toward improved

outcomes, especially as management’s commitment to performance

accountability increases. In FY 2006, Forest Service developed a

comprehensive set of outcome-oriented performance measures for all business

operations functions to be implemented in FY 2007.

The FY 2005 P&AR discussed the means by which the Forest Service

demonstrates performance accountability. The annual performance report

section of the P&AR—a GPRA requirement—describes progress toward PART

milestones, preliminary reporting by strategic goal and outcome, and the

research that guarantees results for the future:

 A strategic context for the Executive Priorities measures, the agency’s

key performance goals

 Accountability through Assessment—the PART assessments, with OMB’s

recommendations, milestones, and Forest Service actions

 Accountability to the Executive Priorities—the preliminary results for FY

2005

 Accountability to the Future—R&D’s contribution for future results.

Has performance appraisal plans and awards

programs for all SES and managers, and more

than 60% of agency positions that effectively:

 Link to agency mission, goals and

outcomes;

 Hold employees accountable for results

appropriate to their level of

responsibility;

 Differentiate between various levels of

performance;

 Provide consequences based on

performance. Provide consequences

based on performance. The agency is

working to include all agency

employees under such systems.

Both the Strategic Management of Human Capital and the Budget and

Performance Integration PMA initiatives require that Federal agencies: link to

agency mission, goals, and outcomes; hold employees accountable for results

appropriate for their level of responsibility; differentiate between various levels of

performance; and provide consequences based on performance.

USDA issued direction in FY 2004 that at least 60 percent of employees’

performance plans must align with agency mission and goals. The Forest

Service subsequently issued direction that 100 percent of agency employees will

have credible measures of performance, aligned with the mission and their units’

performance goals and objectives.

In order to differentiate between various levels of performance, the Forest

Service planned to transition to a multilevel performance management system in

FY 2006. A framework was established within the existing pass/fail performance

appraisal program that is migrated to the multilevel plan. This transition has been

delayed until first quarter of FY 2007.

Reports the full cost of achieving performance

goals accurately in budget and performance

documents and can accurately estimate the

marginal cost (+/ - 10%) of changing

performance goals.

The Forest Service budget is structured around programs, many of which

support multiple objectives. In FY 2006, the work planning system was updated

to directly tie projects funded under various programs and their planned

accomplishments to strategic plan goals and objectives. The FY 2006 workplans

provide baseline planned expenditure and accomplishment information by

strategic plan goal and objective at the forest, regional, and national level. This

information can be used to estimate the cost of changing goals and objectives

starting in FY 2007.

A-28
Management’s Discussion and Analysis—Unaudited

OMB’S GREEN

STANDARD STATUS AND PROGRESS

Has at least one efficiency measure for all

PARTed programs.

In this initial round of PART assessments—the first 5-year cycle—the Forest

Service developed at least one efficiency measure for all PARTed programs.

Efficiency measures by strategic goal were submitted to USDA for the FY 2007

budget.

Uses PART evaluations to direct program

improvements, and PART ratings and

performance information are used consistently

to justify funding requests, management

actions, and legislative proposals.

Less than 10% of agency programs receive a

‘Results Not Demonstrated’ rating for more

than two years in a row.

FY 2006 and FY 2007 Budget Justifications, as well as the FY 2005 and FY

2006 Audit Report contained performance information and progress on Forest

Service PART evaluations.

See an overview of Forest Service’s PART assessments in Chapter 3 of the FY

2007 Budget Justification at http://www.fs.fed.us/aboutus/budget/.

To review progress toward the PART milestones for FY 2006, see the Annual

Performance Report section of the P&AR at http://www.fs.fed.us/plan/par/2006/

This report will be issued during the first quarter of FY 2007.

OMB is in the first 5 years of its schedule to assess 20 percent of all Federal

programs each year. The Forest Service has completed seven PART

assessments to date (through the fiscal year 2007 President’s Budget Request).

Two of these assessments were reassessments from earlier PART analyses,

which resulted in improved performance measures and improved scores.

For the 2008 President’s Budget Request, completed in FY 2006, the Forest

Service performed two new assessments, in addition to completing two

reassessments.

A-29
Management’s Discussion and Analysis—Unaudited

MANAGEMENT CONTROLS, SYSTEMS, AND COMPLIANCE WITH LAWS

FY 2006 Financial Statement Audit Report Results

The FY 2006 Financial Statement Audit report identified two material weaknesses under the

headings “Information Technology General Controls Environment” and “Financial Management

and Reporting Process”. In addition, the report identified 11 reportable conditions. The FY 2007

FMFIA and FFMIA corrective action plans are being developed to address these and other

deficiencies as included in the report.

Federal Managers’ Financial Integrity Act

The FMFIA12 requires Federal agencies to conduct ongoing evaluations of the adequacy of the

systems of internal accounting and administrative control and to report all material weaknesses

found through these evaluations. Federal agencies are required to provide reasonable assurance

that the following objectives are being met:

 Programs operate efficiently and effectively;

 Obligations and costs comply with applicable laws and regulations;

 Funds, property, and other assets are safeguarded against waste, loss, or

mismanagement; and

 Revenues and expenditures are properly recorded and accounted for to permit the

preparation of reliable financial and statistical reports and to maintain accountability over

assets.

During FY 2006, the Forest Service took the steps necessary to ensure that evaluations of the

system of internal controls for the agency have been conducted in accordance with OMB

guidelines and comply with the standards prescribed by the Comptroller General. The Forest

Service annual, internal, evaluation included assessments regarding whether the financial

management systems and internal accounting and administrative controls were in compliance

with the standards prescribed by the Comptroller General. The results of the assessment,

conducted at all levels throughout the agency, indicate that the agency’s controls, in general, are

achieving their intended objectives and during FY 2006 provide reasonable assurance that the

above-mentioned objectives have been met. Except for the material weaknesses and reportable

conditions identified through the Financial Statement Audit process and discussed below, the

Forest Service identified no additional deficiencies during this annual, internal, process.

In FY 2006, as a result of audits conducted by OIG, the Forest Service reported the following OIG

audit-identified material weaknesses, reportable conditions, and noncompliance issues as part of

the FMFIA process.

Material Weaknesses

 05-01MW—Improvement needed in financial accounting and reporting policies, practices

and procedures - Inadequate Accountability for Undelivered Orders

 05-02MW—Forest Service Needs to Continue to Improve its Financial Management and

Reporting Process

 00-01MW—USDA Information Security Weaknesses

Reportable Conditions

 92-01RC—Administration of Lands Special Uses Permits

 05-03RC—Forest Service has not effectively implemented GPRA

 12

 This is also known as the Integrity Act.

A-30
Management’s Discussion and Analysis—Unaudited

Noncompliance Issues

 05-04NC—Controls related to Physical Inventories of Capital Assets Need Improvement

 05-05NC—Forest Service Does not Obligate all Transactions required by Appropriations

Law

 05-06NC—Forest Service may not be in Compliance with 31 USC 1517

As of September 30, 2006, the Forest Service completed all corrective actions for FMFIA items

05-01MW, 05-02MW, 05-04NC, 05-05NC, 05-06NC, and 92-01RC and requested OCFO remove

these deficiencies, identified in FY 2005 and prior Financial Statement audits, from the list of

agency material weaknesses. The Forest Service has completed all actions and forwarded

requests for closure of the specific audit recommendation to OCFO along with documentation to

substantiate completion of any required action. The FMFIA items above were related to

management decisions between the Forest Service and USDA. The financial statement auditors

reviewed FY 2005 and prior findings and recommendations, and determined that 05-02MW and

05-05NC remain open. During FY 2007 the Forest Service will address these open items.

Planned corrective actions are ongoing for the FMFIA reported material weakness 00-01MW, and

FMFIA reported reportable condition 05-03RC. The following tables contain justification, status of

corrective actions, and explanation of remaining steps required to close the material weaknesses,

based on the FY 2006 corrective action plans.

 FMFIA Reportable Condition and Material Weakness Action Plans

REPORTABLE CONDITION FS05-03RC

Description: Implementation of GPRA

Reference: 08601-01-HY

Responsible Staff: Audit Liaison, P&BA, and SPRA Staffs

Corrective Actions Action

Completed

Revised

Completion

Date

Reason

Corrective Actions

Were Not

Completed

FY 2007

Action Plan for

Corrective

Actions

Not Met

Implement the current/revised corrective actions to

resolve the audit recommendations from the previous

GPRA audit.

8/23/2006

Implement the internal controls component of the

Performance and Accountability System (PAS). 9/30/2007

Pending review of

request for change

in management

decision and

closure. Request

denied 8/23/2006.

Complete

scheduled action

in compliance

with management

decision.

Incorporate within the performance element on managing

work assignments, a standard to assure information

reported is adequate, reliable, verifiable, and useful.

9/30/2007

Pending review of

request for change

in management

decision and

closure. Request

denied 8/23/2006.

Complete

scheduled action

in compliance

with management

decision.

Validate that Forest Service managers and executives

have been evaluated on performance accountability. 9/30/2007

Pending review of

request for change

in management

decision and

closure. Request

denied 8/23/2006.

Complete

scheduled action

in compliance

with management

decision.

Establish a process to incorporate within the P&AR the

reporting of materially inadequate performance data,

reasons for inadequate data, and actions being taken to

remedy the material inadequacy.

9/30/2007

Pending review of

request for change

in management

decision and

closure. Request

denied 8/23/2006.

Complete

scheduled action

in compliance

with management

decision.

A-31
Management’s Discussion and Analysis—Unaudited

REPORTABLE CONDITION FS05-03RC

Description: Implementation of GPRA

Reference: 08601-01-HY

Responsible Staff: Audit Liaison, P&BA, and SPRA Staffs

Corrective Actions Action

Completed

Revised

Completion

Date

Reason

Corrective Actions

Were Not

Completed

FY 2007

Action Plan for

Corrective

Actions

Not Met

denied 8/23/2006.

Identify unmet targets and goals, and plans to address the

unmet goals in the P&AR. 8/23/2006

MATERIAL WEAKNESS FS00-01MW

Description: Information Technology Security

Reference: 08401-2-FM, 08401-6-FM

Responsible Staff: IRM

Corrective Actions Action

Completed

Revised

Completion

Date

Reason

Corrective Actions

Were Not

Completed

FY 2007

Action Plan for

Corrective

Actions

Not Met

Document decommissioning of Purchase Order Normal

Tracking and Inventory System (PONTIUS) and Purchase

Order System (PRCH), the conversion process to IAS,

and results of the reconciliation of transactions converted

from PRCH to IAS.

6/20/2006

Develop, communicate, and establish controls for

management approval for archiving, deleting, and sharing

ATSA data.

8/15/2006

Develop and implement a user access review policy and

procedure for the HHS PMS application. 6/30/2006

Issue letters to employees reminding them of their

responsibility to abide by Forest Service information

security and privacy policies and participate in mandatory

security awareness training.

6/30/2006

Coordinate with EMIS application owner to ensure that

controls are effective, reports are reviewed,

reconciliations are performed, and issues are resolved

promptly.

5/3/2006

Develop new action plan, identify additional resources to

accomplish tasks, and obtain Office of the Chief

Information Officer and OCFO approvals.13

Federal Financial Management Improvement Act

The FFMIA14 of 1996 requires Federal agencies to implement and maintain financial management

systems that substantially comply with the following:

1. Federal financial management system requirements;

2. Applicable Federal Accounting Standards;

3. The Standard General Ledger (SGL) at the transaction level; and

4. Information security policies, procedures, and practices.

 13

 The IRM corrective action plan for FY 2006 is being revisited and a new FY 2007 comprehensive plan is being

developed in accordance with USDA direction.

14

 This is known as the Improvement Act.

A-32
Management’s Discussion and Analysis—Unaudited

The Federal Information Security Management Act (FISMA) of 2002 added the fourth reporting

requirement for FFMIA. Under the FFMIA, agencies are required to annually report whether

financial management systems substantially comply with the FFMIA. If systems are found not in

compliance, a remediation plan is required to bring the agency’s financial management systems

into substantial compliance.

FY 2006 Results

For FY 2006, the Forest Service is in substantial compliance with the FFMIA, although the

financial statements audit report noted instances of noncompliance where the agency’s financial

management systems did not comply with Federal financial management system requirements,

applicable Federal accounting standards, or the U.S. Standard General Ledger at the transaction

level.

The Forest Service developed a remediation plan to aggressively implement corrective actions to

resolve all Improvement Act and FISMA noncompliance issues. As of September 30, 2006, the

Forest Service completed significant corrective actions regarding its financial management

systems and made progress in resolving FISMA noncompliance issues. The agency continues to

make progress toward resolving two remaining issues within the general control environment.

The development and implementation of entity wide software and hardware management policies

and procedures will require complete review and revision because of Forest Service’s

organizational restructuring and is now targeted for completion in the third quarter, FY 2007. In

addition, certification and accreditation of systems in full compliance with OMB Circular A-130

and National Institute of Standards and Technology’s (NIST) Special Publication 800-37 is

scheduled for completion by third quarter, FY 2007.

The following tables contain justification, status of corrective actions, and explanation of

remaining steps required to achieve full compliance with the FFMIA, based on the FY 2006

corrective action plans

FFMIA Remediation Plans

SECTION 1—FEDERAL FINANCIAL MANAGEMENT SYSTEMS REQUIREMENTS

Agency Point of Contact: IRM

References: 08401-2-FM, 08401-6-FM

Description Corrective Actions

Target

Completion

Date

Actual

Completion

Date

Reason

Corrective Actions

Were Not Completed

FY 2007

Action Plan

for

Corrective

Actions

 Not Met

System

C&As

Certify and accredit the Forest

Service Computer Base GSS,

Travel, Connect HR,

Automated Timber Sales

Accounting (ATSA), Paycheck,

and Infra in compliance with

OMB Circular A-130 and NIST

Special Publication 800-37.

6/30/2007

IT corrective action

plans underwent a

comprehensive review

at the end of FY 2006

to validate scheduled

actions and revise

target dates.

Pending

finalization

Strategic Plan and Annual Performance Plan Goal and Objective to which the Corrective Actions apply, if applicable.

A-33
Management’s Discussion and Analysis—Unaudited

SECTION 4—INFORMATION SECURITY POLICIES, PROCEDURES, AND PRACTICES

Agency Point of Contact: IRM

References: 08401-2-FM, 08401-6-FM

Description Corrective Actions

Target

Completion

Date

Actual

Completion

Date

Reason

Corrective Actions

Were Not Completed

FY 2007

Action Plan

for

Corrective

Actions

Not Met

Software

Management

Policy

Develop entity wide software

management policy and

procedures and install the

latest software versions,

service packs, and security

patches (and remove outdated versions).

2/28/2007

IT corrective action

plans underwent a

comprehensive review

at the end of FY 2006

to validate scheduled

actions and revise

target dates.

Pending

finalization

Strategic Plan and Annual Performance Plan Goal and Objective to which the Corrective Actions apply, if applicable.

Financial Management Systems

The Forest Service’s overall financial systems framework consists of the Department wide FFIS

and the Financial Data Warehouse (FDW).

FFIS requires the various feeder systems to deliver scheduled deposits of financial data.

Financial data include receivables, commitments, accruals, billing and payment activities, working

capital fund, employee travel reimbursements, transfer of station reimbursements, travel

authorization management, reimbursable and advance collection agreements, timber sale

accounting activities, uniform allowance activities, and payments to States.

These feeder systems ensure timely and accurate delivery of data into the financial accounting

systems processing records on a daily basis.

Financial data are loaded nightly into the FDW, facilitating the Forest Service and USDA’s

reporting and analysis requirements for performance reporting, audit follow-up information, and

activities performed by Government and contracted personnel.

FY 2006 Results

Over the past 2 years, the Forest Service completed a BPR study covering all financial

accounting and budget execution activities. The BPR study resulted in the reorganization of the

B&F workforce into a centralized Financial Accounting and Budget Execution operation. This

smaller centralized workforce increased efficiencies for the agency by automating many of the

manual processes used in the decentralized workforce.

FY 2006 accomplishments include:

 To support the centralized B&F operation, the Forest Service implemented the Financial

Transaction Request System (FTRS). FTRS electronically transfers collection and billing

information from the field units that was transferred via FAX machines before the BPR.

 Transition of operational and system responsibilities for the Forest Service’s Uniform

Allowance Program from the Human Capital Management Staff to the Financial

Management Staff;

 Implementation of the All Service Receipts System v1.3 that facilitates land use

payments to States;

 Replacement of outdated microfiche processes for archiving ATSA data and reports with

Web-based technology. This new technology enables Forest Service personnel to access

online reports, with archives back to FY 2004.

A-34
Management’s Discussion and Analysis—Unaudited

In addition, the Forest Service continues the certification and accreditation process for all systems

categorized as “Financial” or “Mixed Financial” systems.

Finally, the Forest Service is collaborating with USDA on the implementation of a Departmentwide Travel system; and in the selection, design, and implementation of the next-generation

financial management system. The agency anticipates implementing the new financial

management system in FY 2010.

Federal Information Security Management Act

The FISMA provides the framework for securing the Federal Government's information

technology. Departments covered by the Paperwork Reduction Act must implement the

requirements of FISMA, reporting annually to OMB and Congress on the effectiveness of the

agency's security programs and independent OIG evaluations. Security audit findings, security

deficiencies identified in systems through the Certification and Accreditation (C&A) process, and

security deficiencies identified in self-assessments are listed and tracked in the FISMA Plan of

Actions and Milestones (POAM), which is updated monthly and reported to USDA quarterly for

inclusion in its FISMA Report to OMB.

The Forest Service is aware of the vulnerability of its assets and financial data due to error or

fraud and is in the process of correcting the information security controls material weakness.

Plans are in place to address this significant deficiency, as well as any associated reportable

conditions, as identified in the FY 2006 Annual FISMA Report.

FY 2006 Results

Although the Forest Service did not resolve all information security weaknesses as planned for

FY 2006, the agency continues to make progress in implementing the necessary corrective

actions to resolve remaining weaknesses. Information security corrective actions (also

FMFIA/FFMIA corrective actions) completed this fiscal year include:

 Developed and published policy covering critical areas of IT Contingency Planning, IT

Restricted Space Physical Security, Data Backup and Recovery, and System C&A.

 Published policy and approved operating procedures for the agency's Computer Incident

Response Team15.

 Developed and implemented a user-access review policy and procedure for the HHS

PMS application.

 Developed, communicated, and established controls for management approval for

archiving, deleting, and sharing ATSA data.

 Issued letters to employees reminding them of their responsibility to abide by Forest

Service information security and privacy policies and participate in mandatory security

awareness training.

 Coordinated with Equipment Management Information System application owner to

ensure that controls are effective, reports are reviewed, reconciliations are performed,

and issues are resolved promptly.

 15

 The Computer Incident Response Team charter, establishing its authority, was signed by the Chief Information Officer

(CIO) on October 5, 2006.

A-35
Management’s Discussion and Analysis—Unaudited

The Forest Service will continue with plans to complete the correction of the information security

controls material weakness in FY 2007.

Inspector General Act Amendments of 1988

The Inspector General Act requires management to complete all final actions on audit

recommendations within 1 year of the date of the Inspector General’s final audit report.

As of September 30, 2006, the Forest Service officially closed five outstanding audits. An audit is

“outstanding” if it remains open 1+ years of reaching management decision on all audit

recommendations.

Since 2002, the agency has increased its efforts to reduce the number of unimplemented audits

pending final action. The audit inventory at the end of FY 2003 was 26; FY 2004 was 21; FY 2005

was 14, and FY 2006 was 13. The explanation for delays in implementing recommendations

includes the development and implementation of new/revised directives and systems.

Per the Inspector General Act reporting requirements, agencies must report the dollar value of

disallowed costs and funds to be put to better use. A disallowed cost (DC) is a questioned cost

that management sustains or agrees is not chargeable to the Government. Funds to be put to

better use (FTBU) are funds that OIG has recommended could be used more efficiently if

management took actions to implement and complete the recommendation. The following are the

results from the reporting period of October 1, 2005, to September 30, 2006.

FY 2006 Results

DC and FTBU (in thousands)

DC16 FTBU17

Reports Value Reports Value

Balance 9/30/2005 1 $140.5 5 $42,164.7

New 0 0 0 0

 Total 1 $140.5 5 $42,164.7

Closed 0 0 3 30,661.5

Balance 9/30/2006 1 $140.5 2 $11,503.2

Improper Payments Information Act

The Improper Payments Information Act (IPIA) requires each Federal agency to assess all

programs and identify which, if any, program(s) may be subject to high risk with respect to

improper payments. Agencies are also required to implement any needed corrective measures.

For FY 2006 disbursements, USDA determined four funds to audit, with one fund requiring a

statistical sample. Forest Service identified the Wildland Fire Suppression (WFSU) program again

as its single high-risk program area related to payments. The Forest Service selected a sample

from the FY 2006 WFSU outlays for evaluation, using an estimated 2.49 percent error rate with a

90% confidence level which resulted in 166 samples.

For the FY 2005 disbursements, the error rate, when extrapolated, resulted in the annual

estimated improper payments amounts for the WFSU program of $7.1 million. Our review of

disbursements for the NFS, S&PF, Capital and Improvement Maintenance, Forest and

Rangeland Research, and Wildfire Management Funds indicated an error rate of 0%.

 16

 DC balance is OIG Audit No. 08801-02-TE.

17

 FTBU balance is comprised of OIG Audit No. 08801-02-TE ($1,173.9) and OIG Audit No. 08003-05-SF ($10,329.3).

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Management’s Discussion and Analysis—Unaudited

During FY 2006, the OIG conducted an audit on improper payments at the Forest Service. As of

the end of the fiscal year, the OIG issued a draft audit report 08601-47-SF, "Improper Payments -

Monitoring the Progress of Corrective Actions for High-Risk Programs in the Forest Service."

In brief, the audit report recommended the Forest Service report in the 2006 audit report the

annual estimated amount of improper payments for all programs identified as high risk as

required by the IPIA. In response, the information is now included in this section as required. The

agency is currently providing comments on the draft report, and will reach management decision

on the audit recommendations in FY 2007.

Internal Controls Over Financial Reporting (A-123, Appendix A)

The Forest Service implemented the revised requirements of OMB’s Circular A-123

“Management’s Responsibility for Internal Controls,” and Appendix A, “Internal Controls over

Financial Reporting.” USDA identified 8 cycles and 47 processes that were applicable for

assessment under these requirements.

The eight cycles included Funds Control, Funds Management, HRM, Grant Management,

Procurement, Revenue Management, Property Management, and Financial Reporting. In

addition, IT (computer controls) was also considered a component of the Forest Service’s selfassessment. Each process was mapped and evaluated for internal control design effectiveness.

For the 2006 Assurance Year (ending June 30 of the fiscal year), Forest Service identified 16 of

the 47 processes to test, while the remaining 31 processes are in remediation for one of five

reasons:

 Audit Finding

 Management Issue

 Re-engineering

 Migration

 Design Deficiency

The testing requirements were stringent and designed to identify control deficiencies, reportable

conditions, and material weaknesses.

Of the 16 processes tested, the two that passed completely are in the Funds Management Cycle.

Nine reportable conditions and two material weaknesses were identified, although the material

weaknesses were known to be pre-existing. The Forest Service is currently testing the results of

remediation activities to determine whether the weaknesses still exist and whether the level of

material weakness is still appropriate.

As a result, the Forest Service compiled a listing of 56 deficiencies—ranging from control

deficiency to material weakness—into a Summary of Aggregated Deficiencies; developed

remediation plans for the identified deficiencies; and began implementing a monitoring process.

For the 2007 Assurance Year, Forest Service intends to test every control and expand the scope

of testing to include field processes. Due to time constraints and resources available, Forest

Service was unable to test all field processes completely in 2006. Mapping of the field processes

is currently underway; testing should commence in January and end in June 2007.

An additional evaluation of remediation activity and redesigned controls is also currently

underway.

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Management’s Discussion and Analysis—Unaudited

Anti-Deficiency Act Compliance

The USDA Forest Service provides assistance for emergency incidents on other than USDA

Forest Service lands. A footnote provided on the apportionment for 12X1115, Wildland Fire

Management, indicated that no more than $100 million of fire suppression funds could be spent

on aviation resources. The USDA Forest Service was under the impression that there were two

lines of authority within the apportionment document, appropriated budget authority for activities

funded by fire suppression funds and reimbursable budget authority for emergency activities that

would be reimbursed. On August 3, 2006 the agency had ordered $117 million in aviation

resources. Of that amount, $32 million was related to reimbursable budget authority which would

be reimbursed by states and other entities and $75 million was related to fire suppression

activities funded by appropriated fire suppression budget authority. The agency has been diligent

in its efforts to track and comply with apportionment restrictions, and as we approach ceilings

imposed by footnotes, request an increase in funding. When an aviation increase was requested

on August 3, 2006 we were advised by the USDA Office of Budget and Program Analysis (OBPA)

that we had a potential Anti-Deficiency Act violation of the ceiling imposed by the apportionment.

On August 4, 2006, OMB signed another apportionment increasing the aviation footnote to $175

million. As requested by USDA OBPA, the USDA Forest Service requested a legal opinion from

the Office of General Counsel regarding the aviation footnote. To date, no decision has been

reached.

Limitations of Financial Statements

The Forest Service has prepared its financial statements to report its financial position and results

of operations pursuant to the requirements of 31 U.S.C. 3515 (b).

The Forest Service statements have been prepared from its books and records in accordance

with Generally Accepted Accounting Principles for Federal entities and the formats prescribed by

OMB. The statements, however, are in addition to the financial reports used to monitor and

control budgetary resources, which are prepared from the same books and records.

These statements should be read with the understanding that they are for a component of the

U.S. Government, a sovereign entity. Liabilities not covered by budgetary resources cannot be

liquidated without the enactment of an appropriation by Congress. The Federal Government can

abrogate the payment of all liabilities, other than for contracts.

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Part B

ANNUAL PERFORMANCE REPORT

(Unaudited)

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Annual Performance Report—Unaudited

COMPONENTS OF THE ANNUAL PERFORMANCE REPORT

The Annual Performance Report (APR) section of the Performance and Accountability Report

(P&AR) is a requirement of the Government Performance and Results Act (GPRA)—a law that

guides how agencies prepare strategic plans, performance budgets, and performance reports

that set goals and report on achieving them. The FY 2006 APR discusses the means by which

the Forest Service demonstrates performance accountability to stakeholders—the Administration,

Congress, and the American public.

Within the APR, the reader will find by strategic goal:

 A strategic context for the Executive Priorities

 Accountability through Assessment—Program Assessment Rating Tool (PART)

assessments, status, and progress

 Accountability to the Executive Priorities—the preliminary results for FY 2006

 Accountability to the Future—Research and Development (R&D) contribution for future

results

The “Accountability through Assessment” section for each strategic goal reports Forest Service

status and progress toward PART assessments that align with that goal. The format of this

section has changed due to OMB’s implementation of www.ExpectMore.gov, a Web site that

reports agencies’ progress and status for PART assessments from previous years.

The “Accountability to Executive Priorities” section discusses the Forest Service’s preliminary

results toward its FY 2006 performance reporting for key performance goals. Fiscal yearend

performance for Executive Priorities in the APR and the Management Discussion and Analysis

(MD&A) is a projected estimate, certified by regional foresters, and compiled by the Program and

Budget Analysis (P&BA) Staff. This section also discusses the actions taken by management to

improve agency performance reporting throughout FY 2006.

The discussion on Executive Priorities links each performance goal with the strategic goal and

objective to which they align. For each Executive Priority, a performance chart provides the

targeted and projected accomplishment, the resulting percentage of accomplishment, and the

2008 target from the Forest Service’s Strategic Plan 2004—2008. This presentation gives the

reader a sense of the agency’s short-term and long-term accomplishments toward meeting the

strategic objectives.

However, any discussion on performance accountability must take into consideration past

performance. In the MD&A the exhibit, Performance and Trend 2002—2006 displays FY 2006

accomplishment with a 4-year trend to allow for comparison.

Finally, the “Accountability to the Future” for each strategic goal highlights FY 2006 successes

from the R&D Deputy Area.

Outside the strategic context are the sections on status for U.S. Department of Agriculture

(USDA) Office of Inspector General (OIG) and U.S. Government Accountability Office (GAO)

audits, and Forest Service’s Major Management Challenges.

The Relationship of PART to GPRA

The relationship between GPRA’s strategic goals, objectives, and measures and the programspecific PART assessments may not be readily transparent to Forest Service stakeholders.

GPRA links long-range planning and goals in a 5-year cycle with the shorter-term objectives and

performance in the Forest Service’s performance budget. It is the combination of strategic plan,

performance budget, and this annual performance report that meet GPRA’s performance

reporting requirements.

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Annual Performance Report—Unaudited

PART is a tool that enables Forest Service management to assess the agency’s programs for

efficiency, effectiveness, and accountability in a different 5-year cycle. Based on these

evaluations, OMB makes recommendations to improve program performance, and USDA

monitors the agency’s status and progress in meeting the milestones in the improvement plan.1

PART builds on GPRA by encouraging agencies to integrate operational decisions with strategic

and performance planning. The PART can play an important role in improving performance

measurement when existing measures are not outcome-oriented or sufficiently ambitious.

Although the 5-year cycles are not concurrent, OMB requires GPRA performance measures and

those developed or revised through the PART process to be consistent.

Forest Service Management Challenges

In August 2006, the OIG released its annual report, USDA’s Management Challenges. For a

second year, OIG stated; “Forest Service needs to improve internal controls and management

accountability in order to effectively manage its resources, measure its progress towards goals

and objectives, and accurately report its accomplishments.” In this report, OIG again found the

Forest Service in need of improvement in policy, process, and internal control issues.

Exhibit 6 lists FY 2006 Management Challenges – Accomplishments for corrective actions

completed for this management challenge. To see newly identified challenges, or for actions not

complete, see Exhibit 7, FY 2006 Management Challenges – Plan.

In this management challenge, OIG reiterated many of the findings from previous OIG and GAO

audits, to which the Forest Service has concurred:

 The use and accuracy of performance management information is severely limited.

 The usefulness of performance measures and the accuracy of reporting processes are

often flawed.

 The lack of timely and accurate information deprives Forest Service management of tools

needed to measure the direction and progress of the agency, and prevents oversight

bodies and the public from being able to make informed decisions regarding the agency.

In USDA Management Challenges, OIG recognized the progress the agency made to complete

corrective actions intended to improve agency performance reporting, such as the policy on the

Performance Measure Review and Validation process, implemented after the 2005 OIG Audit

Report for the Implementation of GPRA. The FY 2005 reviews provided management with

information on how the agency’s internal controls were operating.

General Findings from FY 2005 Performance Measures Review and Validation

 Training and ongoing data entry throughout the fiscal year is critical to ensure accurate and

timely yearend performance reporting.

 Accomplishment reporting systems must include a controlled information-processing

environment, where reporting systems have the same definitions and accomplishment

codes (FFMIA and FISMA requirements).

 Management reviews at the functional or activity level improve internal control. The reviews

ensure that definitions, methodologies, and timing requirements are consistently interpreted

and applied across units within a region, and across regions; and provide an opportunity to

exchange information or share best practices.

 1

 This comparison of GPRA and PART comes from “PAR: The Report We Hate to Love”, AGA Corporate Partner Advisory

Group Research Series: Report No. 6, June 2006.

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 Line officer confidence in regional performance reporting improves when standards and

protocols are referenced in the definitions for the Executive Priorities.

 The Forest Service must set and adhere to performance targets.

 Performance measures should be “field tested” for reasonableness.

In FY 2006, five regions continued these performance measures reviews -- Regions 2, 3, 6, 8,

and 10. These reviews continue to be the basis by which regional foresters certify the regions’

performance reporting for the Executive Priorities.

Feedback from these field reviews provides the background needed to assert the completeness

and reliability of the accomplishment reporting in the MD&A, as required by OMB.

Preliminary findings from FY 2006 Performance Measures Review and Validation

 Forest Service accomplishes its mission by leveraging the contributions of its many partners

and through the efforts of volunteers. This is especially true of Executive Priorities for trails,

wildlife habitat, and stream and lake habitat. Field program managers find they need the

appropriated funding to build and maintain the valuable partnerships and relationships with

volunteer groups, yet the agency cannot claim these improvements to the Nation’s

stewardship assets as accomplishments.

 There continues to be inconsistencies among the various databases for what should be the

same accomplishment. Regional review teams found that the Forest Service cannot ensure

that the upwardly reported accomplishment data is consistent, valid and supported due to

inconsistencies between WorkPlan and the various reporting databases, such as

Infrastructure Application (INFRA) and National Fire Plan Operations and Reporting System

(NFPORS).

 Performance reporting continues to be subjective and inconsistent across the agency,

especially when measures change. Definitions should reference the standards used to

assess the acceptable operating condition for various classes of assets2, such as roads,

buildings, trails, and minor constructed features. Field program managers would know to

access the directives3 in the Forest Service Manuals (FSM) and Handbooks (FSH) when

questioning applicable standards for accomplishment reporting. Identifying the same

standards for reporting on major assets could minimize or prevent inconsistencies in the

field’s interpretation, thereby improving the cohesiveness and integration of the P&AR.

In FY 2006, the Forest Service continued to implement controls to improve the accuracy and

timeliness of its accomplishment reporting through reviews held by the Washington Office

Oversight Review Team. The objectives for the reviews were to:

 Evaluate the effectiveness of performance measures, their definitions, and the use of

performance measures data in supporting management decisions.

 Identify and assess issues related to performance management, accomplishment

reporting, and data quality.

 Understand significant variations in accomplishment between units to identify knowledge

that might be gained from these variations.

Regions 1, 4, 5, and 9 hosted the Washington Office Oversight Reviews. The final report,

Washington Office Oversight Performance Reviews, documents findings and planned actions for

the coming fiscal year. The findings and planned actions are discussed in Appendix D.

 2

 See Deferred Maintenance in the Required Supplementary Information (RSI) section of P&AR.

3

 In a letter dated April 6, 2006, the Chief of the Forest Service reiterated the policy that standards shall be published in

the agency’s directive system of Forest Service Manuals (FSM) and Handbooks (FSH).

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Data Assessment of Performance Measures

The MD&A Exhibit 6, Priority Measures, Data Sources, and Accomplishment Reporting,

describes each Executive Priority, its data source(s), and how accomplishment for the measure is

reported.

The USDA 2006 Performance Management Guidance considers performance data complete,

even if preliminary, if it is the data available for the accelerated reporting schedule. Performance

reporting for most Executive Priorities is preliminary, until the 12-month actual performance is

available in the FY 2008 Budget Justification. Not all Executive Priorities are in the Budget

Justification; therefore, actual accomplishments for those measures will be published in the FY

2007 Performance and Accountability Report. In the Annual Performance Report, the reliability of

each Executive Priority accompanies the 2006 target and result for that measure.

In FY 2007, the full implementation of the PAS is expected to resolve any material inadequacies

in the Forest Service’s reliability in yearend accomplishment reporting for its Executive Priorities.

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Annual Performance Report—Unaudited

GOAL 1: REDUCE THE RISK OF CATASTROPHIC WILDFIRE

Reduced risk to communities and the environment from catastrophic wildland fire

Accountability through Assessment

Wildland Fire Management

The Wildland Fire Management Program consists of five major activities: fire preparedness, fire

suppression; hazardous fuels reduction, burned area rehabilitation, and State and community fire

assistance.

Initial PART Assessment: 2002 Assessment for FY 2004 President’s Budget

Rating: Results Not Demonstrated

PART Reassessment Scheduled: 2006 Reassessment for FY 2008 President’s Budget

Rating: Official PART scores are released with the FY 2008 President’s Budget

Actions Taken in FY 2006

Performance Measures and Project Criteria

The Forest Service made progress toward implementing new performance measures and

strengthening hazardous fuels project criteria to ensure that funds are effectively targeted.

New measures were developed and presented to the Executive Leadership Team (ELT) in July

2006. Appropriate subsets of these measures will be used in multiple performance documents

including the 2007—2012 Forest Service Strategic Plan, OMB’s PART Assessment, and the

update of the Interagency 10-Year Implementation Plan. The agency anticipates approval of the

10-year plan by the Wildland Fire Leadership Council (WFLC) in November 2006. The Forest

Service’s strategic plan is pending approval from USDA, as of September 30, 2006.

In August 2006, the first version of the Hazardous Fuels Prioritization and Allocation system was

completed, using agency-defined criteria and geospatial data to assist with the realignment of FY

2006 funding and FY 2007 allocations to the regional level.

Partnership Development

In 2006, the Forest Service made progress by requiring States to have completed cost share

agreements with the Federal Government. The agency now has master cooperative fire

agreements with each State. These agreements:

 Provide a framework for mutual apportionment and reimbursement of costs for initial attack

fires;

 Establish cost-share procedures and guidelines to deal with costs for large multijurisdictional fires on an incident-by-incident basis, according to direction provided in the

Northwest Coordinating Group (NWCG) Incident Business Management Handbook.

The Forest Service and Department of Interior (DOI), in coordination with the National

Association of State Foresters (NASF), developed templates for Master Co-op Fire Agreements

with cost-share guidelines and for cost-share agreements on multi-jurisdictional fires.

Cost Reduction

In the continuing effort to reduce costs by more effectively targeting funding for hazardous fuels

reduction, the agency completed several pilots for Strategic Placement of Treatments (SPOTS).

In October 2005, teams reported lessons learned from the pilots, from which a seven-step

interagency framework for SPOT assessments was developed and incorporated into new

training.

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The Fire and Aviation Management (FAM) Staff issued the annual Operating Action Plan,

assigning accountability for suppression costs to line officers.

Cost Containment Reviews

In an effort to evaluate results and recommendations from several independent cost reviews, the

Forest Service and DOI are currently preparing a report on recent efforts to better manage costs

on incidents. This report will include the WFLC Cost Action Team efforts, the status of significant

cost containment recommendations made in recent years as summarized in the TriData report,

and the revised cost-containment review process. (The TriData report consolidated cost

containment recommendations from over 20 previous reports, evaluated the cost-effectiveness of

implementing each of the recommendations and prioritized the recommendations based on

potential savings, cost to implement and the time needed to implement.) The report is due in the

first quarter of FY 2007.

FAM revised its cost containment review process for regional, national, and independent panel

reviews. The new methodology helps ensure that review teams are evaluating the most

significant cost drivers, and holds line officers accountable for implementing the

recommendations made by the review teams.

Accountability to Executive Priorities

In FY 2006, the Forest Service reduced the intensity and harmful effects of wildland fires by

treating hazardous fuels in the wildland-urban interface (WUI) near communities, and outside the

WUI (non-WUI) in forests, woodlands, shrublands, and grasslands.

For FY 2006, traditional treatments reduced hazardous fuels, such as the prescribed fires

conducted primarily in spring with additional activity in the late fall, and the mechanical thinning

that is conducted throughout the field season. In addition, the Forest Service increased its

wildland fire use (WFU), allowing natural ignitions to burn to meet resource objectives, but only to

meet the predetermined conditions designated in a national forest or grassland’s Fire

Management Plan. Finally, restoration and rehabilitation treatments by other programs reduced

hazardous fuels (i.e., wildlife habitat, watershed, timber, and pest management).

The Forest Service continued working with communities to develop Community Wildfire

Protection Plans (CWPP). CWPPs identify wildland fire hazards in areas within and surrounding

communities and identify the high-priority work needed to reduce the risk of catastrophic fire. The

agency’s State and local partners are leading this process, with active participation and technical

assistance from the Forest Service.

In cooperation with the DOI, State and local governments, and nongovernmental partners, the

Forest Service updated the 10-year Comprehensive Strategy Implementation Plan. This plan

identifies a collaborative approach for reducing wildland fire risks to communities and the

environment. Goals established in the original plan were met in FY 2006, just 5 years after the

establishment of the National Fire Plan (NFP).

The devastating hurricanes, floods, and unusually active winter and spring fire season that

affected the southern States and Gulf Coast area affected the agency’s ability to meet many of

the Executive Priorities contributing to this strategic goal.

The Forest Service reports the number of acres of high-priority hazardous fuels treated through

several measures, including a new measure in FY 2006—“Forest lands treated to achieve

healthier conditions.” This measure is the number of acres of forest lands treated using timber

sales, with a primary purpose of achieving healthier conditions or other desired conditions. This

does not include timber sales where the primary purpose is forest products production.

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Additionally, this affects the consistency of the trend data in MD&A Exhibit 5, “Performance and

Trends 2002—2006.”

Strategic Objective: Improve the health of National Forest System (NFS) lands that have the greatest

potential for catastrophic wildland fire

Target Projected Result 2008 Target

Number of acres treated within WUI 1,383,000 1,181,470 85.4% 2,000,000

Number of acres treated outside WUI4 417,000 402,677 96.6% 2,000,000

Total acres of high-priority hazardous fuels

treated 1,800,000 1,584,147 88.0%

Percent of acres identified as high-priority

consistent with the NFP 10-Year Comprehensive

Strategy and Implementation Plan

100% 100% 100% 100%

Number of acres brought into stewardship

contracts 0 71,604 N/A 380,000

For the following objective NASF estimates the number of “communities at risk” at 28,740. This

measure is the number of completed projects that meet the standard as identified in the NFP.

NASF and State Foresters are responsible for providing Community Wildfire Protection Plans

(CWPP) performance information to Forest Service regional office contacts or NFPORS.

The definition for "acres under partnership agreement" is the number of acres of hazardous fuels

treatments under NFP State Fire Assistance (SFA), with a focus on treating acres in the WUI.

The Forest Service is well into the fiscal year before projects are selected and funded via grant

application, making it difficult to determine how many acres to target.

Strategic Objective: Assist 2,500 communities and those non-NFS lands most at risk with developing and

implementing hazardous fuels reduction and fire prevention plans and programs

Target Projected Result 2008 Target

Percent of communities at risk with completed and

current fire management plans 23% 22% 95.6% 30%

Acres covered by partnership agreements 152,750 76,750 50.2% 925,450

FY 2006 Results

At midyear in FY 2006, the Regional Offices reported their potential for meeting, or not meeting,

the Executive Priorities. National program managers could then take corrective actions to attain

these key performance goals by fiscal yearend.

Natural processes, such as long-term drought, affect the “acres of hazardous fuels treated,”

resulting in fluctuations in annual performance and trend. Some regions reported underaccomplishment at midyear, stating that the risk was too great that prescribed fire treatments

could escape, and under current conditions, cause inadvertent consequences to local

communities.

The different regions experienced very different weather conditions in the spring, providing

favorable windows in which to use prescribed burning.

 4

 The Executive Priority changed in FY 2006 for acres treated in non-WUI, and no longer requires non-WUI to be in Fire

Regime I, II, or III in Condition Class 2 or 3 (FRCC).

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Annual Performance Report—Unaudited

Regions in the West and Southwest were challenged by vastly different weather conditions and

drought. One region reported switching treatments using prescribed burning to mechanical

treatments due to the poor burning conditions in the non-WUI areas. The number and intensity of

wildland fires in the early fire season hampered treatments in the very best time to accomplish

reducing hazardous fuels.

Another region stated that the severity of conditions were influenced by drier than normal weather

required higher levels of staffing during burning and monitoring activities to ensure that prescribed

burns were conducted safely.

Finally, a region reported in FY 2006 that the decreasing unit cost and an emphasis on meeting

overall targets influenced their decisions on whether to treat WUI or non-WUI. As the funding

decreases, this region emphasized the “cheaper” acres (usually non-WUI) to meet overall

program accomplishment goals.

FY 2006 Performance Measures Review and Validation

Feedback from the field in the FY 2006 Performance Measures Review and Validation expressed

a concern in the consistency of the CWPP boundaries. Local jurisdictions and communities

develop CWPPs, which are then mapped by the Forest Service. In areas where the communities

delineated a large area, it becomes more difficult to determine the high-priority acres of

hazardous fuels to treat. One region reported that a county government included all NFS lands in

their CWPP, while another county included only those NFS lands within 1 1/2 miles of the

community. One national forest works with both counties.

Accountability for the Future

The Forest Service released its latest version of the fuel consumption model, Consume 3.0. The

upgrade imports data directly from the Fuel Characteristic Classification System and reformats it

for use by other models that provide data for burn plans and smoke management requirements.

The newly released upgrade includes data from Alaska and western shrub fuel types needed to

track fuel consumption and emissions for smoke management reporting by the Forest Service,

Bureau of Land Management (BLM), U.S. Fish and Wildlife Service (FWS), and National Park

Service (NPS).

Researchers compiled Fuels Synthesis Project fact sheets, providing fuels treatment options for

use by National Environmental Policy Act (NEPA) teams within the Forest Service, DOI, and

States as they develop alternatives for management activities in the dry forests of the interior

West. (http://www.fs.fed.us/fire/tech_transfer/synthesis).

In cooperation with Space Instruments Inc., researchers developed the FireMapper, a thermalimaging system, and successfully transferred the technology to a BLM lead plane used during

firefighting operations. FireMapper provides a thermal-forward view, producing a map of fire

intensity that enables crews to evaluate the effectiveness of retardant at reducing fire intensity.

Imagery was successfully collected on several fires including the Sawtooth/Millard Complex in

southern California and the Dawes Complex in Nebraska.

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GOAL 2: REDUCE THE IMPACTS FROM INVASIVE SPECIES

Fewer impacts from invasive species due to healthier forests and grasslands

Invasive species—particularly insects, pathogens, plants, and aquatic pests—pose a long-term

risk to the health of the Nation’s forests and grasslands by interfering with natural and managed

ecosystems, degrading wildlife habitat, reducing the sustainable production of natural resourcebased goods and services, and increasing the susceptibility of ecosystems to other disturbances,

such as fire and flood.

Accountability through Assessment

Invasive Species Program

The Forest Service’s Invasive Species Program reduces, minimizes, or eliminates the potential

for the introduction, establishment, spread, and impact of detrimental invasive species across all

landscapes and ownerships.

Initial PART Assessment: 2004 Assessment for FY 2006 President’s Budget

Rating: Results Not Demonstrated

PART Reassessment Scheduled: 2006 Reassessment for FY 2008 President’s Budget

Rating: Official PART scores are released with the FY 2008 President’s Budget

Actions Taken in FY 2006

Performance Measures

In FY 2006, outcome and efficiency measures were refined for the NFS and State and Private

Forestry (S&PF) programs.

R&D’s invasive species outcome measure is, “Percentage of R&D customers surveyed reporting

satisfaction with accessibility, relevance, outcome, and cost effectiveness of tools developed,

delivered, and used.”

To establish baseline and target data for this outcome measure, an external organization

conducted a customer satisfaction survey in early 2006. R&D received a score of 72 percent, out

of 100 points. This score is higher than the average target score of 71.3 percent received by

other Federal agencies over the past 7 years. The survey will be conducted every 3 years.

Pesticide Risk Assessments

The Forest Service met several milestones for environmental risk assessments in FY 2006. The

agency completed the following pesticide risk assessments:

 The human health and ecological effects of 2,4-D;

 Borax, used for stump treatment;

 Disparlure, a gypsy moth pheromone;

 The herbicide oxyfluorfen, for invasive weeds;

 The insecticide imidoclorprid, to control hemlock wooly adelgid; and

 The herbicide hexazinone, for invasive weeds.

Insect and Disease Risk Maps

The Forest Service updated its periodic assessment of the risk of mortality from insects and

pathogens. The resulting map, Insect and Disease Risk, will help prioritize treatments in

combination with other criteria such as accessibility, capacity, and the ability for the treatment to

succeed.

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In addition to the Insect and Disease Risk map, species-specific maps were generated for Sirex

noctilio and Ips typographus in FY 2006.

Accountability to Executive Priorities

This measure is the total for Federal acres and acres of S&PF private lands protected by one or

more treatments to control invasive pests and weeds. If thinning follows spraying, the acres count

only once. The treatment and retreatment of invasive plant infestations, including noxious weeds,

contribute to this Executive Priority.

Strategic Objective: Improve the effectiveness of treating selected invasive species on the Nation’s forests

and grasslands

Target Projected Result 2008 Target

Number of acres treated for selected invasive

species 574,351 -- N/A 2,068,000

Number of acres treated for noxious weeds 80,800 -- N/A --

Number of acres treated for selected invasive

species, noxious weeds, and invasive plants on

NFS, State, and private lands

655,151 931,000 142.1% --

FY 2006 Results

For fiscal yearend reporting, the overachievement of treating acres for selected invasive species,

noxious weeds, and invasive plants on NFS, State, and private lands was due to several factors.

Lower than expected treatment costs and stewardship contracting opportunities allowed some

regions to accomplish additional acres. Efficiency contributed to success through units treating

large contiguous areas, treating acres easily accessible via the road network, or leveraging

funding by tying into other projects. Finally, the weather again played a role as some regions

experienced a longer treatment season due to good spring weather.

The change in definition to allow counting re-treatment of areas may also have contributed to

overachievement.

One region contributed their success, in part, to applying biocontrol treatments with insects

harvested from forest insectories.

FY 2006 Performance Measures Review and Validation

Feedback from the field in the FY 2006 Performance Measures Review and Validation suggests

that some units are using forest systems to track treatment information, until the databases of

record “allow reporting that meets forest needs.” Another region reported that program managers

only recently had become “aware of the change by letter made during the third quarter of the

fiscal year to the original direction in WorkPlan.” The region had not been aware of this change

and continued to report as originally directed.

Accountability for the Future

Forest Service R&D mapped the spread of tamarisk along stream corridors for Idaho, Oregon,

and Washington. As the first comprehensive documentation of tamarisk in these States, the

mapping is necessary to manage this invasive shrub that threatens native plant communities,

wildlife habitat, some recreation activities, and water supplies.

The Pest Risk Assessment evaluated the risk of importing logs and chips from various species of

pine. Entomologists, plant pathologists, and S&PF Forest Health Protection cooperated as the

Wood Import Pest Risk Assessment and Mitigation Evaluation Team, conducting a literature

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review of pine insects and diseases from Australia. The team determined nine insects and two

fungal pathogens to be organisms of potential risk, and forwarded the findings to the USDA

Animal and Plant Health Inspection Service (USDA–APHIS) for regulatory action.

Forest Service R&D, the NFS Eastern Region, and S&PF’s Northeastern Area jointly developed

an integrated plan to improve research, education, monitoring, and management of invasive

species within the 20 States bounded by Minnesota, Missouri, West Virginia, and Maine. As an

integrated strategy, this effort supports the National Strategy and Implementation Plan for

Invasive Species Management, benefiting from each contributor’s unique skills, resources,

partnerships, and authorities to create targeted action plans. The collaboration not only increased

awareness of ongoing and planned activities throughout the agency, but ensured better oversight.

Scientists’ 2006 efforts to prevent or slow the spread of the Midwest’s emerald ash borer (EAB)

infestation included:

 Expanding the States’ arsenal of techniques for detecting new infestations.

 Increasing the effectiveness of State and Federal regulatory programs through guidelines

for using heat treatment or chipping, storing firewood as split logs stored uncovered in the

sun, and treating stumps with the herbicide Garlon® to prevented EAB colonization and

stump sprouting.

 Identifying EAB-resistant tree species in Asia, a first step to developing North AmericanAsian hybrids to restore ash trees to affected areas.

Scientists created a new risk map for Phytophthora ramorum, the invasive exotic pathogen

causing Sudden Oak Death. The risk map is a product of a newly developed model that assesses

climatic suitability, and therefore the potential for infestation, across the contiguous United States.

Results suggest that while most of the Intermountain West and Great Plains are at very low risk,

the climate in a significant portion of the eastern United States is favorable for infestation. With

this information, surveys can now concentrate in areas favorable to infestation, once a

susceptible host plant is found. Findings also reinforce the value of continued quarantines on

potentially infected host materials to prevent the spread of the pathogen into the eastern States.

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GOAL 3: PROVIDE OUTDOOR RECREATIONAL OPPORTUNITIES

High-quality outdoor recreational opportunities exist on the national forests and grasslands

The Forest Service provides high-quality recreational experiences for the American public,

especially in the national forests near the growing urban centers. To provide benefits for all

recreation users, the Forest Service maintains public access to its facilities, roads, and trails, and

acquires new rights-of-way (ROW) for public access to NFS lands.

Accountability through Assessment

Recreation, Heritage and Wilderness Resource Program

Major operational components of the Recreation, Heritage and Wilderness Resource Program

(RHWR) include the administration and management of the recreation facilities, roads, and trails

infrastructure (including acquisition of ROW easements); wildlife opportunities; wilderness and

heritage resources; partnerships and tourism; interpretive services; recreation special uses;

congressionally designated areas; and national forest scenic by-ways.

Initial PART Assessment: 2005 Assessment for FY 2007 President’s Budget

Rating: Moderately Effective

Actions Taken in FY 2006

Performance Measures

The Forest Service made progress toward linking improvements in RHWR performance with the

achievement of strategic goals. New measures, based on PART outcome performance

measures, were drafted into the Forest Service Strategic Plan 2007-2012, which is pending

approval from USDA as of September 30, 2006.

Recreation Site Facility Master Planning

In an effort to optimize available resources, the Forest Service accomplished several milestones

toward the analysis needed for Recreation Site Facility Master Planning, including highlighting the

significance of public participation. After public input is incorporated, 5-year programs of work will

be completed for an estimated 60 percent of the national forests in FY 2007.

National Forest Capital Improvement and Maintenance

The Capital Improvement and Maintenance (CI&M) program improves, maintains, and operates

roads, trails, buildings and other facilities to facilitate recreation, research, fire, administrative and

other uses on Forest Service lands.

Initial PART Assessment: 2002 Assessment for FY 2004 President’s Budget

2003 Assessment5 Rating: Adequate

Actions Taken in FY 2006

Funding Allocation and Enhanced Disposal Authority

Responding to a new PART recommendation and milestones, the agency has used its enhanced

disposal authority through the Facility Realignment and Enhancement Act to reduce excess

facilities. The agency is also making progress in its efforts to align the road system with available

resources, and is improving efficiencies in project work through the use of Value Analysis.

In June 2006, the Forest Service completed the Facilities Accomplishment Report which tracks

monthly trends in deferred maintenance, in accordance with the agency’s Asset Management

Plan.

 5

 This second assessment was prior to OMB’s use of reassessments.

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The Forest Service is utilizing enhanced disposal authorities to dispose of unneeded facilities.

The agency is monitoring progress, and reporting to Congress and OMB by listing conveyance

properties in the budget justification. As of June 2006, the agency closed sale on approximately

$24 million. Statistics for the entire year were available on October 31, 2006.(FY 2006 data goes

through September 30, 2006)

In April 2006, the Forest Service submitted to USDA the FY 2005 Value Analyses Report for all

capital improvement projects greater than $1 million. The Forest Service revised its direction for

the Value Management Program in FY 2006, but the policy will not be final until first quarter FY

2007.

The Forest Service has completed some trend analysis on the loss of roads passable to

passenger cars. This analysis shows that between 1990 and 2005 roads passable to passenger

cars decreased by 17,635 miles. Between 2001 and 2005, the rate of decrease has been roughly

1,700 miles per year. A more in-depth analysis will be complete by December 31, 2006.

As an incentive for field units to optimize facilities, a multiprogram charge was assessed in FY

2006. For FY 2007, field units will be assessed a charge based upon the amount of building

square footage that they maintain. The incentive therefore, is to minimize that charge by

eliminating unneeded or surplus square footage.

Accountability to Executive Priorities

The Executive Priority for “miles of road (passenger and high-clearance) maintained” aligns with

the strategic performance measure of reducing fatalities. A unit reports accomplishment when it

performs at least one maintenance activity during the fiscal year, measured without regard to

width of road or number of lanes. Performing a condition survey is not maintenance.

The Executive Priority for “miles of trails maintained to standard” is defined as receiving the

annual amount of maintenance performed with the annual appropriation. Some regions exceeded

their trails targets by using partnerships and grant agreements or volunteer work.

The Executive Priority for “facilities maintained to standard” now includes recreation sites.

Another Executive Priority tracks the total number of road and trail ROW easements acquired,

resolved through other lands activities, or by cooperative effort.

Strategic Objective: Improve public access to NFS land and water and provide opportunities for outdoor

health enhancing activities

Target Projected Result 2008 Target

Miles of road maintained to standard for highclearance and passenger vehicles 65,508 62,542 95.5% --

Miles of trail maintained to standard 20,557 22,599 110.0% 71,400 , or

60%

Number of facilities maintained to standard 26,970 26,289 97.5% 24,000, or

60%

Number of ROW acquired to provide public access 172 158 91.9% 300

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FY 2006 Results

At midyear in FY 2006, the NFS regional offices reported their potential for meeting, or not

meeting, the Executive Priorities. National program managers could then take corrective action to

attain these key performance goals by fiscal yearend.

Although one region reported at midyear that a level of funding was not authorized to meet the

targets for facilities maintained to standard, ROW acquired, and trails maintained to standard, it

did not appear to affect the agency’s overall accomplishment for these Executive Priorities.

Preliminary performance as of September 30, 2006 is within +/- 10 percent of the targets, with

110 percent for “miles of trail maintained to standard.” The Forest Service may have exceeded

“miles of trail maintained to standard” because of the shifting priority to the planning and

implementation of the off-highway vehicle (OHV) rule, as reported by another region.

Several regions reported exceeding their FY 2006 targets because additional donation ROW or

those acquired due to additional land exchange projects had been completed.

However, another region reported that a State continued to deny easements to the Forest

Service. Private landowners were also resistant to granting rights required by the agency, yet

units were reluctant to employ eminent domain proceedings because of the consequences to

other priorities. This region is reorganizing the ROW positions into zones to better serve the

public and attain the mission.

For FY 2006, Forest Service reported the following deferred maintenance for these assets:

 $4,053 million for roads, with $748 million in critical maintenance

 $242 million for trails, of which approximately $18 million is considered critical

maintenance

 $482.7 million for facilities (i.e., buildings), of which $105.9 million is critical maintenance.

Deferred maintenance causes deterioration of facility performance, increased repair

costs, and a decrease in facility value.

For more information on conditions surveys used to assess deferred maintenance by asset class,

see Exhibit 1, Deferred Maintenance Totals by Asset Class as of September 30, 2006, in the

Required Supplementary Information (RSI) section of the P&AR.

Strategic Objective: Improve the management of OHV use to protect natural resources, promote safety of

all users, and minimize conflicts among various uses through the collaborative development and

implementation of locally based travel management plans

Target Projected Result 2008 Target

Percent of NFS lands covered by travel

management implementation plans

Not

targeted 1,176,0006 N/A 75%

The Executive Priority for “percent of NFS lands covered by travel management implementation

plans” became feasible on November 2, 2005, when the Forest Service announced release of the

final travel management rule (36 CFR parts 212, 251, 261, and 295). The implementation

schedule was not known when direction to the field was published; therefore, no FY 2006 national

target was established.

However, once the agency released the final implementation schedule in June 2006, the Chief of

the Forest Service assigned a target of 3 million acres, or 1 percent of NFS lands. The projected

accomplishment of 1,176,000 acres is 0.6 percent of NFS lands.

 6

 Percent of NFS lands, at 193 million acres would equal 0.6%. This is 1% in FY 2008 Department Estimate.

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FY 2006 Performance Measures Review and Validation

Feedback from the field in the FY 2006 Performance Measures Review and Validation informed

program managers that forests might be tracking several of these measures with their own

spreadsheets, using WorkPlan and INFRA only at the end of the season. A regional review team

reported that the consequences of using alternative means for tracking performance are the

potential for underreporting deferred maintenance within a fiscal year, and having “no numbers

available outside of the forest spreadsheet” when a review was held.

Roads

Pertaining to the “miles of road maintained” measure, two regions reported uncertainty in the

definition. One region stated that by having no reference to standard requirements for the

accomplishment, forest records would likely vary greatly in detail or reliability. Another region

found a national forest was including condition survey activities in its performance reporting;

consequently, the reported accomplishment is higher than it should have been.

Trails

A region reported that the definition for “trails maintained to standard,” does not represent the

significant amount of fieldwork accomplished by volunteers. Much of the actual accomplishment

is not accounted for because miles maintained with leveraged funding, i.e. State grants, are not

included in this measure. One national forest in this region has adopted a strategy to leverage all

appropriated trail maintenance funds using district trail coordinators. These individuals apply for

grants, coordinate volunteer work, develop partnerships and coordinate expenditures of

recreation fee funds. Each trail person on the forest brings in approximately $300,000 in

maintenance value annually through these tools. This national forest reported to the review team

that the actual miles of maintenance and deferred maintenance far exceeds the target, but none

of this work is accomplished with appropriated dollars. Without these critical positions and use of

these tools, the trail maintenance program on the forest would be minimal.

A second review team stated that although a national forest exceeded their assigned target for

“trails maintained to standard,” the reported value is not consistent with the definition. “The actual

value that can be reported under the Forest Service’s current reporting method is zero because

the work was not accomplished using appropriated funds.”

Both reviews point to the success of the Forest Service’s volunteers and partnerships.

In interviews with forest supervisors, staff officers, district rangers, and team leaders, one region

reported much discussion on the accuracy of what constitutes “trails maintained to standard,”

because the definition does not include “to standard.”

Facilities

Feedback on “facilities to standard” suggests that the national forests and grasslands with a

completed Recreation Site Facility Master Planning Process may not be able to meet an assigned

target. For example, a national forest assigned a FY 2006 target of 314 facilities (including

FA&O), recently completed the Recreation Site Facility Master Planning Process. Through this

master planning, the forest identified 167 developed recreation sites. Of the 167 sites, there are

45 in Concentrated Use Area (CUA) status, and 7 were identified to be decommissioned. The

review team found the resulting 115 sites consistent with the definition provided and maintained

to the Regional Required Standard.

Another region reported that this “measure lacks clearly defined or understood direction on what

facilities/constructed features are to be included.”

Performance reporting for Executive Priorities would be less subjective if the definition in the

program direction would reference standards from the FSM or FSH. For example, the section,

“Deferred Maintenance,” in the RSI reports for the same asset classes, and references specific

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standards from the Forest Service directives. Referencing the same standards would eliminate

any vague definitions and prevent inconsistent interpretation from individual to individual.

Accountability for the Future

The Americans with Disabilities Act (ADA) requires firm and stable surfaces for use of mobility

devices such as crutches, wheelchairs, and walkers. Forest Service researchers created a

resilient wood-based playground surface that is soft enough to cushion falls, but firm and stable

enough to support wheelchairs and walkers. The stabilizing engineered wood fiber (SEWF),

combined with a polyurethane or latex binder, creates an affordable alternative to bonded rubber

for accessible recreational areas. Cooperating with leaders in the playground surfacing industry,

R&D installed three school and park playgrounds and one beach trail at a State park. Zeager

Brothers of Middletown, PA, a supplier of playground surfacing began commercially marketing

and installing these commercial playground surfaces across the country.

R&D published a significant state-of-the-knowledge review on using computer simulation

modeling as a tool for recreation planning and management. The publication resulted from a

multiyear collaboration between the Forest Service, NPS, and several universities.

The American Society of Landscape Architects awarded the Forest Service the 2006 Honor

Award for Research. The award recognizes collaborative efforts to provide scientific information

about causes and effects of development-oriented landscape change in the Midwest, dealing with

issues such as wildland fire, invasive species, and market-induced changes to forests.

Landscape planners, designers, and policymakers can make better decisions about landscape

futures. Since the program’s start in 1999, the Forest Service has sponsored more than 100

studies identifying critical patterns and trends of changes in the Midwest region over recent

decades.

Dr. Deborah Chavez received the American Recreation Coalition’s 2006 Legends Award at the

America’s Great Outdoors Week celebration in Washington, DC. This award recognizes

outstanding employees who make significant contributions to enhancing the Nation’s outdoor

recreation resources, facilities, and experiences. Dr. Chavez’s major contributions have helped

managers develop recreation opportunities and facilities that meet the needs and interests of

minority populations in Southern California.

The Forest Service, in cooperation with the Caribbean National Forest, the University of

Pennsylvania, and the National Science Foundation Biocomplexity Program developed studies

and published guidance to managers for integrating swimming activities with the management of

mountain streams, including wild and scenic rivers. This study provides information that

addresses concerns about the potential impacts of swimmers on water quality and aquatic

organisms.

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GOAL 4: HELP MEET ENERGY RESOURCE NEEDS

Consider opportunities for energy development and the supporting infrastructure on forests and

grasslands to help meet the Nation’s energy needs

Accountability through Assessment

Energy Program

In support of the National Energy Policy (NEP), the energy component of the Minerals and

Geology Program focuses on increasing opportunities for development and supply. This effort is

particularly focused on eliminating backlogs of oil and gas lease nominations by providing timely

recommendations on leasing and the efficient processing of the Surface Use Plan of Operations

(SUPO) portion of the Application for Permit to Drill (APDs) that is submitted to BLM.

Initial PART Assessment: 2005 Assessment for FY 2007 President’s Budget

Rating: Adequate

Actions Taken in FY 2006

Performance Measures

The Forest Service is refining its energy performance measures to include compliance and

remediation. To do this effectively, the agency plans to conduct a survey of regional offices to

assess any existing data systems that could implement proposed changes or refinements. As of

September 2006, these discussions have begun, led by the Minerals and Geology Management

Staff.

Improving Efficiencies through Partnership

The Forest Service is committed to coordinating with BLM to improve efficiencies. To increase

this coordination as well as reduce the backlog of lease applications, the agencies implemented

authorities provided by the Energy Policy Act of 2005. FY 2006 milestones toward these efforts

under the Energy Policy Act of 2005 include:

October 24, 2005

Agencies signed a Memorandum of Understanding (MOU) to set up seven BLM pilot offices to

improve Federal permitting coordination. Four of the pilot offices include Forest Service

personnel.

April 14, 2006

Agencies signed an MOU for Consultation Regarding Oil and Gas Leasing on Public Lands.

Agencies signed an MOU for Coordination of Geothermal Leasing and Permitting on Federal

Lands.

Minerals Management Service transferred funding to DOI to establish a 5-year program for

geothermal leasing, and a program for reducing the backlog of geothermal lease applications,

pending as of January 1, 2005.

July 17, 2006

The Chief of the Forest Service issued a letter to the Director of the BLM, supporting efforts to

implement a joint data retrieval system for oil and gas leasing and permitting, as well as

geothermal leasing and operations.

Agencies completed the first review of the Federal Onshore Oil and Gas Leasing and Permitting

Practices (Section 361) report and BLM anticipates the report will be ready for final review by

December 2006. The USDA Office of the General Counsel (OGC) will review the final version of

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the report and expects to complete their review by January 2007. Pending is the approval and

submission process which is led by BLM.

Accountability to Executive Priorities

The “percent of energy facility application” measure is the number of special use applications

processed within the projected timeline, as determined by the authorizing officer, for electric

transmission lines, oil or gas pipelines, and renewable energy generation facilities.

The Executive Priority for “number of oil and gas applications processed in prescribed

timeframes” adheres to these timeframes:

 60 days, if the land availability decision is made;

 18 months, if requiring a land availability decision;

 180 days, if requiring an environmental assessment (EA); or

 18 months, if requiring an environmental impact statement (EIS).

Units report a potential nomination as 1,000 acres if the lease application is not filed. This is the

numerator for the strategic plan measure, which is a percent.

Strategic Objective: Work with other agencies to identify and designate corridors for energy facilities,

improve the efficiency of processing permit applications, and establish appropriate land tenure (including

transferability clauses) in easements and other authorizations to provide for longterm project viability

Target Projected Result 2008 Target

Percent of energy facility applications 45% 70% 155.5%

Percent of oil and gas applications 45% 28% 62.2%

Percent of energy facility and corridor APDs

approved within prescribed timeframes -- -- -- 50%

FY 2006 Results

FY 2006, performance for these priority measures appeared mixed. Due to the high price of oil

throughout 2006, one region reported a national forest had nearly doubled the target. Another

successful region exceeded its target because of its commitment to facilitate energy development

through regional priorities. A reduction in funding would not allow for this same level of

accomplishment, it also noted.

A region reported it was able to complete projects if there were no processing delays due to

NEPA or issues that could be resolved later. Conversely, another region reported that meeting

their target was not feasible because the reduction in their leasing backlog was dependent upon

resolving the appeals and litigation for five EIS’s.

FY 2006 Performance Measures Review and Validation

Feedback from the field in the FY 2006 Performance Measures Review and Validation informed

program managers that the field’s understanding of these measures is not consistent.

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Accountability for the Future

Strategic Objective: Stimulate commercial use of small-diameter trees from NFS lands for

biomass energy

Researchers collaborated with Flambeau Paper Company, Biopulping International, and

American Process, Inc., in several experiments, providing pulp for testing waste liquors from the

pulping process. American Process Inc.’s ethanol-sulfite pulping technology is being considered

for Flambeau Paper Company’s Park Falls mill. In this process, the waste liquor from pulping

contains 40 percent or more of the original wood substance, approximately half of which is

carbohydrates available for fermentation to ethanol.

R&D led the development of the Street Tree Resource Analysis Tool for Urban Forest Managers,

or STRATUM. An easy-to-use decision-support tool, STRATUM allows communities of any size

to identify urban forest benefits and management needs as a basis for developing management

plans. STRATUM quantifies the value of annual benefits such as energy conservation, air quality

improvement, CO2 reduction, storm water control, and increases in property value with the

associated costs, using street tree data from an inventory collected by trained volunteers. In

2005, STRATUM joined the suite of inventory, analysis, and forecasting tools called i-Tree.

Technical support, training, and marketing for i-Tree are provided through partnership with the

Davey Tree Expert Company and the National Arbor Day Foundation.

As part of the U.S. Climate Change Initiative, R&D completed a 3-year effort to develop national

accounting rules and guidelines for use in development of a new commodity market for carbon in

the forestry sector. Estimating the quantity of carbon sequestered by a forest can be a complex

and potentially expensive task, representing a significant cost. These rules and guidelines provide

new options at the lowest possible cost, while maintaining sufficient accuracy. With these new

rules in place, public and private forest owners have a sound basis for capturing the value that

their forest management practices contribute to offset greenhouse gas emissions. The effort also

included improvements to the U.S. Department of Energy’s Voluntary Greenhouse Gas Reporting

Program.

Forest Service R&D, in partnership with NFS and S&PF, will purchase a wood gasification unit to

convert wood chips to electrical energy. The unit serves three main purposes:

 Electricity generation for the Winn Ranger District;

 Demonstration project for southern pine beetle control; and

 Biomass to bioenergy research.

The easy-to-use system, constructed by Community Power Corporation, burns wood chips in an

ash bed while oxygen is removed from the combustion chamber. Researchers will evaluate the

effect of raw materials on the yield of gases and system performance, and the utilization of the

remaining ash in soil remediation. The system will be fully transportable in the South via a flatbed

truck for use in an emergency to generate electricity and dispose of woody debris.

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GOAL 5: IMPROVE WATERSHED CONDITION

Fully functional and productive watersheds

Accountability through Assessment

Watershed Management

Initial PART Assessment: 2006 Assessment for FY 2008 President’s Budget

The assessment was not final, as of September 30, 2006.

Accountability to Executive Priorities

The Executive Priority for “Percent of inventoried forest and grassland watersheds in fully

functional condition” focuses on watershed stability and the ability to attain beneficial uses.

National forests and grasslands use coarse filter watershed analysis to assign fifth-level

hydrologic units (HUC5) into three condition classes.

The FY 2006 yearend projected accomplishment reflects unforeseen environmental degradation

from three sources:

 The severe summer fire season in the western States;

 Floods in southern California; and

 Hurricane damage in the Gulf Coast States.

The Executive Priority reporting the number of “acres of nonindustrial private forest (NIPF) lands”

complements the above measure, encouraging the active long-term forest management of

important private forest resource areas. The Forest Service provides direct assistance to affect

targeted forest resource areas.

Strategic Objective: Assess and restore high-priority watersheds and maintain riparian habitat in these

watersheds

Target Projected Result 2008 Target

Percent of inventoried forest and grassland

watersheds in fully function condition as a percent

of all watersheds

40% 31% 77.5% 41%

Acres of NIPF land under approved stewardship

management plans 1,575,000 1,600,000 101.5% 3,200,000

The Executive Priority for “acres of terrestrial habitat” reports the total acres restored or enhanced

to achieve desired future condition of habitat for threatened, endangered, and sensitive species

(TES) species, and non-TES species. Management activities may include prevention, control,

and mitigation against infestations of invasive species (plants, vertebrates, invertebrates, or

pathogens) that affect terrestrial wildlife and associated habitats.

The Executive Priorities for “miles of stream habitat” and “acres of lake habitat” report the

restoration or enhancement completed using structural or non-structural improvements in

anadromous and inland fish-bearing rivers and streams, or lakes, ponds, and reservoirs,

respectively.

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Strategic Objective: Restore and maintain native and desired nonnative plant and animal species diversity

in terrestrial and aquatic ecosystems and reduce the rate of species endangerment by contributing to species

recovery

Target Projected Result 2008 Target

Acres of terrestrial habitat enhanced to achieve

desired ecological conditions 196,716 247,217 125.6% 225,000

Miles of stream habitat enhanced to achieve

desired ecological conditions 1,457 1,799 123.4% 2,400

Acres of lake habitat enhanced to achieve desired

ecological conditions 13,743 17,116 124.5% 18,000

FY 2006 Results

At midyear in FY 2006, regions reported their potential for meeting, or not meeting, the Executive

Priorities. Corrective actions made achieving these key performance goals possible by fiscal

yearend. While some regions anticipated accomplishing less than the targeted amount at midyear

for “miles of stream enhanced or restored” or “acres of lake habitat enhanced or restored,” the

preliminary performance reporting for the entire agency dispels this at 123.5 and 124.5 percent,

respectively. Consequently, the Forest Service made progress in FY 2006 toward the strategic

objective of “restoring and maintaining species diversity in the terrestrial and aquatic ecosystems”

in watersheds on NFS lands.

Partnerships attributed to the agency exceeding the target, due to leveraging funds with

contributions, while implementing projects that also reduced hazardous fuels. Often, it was the

case that the agency had completed the NEPA process and other prework in FY 2005.

Regions again acknowledged the strong cooperative relationships with partners when reporting

they met or exceeded the target for “miles of stream enhanced.” The funding from State

agencies and private conservation groups often makes this level of accomplishment possible. A

clarification in this Executive Priority’s definition from the Washington Office also contributed to

this accomplishment.

A region reported that a single project led to exceeding the regional target for lake habitat. The

project, conducted with the State’s Division of Wildlife Resources, restored a lake for a healthy

sport fishery for trout.

The Executive Priorities for terrestrial habitat and lake habitat were also overachieved in FY 2005,

but no further action was taken, as reported in the Forest Service’s FY 2007 Budget Justification.

The agency attributed this 2005 overachievement to favorable weather conditions, and

reconstruction of a nonfunctioning fish ladder, respectively.

FY 2006 Performance Measures Review and Validation

Feedback from the field in the FY 2006 Performance Measures Review and Validation informed

program managers of several issues. One region reported the following concerns from the review

team’s interviews with forest supervisors, staff officers, district rangers, and team leaders.

Performance reporting is challenging for the field when reporting the stream habitat and lake

habitat measures because of the multiple databases used to report these Executive Priorities.

When using WorkPlan to report these measures, the “contributed acres from partnerships” are

not included in the performance reporting. This region also commented that the “conversion of

structural investments to acres” needs improvement.

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Accountability for the Future

Scientists and collaborators researched the reproductive, physiological, and environmental

constraints on the regeneration of native dry forest species. Results demonstrated that when the

understory is restored to a mix of native species the slower-growing, native canopy trees are

established, minimizing the need for long-term efforts to control re-invasion by exotic grasses.

This research was used in the design of the first prescriptions for dry forest restoration in Hawai’i,

including procedures and products for controlling invasive grasses, applying a weed-tolerant fastgrowing native species seed mix to gain control of the understory, and protecting existing and

developing regeneration from animals and fire.

Research established a clear link between air pollution and forest susceptibility to wildfires. In

southern California, other factors were found to increase susceptibility of forests to wildfire:

increases in human population, changes in land use, fire suppression, and frequent droughts.

The Forest Service also mapped ozone concentrations to help identify forest areas most in need

of fire prevention treatments.

Forest Service scientists cooperated with the Korea Forest Research Institute and Oregon State

University to develop a method to analyze how levels of creosote component migrate from newly

treated wood after immersion in fresh water. This work led to the development of mathematical

models that predict emissions from creosote-treated wood into the aquatic environment, detecting

up to 16 poly aromatic hydrocarbons. Research found that levels of creosote component declined

sharply after initial exposure to undetectable levels within 7 days.

Scientists authored, “The Fernow Watershed Acidification Study,” a book synthesizing the first 15

years of the Study on the Fernow Experimental Forest in West Virginia. This is the first book to

focus on valuable and widespread mixed hardwood forest ecosystems, making up much of the

dominant forest type in the eastern United States. The book evaluates effects of atmospheric

pollution on vegetation, soils, water quality, salamanders, and nutrient cycling. Results from the

study show that the acidification treatment elicited a quick response in soil and stream water

chemistry, and slower responses for the terrestrial components.

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Annual Performance Report—Unaudited

GOAL 6: CONDUCT MISSION-RELATED WORK TO SUPPORT THE AGENCY’S GOALS

Productive and efficient agency programs support the mission of the Forest Service

The Forest Service provides direction for natural resource stewardship through direct land

management practices, indirect management under partnership agreements, and research and

development programs. The agency also provides many goods and services—such as

recreational opportunities, clean water, and wood products—to the American people. The agency

consistently strives to maintain the organizational structure and capacity to deliver the necessary

mission-related work.

Accountability through Assessment

Forest Legacy Program

The Forest Legacy Program (FLP) identifies and protects environmentally important private forest

lands, threatened by conversion to nonforest uses. FLP acquires land to protect the important

scenic, cultural, fish, wildlife and recreation resources, riparian areas, and other ecological values

using conservation easements and full fee purchase. Donations and purchases must meet FLP

purposes, and be acquired only from willing sellers or donors.

Initial PART Assessment: 2003 Assessment for FY 2005 President’s Budget

Rating: Results Not Demonstrated

PART Reassessment Completed: 2004 Reassessment for FY 2006 President’s Budget

Rating: Moderately Effective

Actions Taken in FY 2006

Performance Measures and Project Criteria

In FY 2006, the Forest Service revised its project selection criteria for the FY 2008 national

ranking process. The revised project selection criteria incorporates the newly updated FLP

Strategic Direction priorities, including— “The majority of FLP projects are strategically linked to

other protected lands to create cumulative conservation benefits.”

The agency focused on forest areas at greatest risk by working with State partners to revise

statewide assessments of need (AONs). These revised AONs reduce the size of forest legacy

areas, focusing on the important forests threatened by conversion to nonforest uses, permitting

more targeted acquisitions. In April 2006, a schedule was developed for States to review their

AONs and revise as needed. Seven States needed to reduce their Forest Legacy Areas (FLAs)

by the end of 2006. So far, two States have revised their FLAs.

Land Acquisition Program

The Land Acquisition Program works through partnerships between the Forest Service and other

governments, private landowners, and nongovernmental organizations.

Initial PART Assessment: 2003 Assessment for FY 2005 President’s Budget

Rating: Results Not Demonstrated

PART Reassessment Completed: 2005 Reassessment for FY 2007 President’s Budget

Rating: Adequate

Performance Measures and Project Criteria

In FY 2006, the Forest Service worked to eliminate those projects that do not contribute towards

achieving the goals of the Forest Service Strategic Plan. Additionally, the Forest Service uses

established criteria to identify and prioritize acquisitions that will provide the greatest public

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Annual Performance Report—Unaudited

benefits. In 2006, the agency identified two measures for FY 2007 reporting in the Forest

Service’s Performance Accountability System (PAS):

 Number of priority acres acquired or donated that provide public access for high-quality

outdoor recreational opportunities on NFS land.

 Number of priority acres acquired or donated that reduce the conversion of forests,

grasslands, and aquatic/riparian ecosystems to incompatible uses in order to improve and

maintain ecological conditions for critical species.

In FY 2006, the agency developed a process to implement two efficiency measures and will

continue to formalize this process in FY 2007. The efficiency measures are:

 Percentage of total acquisition cost per acre attributed to third party and private landowner

participation.

 Percentage of acquisition cases completed within a prescribed timeframe.

Support Mission

Initial PART Assessment: 2006 for FY 2008 President’s Budget

The assessment was not final, as of September 30, 2006.

Accountability to Executive Priorities

The Forest Inventory and Analysis (FIA) program conducts annual inventories of forest status and

trends. FIA has historic inventory data in all 50 States and is currently collecting annual inventory

data in 45 States, including 38 of the 41 States containing NFS land.

Each year, the FIA program addresses accountability by publishing a business report that

describes basic information about the business side of FIA, which includes current year’s

accomplishments, performance measures, budget and staffing data, program changes, and

future direction. This report is distributed to all interested customers and partners, and made

available on the Web site at http://www.fia.fs.fed.us/library/bus-org-documents/default.asp

Strategic Objective: Provide current resource data monitoring and research information in a timely manner

Target Projected Result 2008 Target

Percent of the Nation for which FIA information is

accessible to external customers 72% 88% 122% 100%

The following measure is the percent of regions, stations, and area providing certification forms to

the Program Budget and Analysis (PB&A) Staff, certifying that their unit’s accomplishment data is

reliable and complete. The regional foresters certify performance reporting for the Executive

Priorities before submission. Certification forms are forwarded to PB&A Staff, and supporting

documentation for the certification is kept by the regions.

For FY 2006, this performance measure was 100 percent, and serves as baseline.

Strategic Objective: Meet Federal financial management standards and integrate budget with performance

Target Projected Result 2008 Target

Extent to which performance data are current and

complete

Not

targeted 96% N/A 100%

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Annual Performance Report—Unaudited

Strategic Objective: Maintain the environmental social and economic benefits of forests and grasslands by

reducing their conversion to other uses

Target Projected Result 2008 Target

Acres acquired7 or conveyed 20,824 16,697 80.2% --

Acres acquired or donated 37,545 60,353 160.7% --

Acres protected by the FLP 230,000 358,500 156% --

Total acres to conserve the integrity of

undeveloped lands and habitat quality. 288,369 433,550 151% 948,000

The Forest Service tracked this Executive Priority using these measures:

 Number of acres acquired through land purchase or donation, including conservation

easements or interests in land, for NFS purposes.

 Number of acres acquired and conveyed, through land exchanges, transfers,

interchanges, and conveyances, including acres acquired and conveyed under the Small

Tracts Act and Townsite Act.

 Number of acres protected by the FLP through fee simple purchases or conservation

easements.

The Forest Service reports accomplishment for these measures when the documents of

conveyance are recorded within the fiscal year. This process differs from the process used for the

stewardship lands in RSI Exhibit 3, “Net Change in Acres in National Forests by Various

Purposes (FY 2005 to FY 2006).”

Performance for the individual components contributing to this Executive Priority varies from year

to year, causing the trend in MD&A Exhibit 5, “Performance and Trends 2002—2006” to fluctuate

up and down. However, it is reasonable to expect complex processes such as conveyances and

donations of land to extend longer than a 12-month period; more often, these processes take a

minimum of 18 months.

FY 2006 Results

In midyear performance reporting, regions anticipated unmet targets due to:

 A landowner rejecting an offer as insufficient compensation;

 Difficulty in getting private owners to agree on a final sale configuration for appraisal; and

 Configuring the second phase of an acquisition later than the first phase, resulting in the

per-acre purchase price being higher than initially anticipated, so fewer acres were

acquired.

However, by fiscal yearend, the preliminary combined performance was 151 percent, with “acres

acquired through land purchase or donation” and “acres protected by the FLP” exceeding the

target, and “acres acquired and of conveyed” reporting below target.

FY 2006 Performance Measures Review and Validation

The National Forest Management Act (NFMA) requires that each unit of the NFS have a Land

Management Plan (LMP) that may be amended, as appropriate, but formally revised every 10 to

15 years to address changing conditions related to natural resources, management goals, and

public use. Results are reported when a revision is completed, based on the Chief’s National LMP

 7

 In previous performance reporting, this was “acres adjusted.”

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Annual Performance Report—Unaudited

Revision Schedule. This schedule identifies a timetable for the revision of all existing national

forest, grassland, prairie, and other NFS unit LMPs.

At midyear, the regions expected under-accomplishment for the “number LMP’s developed and

revised.” Those national forests and grasslands currently revising the LMPs under the new

planning rule reported needing more time for review by the regional offices and the national

program managers. The regions were experiencing schedule delays as the Forest Service

interpreted the new planning rule. The preliminary performance reporting for this Executive

Priority supports the regions’ assertion with only 10 of the planned 20 LMPs completed by fiscal

yearend.

The Forest Service Strategic Plan 2004—2008 includes the strategic objective, “Develop and

maintain the processes and systems to provide and analyze scientific and technical information to

address agency priorities.” The performance measure for this objective became the Executive

Priority, “proportion of data which is current to standard.”

FY 2006 is the first year the Forest Service had the capability to capture this information, using

both the Standard Data Evaluation Tool (SDET) and the Resource Mapping Evaluation Toolset

(RMET).

SDET measures tabular databases in certain developed national applications. RMET measures

Geographic Information Systems (GIS) data at a national forest or grassland administrative unit.

The Executive Priority directly measures quantity, but not quality of these data.

Performance for this Executive Priority is not preliminary, as SDET measurements were made in

September 2006, and RMET results were made in April 2005.

The accomplishment of 44.48 percent is for tabular and GIS (geospatial) data meeting the above

criteria in the following applications:

 Automated Lands Project (ALP), selected core portions

 Natural Resource Information System (NRIS), selected core portions

 Infra, for roads and trails, as they are significant components of wildlife habitat

 GIS, for datasets with established Forest Service-wide standards.

The Forest Service’s monitoring and evaluation activities sustain viable populations of fish,

wildlife, and plant species by restoring forest and grassland ecosystems and improving watershed

conditions. The program focuses on identifying changing conditions over time and monitoring the

implementation, effectiveness, and validity of LMPs.

Strategic Objective: Develop and maintain the processes and systems to provide and analyze scientific and

technical information to address agency priorities

Target Projected Result 2008 Target

Number of LMP developed and revised

(completed). 20 10 50% 15, or 12%

Proportion of data within information systems that

are current to standard

Not

targeted -- N/A 40%

Number of forest plan monitoring and evaluation

reports completed 90 92 102.2% 119, or100%

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Annual Performance Report—Unaudited

Accountability for the Future

The FIA Program completed a reinventory of Mississippi to complete a damage assessment of

forests following Hurricane Katrina. The Forest Service will continue the annual inventory as FIA

transitions the State to the annualized survey status.

FIA has now implemented annual inventories in 46 States, as well as a new National Information

Management System (NIMS) across all research stations to improve timeliness and consistency

in compiling national data and for estimating inventories. FIA developed new analytical tools (e.g.,

Mapmaker) that make FIA data and analysis available to assess changing forest conditions at

multiple spatial scales, manage fire risk, and restore healthy forest ecosystems. FIA also initiated

a range monitoring pilot study in partnership with NFS, BLM, and USDA’s Natural Resources

Conservation Service (NRCS) to expand and enhance inventories and tools for broader

landscape management planning.

Researchers developed a standardized survey protocol to detect bats in forests, particularly

within prescribed area boundaries and at several specific roost structures: caves, mines, bridges,

and buildings. This survey was developed to meet the specific needs of the bat survey community

and government regulators, ensuring comparable data collection across geographic regions. The

publication, “Survey Methods for the Detection of Bats in Forests of Western North America”

(Zielinski and Weller, editors) is in peer review, as of September 30, 2006.

The results of 15 years of research on the California spotted owl’s demographic and habitat

selection in the Sierra Nevada enabled scientists and managers to understand population trends

of this species-at-risk. These data were instrumental in informing the May 2006 FWS decision on

a petition to list this species under the Federal Endangered Species Act. This comprehensive

dataset also provides crucial information to help the agency understand how habitat conditions

affect survivorship of adults and offspring.

Scientists developed several new products for Puerto Rico:

 Species range and distribution maps for 200 terrestrial vertebrate species;

 New land cover map with 70 land cover units; and

 GIS thematic layers and data for all public and private lands with conservation management

plans.

From this work, scientists are analyzing the distribution of vertebrate species to determine gaps in

conservation protection and identify potential conservation areas.

Scientists compared the ability of various hardwoods and softwoods to resist damage by native

subterranean termites, with southern yellow pine and Douglas-fir treated with copper organic

preservatives. Tropical woods, such as Erisma and Ipe, and native woods, such as juniper and

white cedar, were highly resistant to termite attack. Study results proved that certain naturally

durable wood species, both tropical and native, inhibit subterranean termites as effectively as

preservative treatments.

Scientists evaluated essential oils—typically used in the food, cosmetic, and pharmaceutical

industries, for their ability to inhibit mold on wood. Studies showed that thyme and Egyptian

geranium oils are very effective as a surface treatment when brushed, dipped, or sprayed on

southern pine. The vapors of dill weed oil proved effective against mold spores that germinate

over long periods of time, suggesting suitability as a fumigant for stored building materials.

The Forest Service consolidated the North Central and Northeastern Research Stations to launch

the new Northern Research Station (NRS), headquartered in Newtown Square, PA. Serving a

20-State region stretching from Maine to West Virginia to Missouri to Minnesota, NRS

emphasizes science and science delivery through a stronger network of cooperators to better

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Annual Performance Report—Unaudited

leverage the Forest Service’s scientific capacity. The consolidated NRS is now the largest

organization in the R&D Deputy Area, and saved $1.275 million in FY 2006. Savings will

continue to be redirected to promoting leading-edge discovery and improving the linkages of

environmental health with community well being. The rapid, virtually seamless establishment of

the Northern Research Station has been deemed by others “an unprecedented success.”

Forest Service and Alabama A&M University continued the second year of testing to enhance

technical assistance to underserved landowners. In FY 2006, A&M conducted 8 training sessions

for landowners through a Forest Service grant, and plan an additional 12 sessions in FY 2007.

R&D, in cooperation with S&PF’s Conservation Education Staff and partners designed,

distributed, and printed two editions of the Natural Inquirer. One edition addressed the issue of

invasive species, discussing such topics as research on Sudden Oak Death in California forests

and the use of “harmonic radar” to track the flight of beetles. The other edition introduced young

readers to the benefits of wilderness and the concept of “paying for wilderness,” challenging them

to define and measure the ecological value of wilderness.

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Annual Performance Report—Unaudited

EXTERNAL AUDITS AND REVIEW

FY 2006 OIG Audits Conducted on the Forest Service

The Inspector General Act (Public Law 95-452) requires the OIG to independently and

objectively:

 Perform audits and investigations of USDA’s programs and operations;

 Work with USDA’s management team in activities that promote economy, efficiency, and

effectiveness or that prevent and detect fraud and abuse in programs and operations,

both within USDA and in non-Federal entities that receive USDA assistance; and

 Report OIG activities to the Secretary of Agriculture and the U.S. Congress semiannually

as of March 31 and September 30 each year.

Current OIG Audits (Audits less than 1 year old)

During FY 2006, the OIG began or concluded various audits on Forest Service programs and

activities. These audits are considered “current” because they are less than 1 year old as

determined by the management decision date. The following is a list of these audits and their

status as of September 30, 2006.

Exhibit 1: Status of Current OIG Audits as of September 30, 2006 8

Audit Number Audit Title Report

Issued? Audit Status

08001-01-AT Forest Service Capital

Improvement Program No

Awaiting Final Audit report, with

Management Decisions on the 9

recommendations.

08601-02-HY

Follow-up on Recommendations

Made on Forest Service’s

Maintenance Backlog

Yes

Final Audit report issued with 8

recommendations.

Report title changed to, “Follow-up on

Recommendations Made on the

Maintenance of Forest Service’s

Infrastructure.”

Estimated completion date: 09/30/2007

08601-03-TE

Controls Over Forest Service

Vehicle Fuel and Maintenance

Costs

No Audit in progress

08601-06-AT

Audit of Forest Service’s

Implementation of the Healthy

Forest Initiative

Yes Audit report issued with 5 recommendations

Estimated completion date: 07/31/2007

08601-38-SF Forest Service Compliance to

Fire Safety Standards Yes

Audit report issued 09/23/2004 with 9 audit

recommendations (last management

decision date: 01/11/2005)

Estimated completion date: 01/01/2006

08601-40-SF Forest Service Emergency

Equipment Rental Agreements Yes

Audit report issued with 16

recommendations

Estimated completion date: 06/30/2006

08601-41-SF

Forest Service Collaborative

Ventures and Partnerships with

Non-Federal Entities

Yes

Audit report issued with 18

recommendations

Estimated completion date: 12/29/2006

08601-42-SF Forest Service Firefighting

Contract Crews Yes Audit report issued with 9 recommendationsEstimated completion date: 12/15/2006

08601-44-SF Large Fire Suppression Costs No

Discussion Draft Audit report issued with 18

recommendations.

Forest Service developing management

decisions.

 8

 Copies of the issued reports can be obtained at http://www.usda.gov/oig/releaseandreport.htm

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Annual Performance Report—Unaudited

Audit Number Audit Title Report

Issued? Audit Status

08601-45-SF Followup Forest Service Security

over Explosives Yes Audit report issued with 2 recommendationsEstimated completion date: 10/31/2006

08601-46-SF Forest Service Response to

Recent Hurricane Disasters No Monitoring and Assessment in progress.

08601-47-SF

Improper Payments- Monitoring

the Progress of Corrective

Actions for High-Risk Programs

in the Forest Service

No

Discussion draft report issued with 9

recommendations.

Forest Service is developing management

decisions.

08601-48-SF Forest Service Air Safety

Program Yes Audit report issued with 5 recommendationsEstimated completion date: 07/31/2007

OIG Audits Officially Closed in FY 2006

The following is a listing of the audits where the implementation of all audit recommendations

associated with the audit was completed by the responsible staff(s). Documentation to

demonstrate the implementation of the recommendations were submitted to the USDA Office of

the Chief Financial Officer (OCFO) for official closure during FY 2005, and subsequently

approved.

Exhibit 2: Audits Officially Closed as of September 30, 2006

Audit Number Audit Title

Deputy

Area /

RSA

Report

Issue

Date

Age

in

Years Comments

08001-02-HQ Review of Forest Service Security

over Aircraft and Aircraft Facilities S&PF 03/29/2002 4.5 Closed08/03/2006

08003-02-SF Humboldt-Toiyabe National Forest

Land Adjustment Program NFS 08/05/1998 8.0 Closed09/01/2006

08401-01-FM FY 2002 Financial Statement

Audit CFO 01/09/2003 3.1 Closed04/19/2006

08601-18-SF Research Cooperative and Cost

Reimbursable Agreements

Business

Operations

(BusOps)

03/01/1997 9.0 Closed

08/24/2006

08601-25-SF Review of Forest Service

Enterprise Program

CFO/

Region 5 06/22/2001 5.0 Closed06/21/2006

Summary of Outstanding OIG Audits (Audits over 1 year old)

An OIG audit is considered “outstanding” if it is over 1 year old and final actions to close the audit

are incomplete. The Inspector General Act requires management to complete all final actions on

audit recommendations within 1 year of the date of the OIG’s final audit report.

In FY 2006, the Forest Service continued to make progress towards closing its outstanding OIG

audits; however, multiple audits remain open. Based on the activities that occurred during FY

2006, the agency’s outstanding audit inventory, as of September 30, 2006, is as follows.

Exhibit 3: Outstanding Audit Activities Inventory during FY 2006

FY 2006 Beginning inventory (October 1, 2005) 14

Number of audits added to the inventory 4

Number of audits submitted for official closure (6)

Number of audits awaiting official closure 1

FY 2006 Ending balance (September 30, 2006) 13

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Annual Performance Report—Unaudited

Outstanding OIG Audits – Scheduled for Closure in FY 2006

The following table lists the remaining “outstanding” audits that are scheduled for closure during

FY 2006. The audits are grouped according to the reason the audit has not closed.

Exhibit 4: Explanations for Outstanding OIG Audits without Final Action

Audit

Number Audit Title DeputyArea / RSA

Report

Issue

Date

Age in

Years

Estimated

Completion

Dates

Pending systems development, implementation, or enhancement

08001-01-HQ Forest Service Implementation of the

Government Performance Results Act BusOps 06/28/2000 6.3 12/31/2006

08099-06-SF Security Over USDA IT Resources IRM 03/27/2001 5.5 09/30/2007

08401-02-FM Audit of FY 2002 Financial Statements - IT CFO 02/28/2003 3.5 09/30/2007

Pending receipt and/or processing of final action documentation

08003-05-SF Land Acquisition and Urban Lot Management NFS 12/15/2000 5.8 03/31/2007

08016-01-SF Followup Review of Forest Service Security

Over Aircraft and Aircraft Facilities S&PF 09/30/2003 3.0 06/30/2007

08401-04-FM Audit of FY 2004 Financial Statements CFO 11/01/2004 1.8 12/31/2006

08601-01-HY Forest Service Implementation of the

Government Performance and Results Act BusOps 03/31/2005 1.5 09/30/2007

08601-38-SF Forest Service Firefighting Safety Program S&PF 09/23/2004 2.0 06/30/2007

Pending issuance of policy/guidance

08401-03-FM Audit of FY 2003 Financial Statements CFO 01/26/2004 2.7 09/30/2007

08601-02-TE Survey of Timber Theft Controls

Law Enforcement

and

Investigations

(LEI)

09/27/2004 2.0 12/31/2006

08601-30-SF Reviews of Security Over Explosives Munitions

Magazines within the NFS NFS 03/31/2003 3.5 03/31/2007

08601-40-SF Emergency Equipment Rental Agreements

(EERA) Audit S&PF 07/06/2005 1.2 09/30/2007

08801-02-TE Forest Service Assistance Agreements with

Nonprofit Organizations (NPOs) BusOps 09/24/1998 8.0 12/31/2006

FY 2006 GAO Audits Conducted on the Forest Service

The U.S. Government Accountability Office (GAO) is an independent, nonpartisan agency that

works for Congress. GAO gathers information to help Congress determine how well executive

branch agencies are doing their jobs. GAO’s work routinely answers such basic questions as

whether Government programs are meeting their objectives or providing customer service to the

public.

Ultimately, GAO ensures that Government is accountable to the American people. To that end,

GAO provides Senators and Representatives with the best information available to help them

arrive at informed policy decisions—information that is accurate, timely, and balanced.

GAO supports congressional oversight by:

 Evaluating how well Government policies and programs are working;

 Auditing agency operations to determine whether Federal funds are being spent

efficiently, effectively, and appropriately;

 Investigating allegations of illegal and improper activities; and

 Issuing legal decisions and opinions.

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Annual Performance Report—Unaudited

GAO Audits Conducted During FY 2006

The following table lists the GAO audits conducted on the Forest Service during FY 2006. Many

of the audits are still in progress, or were issued with recommendations. In these cases, the

Forest Service, via the Secretary of Agriculture, responded to the appropriate congressional staff

with its corrective action plan to implement the recommendation within the mandated 60 days.

Exhibit 5: GAO Audits Conducted During FY 20069

Job Number/

Audit Report

Number

Audit Title

Responsible

Deputy

Area / RSA

Report

Issued? Audit Status

120507 Planning for Emergency Procurements

Acquisition

Management

(AQM)

N Audit in progress

130530 Worker Safety in the Aftermath of Hurricane

Katrina

Office of

Safety and

Occupational

(OSOH)

N Audit in progress

195073 /

GAO-06-834 Disaster Relief for 2005 Gulf Coast Hurricanes ASC Y

Closed

09/08/2006

No recommendations

197012 /

GAO-06-1002R

Managerial Cost Accounting Practices at Large

Federal Agencies

FIN

OCFO Y

Closed

09/21/06

5 Recommendations

250222 /

GAO-06-294

Rural Economic Development: More Assurance

is Needed that Grant Funding Information Is

Accurately Reported

S&PF Y

Closed

02/24/2006

No recommendations

250286 Catastrophe Mitigation FAM N Audit in progress

320406

Review of Department of State/Bureau of

International Narcotics and Law Enforcement

(State/INL) Aviation Programs

FAM N Questionnaire

submitted 08/16/2006

360524 /

GAO-06-96 Chesapeake Bay Restoration

R&D

NFS

NE Area

Y

Closed

11/17/2005

No recommendations

360525 /

GAO-06-98 Valles Caldera National Preserve Forest ServiceCivil Rights Y

Closed

11/17/2005

No recommendations

360532 /

GAO-06-624

Federal Wood Utilization Research and

Development

Forest

Products Lab

R&D

S&PF

NFS

Y

Closed

06/15/2006

No recommendations

360583 /

GAO-06-353 Invasive Forest Insects and Diseases S&PF Y

Closed

04/21/2006

3 Recommendations

360586 /

GAO-06-570 Wildland Fire Cost Sharing

FAM

S&PF

BusOps

Y

Closed

05/30/2006

2 Recommendations

360587 /

GAO-06-336 Key Factors in Woody Biomass Use

S&PF

NFS

R&D

Y

Closed

03/22/2006

No recommendations

360589 /

GAO-06-670 Restoration of Burned Lands

Watershed,

Fish, Wildlife,

(WFW)

Y

Closed

06/30/2006

2 Recommendations

360596 /

GAO-06-1016 Recreation Fees NFS Y

Closed

09/22/2006

No recommendations

360620 Endangered Species Habitat Review WFW N

Closed

 11/2005

With a briefing to

Senate Committee

360623 Categorical Exclusions (Vegetation Removal) NFS

S&PF N Awaiting final report

360651 / Biscuit Fire Recovery Plan WFW Y Closed

 9

 GAO reports may be found at http://www.gao.gov/docsearch/

B-33
Annual Performance Report—Unaudited

Job Number/

Audit Report

Number

Audit Title

Responsible

Deputy

Area / RSA

Report

Issued? Audit Status

GAO-06-967 09/18/2006

1 Recommendation

360686 /

GAO-06-671R

Update on Agency Efforts to Develop a Cohesive

Strategy to Address Wildland Fire Threats

FAM

S&PF Y

Closed

 05/01/2006

No recommendations

360694 Potential Vulnerability of Federal Lands to

Climate Change NFS N Audit in progress

360702 Forest Service Timber Sales

Financial

Management

Forest

Management

ASC

N Audit in progress

360717 Federal Agencies’ Efforts to Contain Wildland

Fire Suppression Costs FAM N Audit in progress

360745 Fuels Reduction on Federal Lands FAM N Audit in progress

360746 U.S. Forest Service Competitive Sourcing

Program

Competitive

Sourcing N Audit in progress

440366 /

GAO-06-304 Public Service Announcements PL&C Y

Closed

01/13/2006

No recommendations

440485 Federal Law Enforcement Authority and Training LEI N Data collection survey

in progress

450336 /

GAO-06-15 Coordination of Federal Agencies S&PFNFP Y

Closed

 10/21/2005

No recommendations

450397 /

GAO-06-765 Information Quality Act (IQA) Followup

Office of

Regulatory

and

Management

Services

(ORMS)

Y

Closed

10/11/2006

No recommendations

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Annual Performance Report—Unaudited

MAJOR MANAGEMENT CHALLENGES

The Reports Consolidation Act of 2000 requires the USDA OIG, to identify and report annually

the most serious management challenges facing USDA and its agencies. To identify

Departmental challenges, the OIG examined previously issued audit reports where corrective

actions have yet to be taken, assessed ongoing investigative and audit work to identify significant

vulnerabilities, and analyzed new programs and activities that could pose significant challenges

due to their range and complexity. In response to the report, the Forest Service prepares a

corrective action plan to address the challenges in the coming fiscal year. Exhibit 6 lists the

Forest Service’s major management challenges as identified by the OIG in August 2005, and the

corrective actions completed during FY 2006.

Exhibit 6: FY 2006 Management Challenges – Accomplishments

Management Challenge:

Implementation of Strong, Integrated Management Control (Internal Control) Systems

Still Needed –

Improve Forest Service internal controls and management accountability in order to effectively

manage its resources, measure its progress towards goals and objectives, and accurately report its

accomplishments.

Planned Corrective Action

FY 2006

Actual

Completion

Dates

Establish accountability for performance measure reporting accuracy throughout

the Forest Service.

Ref. OIG Audit No. 08601-1-HY, recommendation #3 04/10/2006

Direct Forest Service line officers to implement GPRA by implementing

management controls necessary to ensure adequate, reliable, verifiable, and

useful information. Hold managers accountable.

Ref. OIG Audit No. 08601-1-HY, recommendation #4

05/01/2006

Ensure targets and goals not met are identified in the P&AR and plans/schedules

to meet the unmet goals are included in the FY 2006 Program Direction.

Ref. OIG Audit No. 08601-1-HY, recommendation #9 08/23/2006

Resolve the three key issues regarding further implementation of the performance

accountability system (PAS) by:

1) Determining an official set of performance measures (completed

1/10/2006);

2) Developing guidance for the nationally required elements of a strategic

business planning process; and

3) Developing the business rules and requirements for a management

information system to provide data on performance measures and other

management information. Standard Business rules/requirements are

included in the Program Direction that was issued 12/5/2006. Business

rules/requirements continue to be developed as PAS evolves.

Continuing

Obtain official closure on 50 percent of audits under 1 year old. Quantity 4. Continuing

Implement new requirements of OMB Circular A-123, Appendix A. 01/15/2006

Prepare assurance statement to assert to the effectiveness of internal control “as

of June 30.” Not required to report until August 31, 2006, and as of September

30, 2006. 08/31/2006

B-35
Annual Performance Report—Unaudited

Management Challenge:

Implementation of Strong, Integrated Management Control (Internal Control) Systems

Still Needed –

Improve Forest Service internal controls and management accountability in order to effectively

manage its resources, measure its progress towards goals and objectives, and accurately report its

accomplishments.

Planned Corrective Action

FY 2006

Actual

Completion

Dates

Continue the implementation of performance accountability by developing a

working proof-of-concept of PAS in Region 10. Action cancelled. Implementation

of PAS is continuing. Final testing to prepare for the October 1, 2006 release of

PAS 1.0 is in progress.

06/30/2006

Obtain official closure on 70 percent of outstanding audits over 1 year old.

Quantity of 14 as of 09/30/2005 Continuing

Conduct comprehensive risk assessment for Forest Service programs and

develop plans to address identified risks. 08/31/2006

Provide consolidated report of review findings to Forest Service management by

May 31, 2006, and develop process to monitor actions to address “significant”

review findings. Continuing

Install additional security features needed to meet the minimum security

standards at aviation facilities. Ref. OIG Audit No. 08001-2-HQ, recommendation

#6 08/03/2006

Develop site-specific security plans at each Forest Service operated aviation

facility. Ref. OIG Audit No. 08016-1-SF, recommendation #3 07/25/2006

Improve oversight of national firefighting contract crews by implementing

corrective actions in response to the OIG audit report. Ref. OIG Audit No. 08601-

42-SF

Continuing

Management Challenge:

Continuing Improvements Needed in Information Technology (IT) Security

Planned Corrective Action

FY 2006

Actual

Completion

Dates

Complete the actions necessary to obtain official closure on the two outstanding

OIG IT audits. Ref. OIG Audit No. 08099-6-SF and No. 08401-2-FM Continuing

Management Challenge:

Reducing Improper Payments Continues to be a Priority of Congress and the

Administration

Planned Corrective Action

FY 2006

Actual

Completion

Dates

Obtain FY 2006 reduction target of 2.9 percent for improper payments and/or

recovery target of $150,000. Ref. Forest Service ASC FY 2005 Corrective Action

Plan

08/30/2006

B-36
Annual Performance Report—Unaudited

Exhibit 7 lists the OIG management challenges identified in August 2006, and the corrective

action plan for addressing those challenges during FY 2007. Note that actions not completed in

FY 2006 carryover into the following fiscal year(s).

Exhibit 7: FY 2007 Management Challenges – Plan

USDA Management Challenge #2:

Improve Forest Service internal controls and management accountability in order to effectively

manage its resources, measure its progress towards goals and objectives, and accurately report its

accomplishments.

Planned Corrective Action

FY 2007

Estimated

Completion by

Quarter

Implement PAS in FY 2007—P&BA

OIG Audit No. 08001-01-HY, recommendation #1 1st Quarter

Establish accountability for performance measure reporting accuracy throughout

the Forest Service for FY 2007—SPRA and HCM 1st Quarter

Direct Forest Service line officers to implement GPRA by implementing

management controls necessary to ensure adequate, reliable, verifiable, and

useful information. Hold managers accountable—SPRA and HCM 1st Quarter

Conduct Washington Office oversight reviews on performance accountability

within the Forest Service in various regions—P&BA 3rd Quarter

Conduct annual internal control risk assessment throughout the agency and

develop plans to address identified risks—FIN 3rd Quarter

Conduct annual risk assessment of all financial/mixed financial systems—FIN 3rd Quarter

Improve closure rate on audit recommendations under 1 year old over the

previous year’s rate—FIN and Forest Service-wide 3rd Quarter

Implement 60 percent of corrective actions (excluding IT) identified through the

OMB Circular A-123, Appendix A, Internal Controls over Financial Reporting

process—ASC Internal Quality Assurance 4th Quarter

Close 70 percent of “outstanding” OIG audits and audit recommendations—FIN 4th Quarter

Improve oversight of national firefighting contract crews by implementing

corrective actions in response to the OIG audit report—FAM

Ref. OIG Audit No. 08601-42-SF

4th Quarter

USDA Management Challenge #3:

Continuing Improvements Needed in Information Technology (IT) Security

Planned Corrective Action

FY 2007

Estimated

Completion by

Quarter

Close 70 percent of the actions necessary to obtain official closure on the two

outstanding OIG IT audits.

Ref. OIG Audit No. 08099-6-SF and Audit No. 08401-2-FM 4th Quarter

Complete corrective action steps that address— 4th Quarter

B-37
Annual Performance Report—Unaudited

USDA Management Challenge #3:

Continuing Improvements Needed in Information Technology (IT) Security

Planned Corrective Action

FY 2007

Estimated

Completion by

Quarter

1. Federal Information Security Management Act plan of action and

milestones (POAM) and

2. Circular A-123, Appendix A, corrective action plan included in the FMFIA

report.

USDA Management Challenge #4:

Implementation of Improper Payment Act Requirements Needs Improvement.

Planned Corrective Action

FY 2007

Estimated

Completion by

Quarter

Revise sampling methodology for FY 2007 to ensure it is statistically valid and

meets OMB requirements. 1st Quarter

Attain FY 2007 reduction target of 1.5 percent for improper payments and/or

recovery target of $200,000. 4th Quarter

USDA Management Challenge #5:

Improve security and accountability of explosives and munitions.

Planned Corrective Action

FY 2007

Estimated

Completion by

Quarter

Close remaining 10 outstanding audit recommendations.

Ref. OIG Audit No. 08601-30-SF 4th Quarter

B-38
Part C

FINANCIAL SECTION

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Independent Auditors’ Report

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KPMG LLP

2001 M Street, NW

Washington, DC 20036

KPMG LLP, a U.S. limited liability partnership, is the U.S.

member firm of KPMG International, a Swiss cooperative.

Independent Auditors’ Report

Chief, USDA Forest Service and

Inspector General, United States Department of Agriculture:

We have audited the accompanying consolidated balance sheets of the United States Department of

Agriculture (USDA) Forest Service as of September 30, 2006 and 2005 and the related consolidated

statements of net cost, changes in net position, and financing, and the combined statements of budgetary

resources for the years then ended (hereinafter referred to as the “financial statements”). The objective of our

audits was to express an opinion on the fair presentation of these financial statements. In connection with our

2006 audit, we also considered the USDA Forest Service’s internal controls over financial reporting, Required

Supplementary Information, Required Supplementary Stewardship Information, and performance measures,

and tested the USDA Forest Service’s compliance with certain provisions of applicable laws, regulations,

contracts, and grant agreements that could have a direct and material effect on these financial statements.

SUMMARY

As stated in our opinion on the financial statements, we concluded that the financial statements as of and for

the years ended September 30, 2006 and 2005, are presented fairly, in all material respects, in conformity with

U.S. generally accepted accounting principles.

As discussed in Note 5 to the financial statements, the USDA Forest Service changed its method of reporting

for heritage assets and stewardship land in fiscal year 2006 to adopt the applicable provisions of the Federal

Accounting Standards Advisory Board’s Statement of Federal Financial Accounting Standards (SFFAS) No.

29, Heritage Assets and Stewardship Land. Also, as discussed in Note 1.P. to the financial statements, the

USDA Forest Service changed its method of accounting for and reporting earmarked funds in fiscal year 2006

to adopt the provisions of the SFFAS No. 27, Identifying and Reporting Earmarked Funds.

Our consideration of internal controls over financial reporting, Required Supplementary Information,

Required Supplementary Stewardship Information, and performance measures resulted in the following

conditions being identified as reportable conditions. The first two are considered material weaknesses.

• The USDA Forest Service Needs to Continue to Improve its Financial Management and Reporting

Process

• The USDA Forest Service Needs to Improve Its General Controls Environment

• The USDA Forest Service Needs to Refine and Monitor its Expense Accrual

• Accountability for Unliquidated Orders (ULOs) Needs Continued Improvement

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• The Review of Purchase Card Transactions and Monitoring of the Program Needs Continued

Improvement

• Controls Related to Physical Inventories of Capital Assets Need Continued Improvement

• The Design and/or Implementation of Controls Related to the Accurate Recording of Revenue-Related

Transactions Needs Improvement

• The USDA Forest Service Needs to Continue to Improve its Internal Controls over its Reconciliation and

Management of Fund Balances with Treasury

• The Design and/or Implementation of Controls Related to the Accurate Recording of Personal Property

Transactions Needs Improvement

• The Compilation of Performance Measures Needs Improvement

• The Compilation of the USDA Forest Service’s Required Supplementary Information Needs

Improvement

• The Posting of Certain Transactions Needs to Contain the Proper Reference Data to Link Related

Transactions

• A Segregation of Duties Policy related to Electronic Data Processing Must be Fully Implemented

The results of our tests of compliance with certain provisions of laws, regulations, contracts, and grant

agreements disclosed the following instances of noncompliance or other matters that are required to be

reported herein under Government Auditing Standards, issued by the Comptroller General of the United

States, and Office of Management and Budget (OMB) Bulletin No. 06-03, Audit Requirements for Federal

Financial Statements.

• The USDA Forest Service Does Not Obligate all Transactions Required by Appropriations Law

• The USDA Forest Service’s Systems Do Not Comply with the Federal Financial Management

Improvement Act of 1996 (FFMIA)

The following sections discuss our opinion on the USDA Forest Service’s financial statements, our

consideration of the USDA Forest Service’s internal controls over financial reporting, Required

Supplementary Information, Required Supplementary Stewardship Information, and performance measures;

our tests of the USDA Forest Service’s compliance with certain provisions of applicable laws, regulations,

contracts, and grant agreements, and management’s and our responsibilities.

OPINION ON THE FINANCIAL STATEMENTS

We have audited the accompanying consolidated balance sheets of the USDA Forest Service as of September

30, 2006 and 2005 and the related consolidated statements of net costs, changes in net position, and financing,

and combined statements of budgetary resources for the years then ended.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial

position of the USDA Forest Service as of September 30, 2006 and 2005, and its net costs, changes in net

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position, budgetary resources, and reconciliation of net costs to budgetary obligations for the years then

ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 5 to the financial statements, the USDA Forest Service changed its method of reporting

for heritage assets and stewardship land in fiscal year 2006 to adopt the applicable provisions of the SFFAS

No. 29, Heritage Assets and Stewardship Land. Also, as discussed in Note 1.P. to the financial statements,

the USDA Forest Service changed its method of accounting for and reporting earmarked funds in fiscal year

2006 to adopt the provisions of the SFFAS No. 27, Identifying and Reporting Earmarked Funds.

The information in the Management Discussion and Analysis, Required Supplementary Stewardship

Information, and Required Supplementary Information sections is not a required part of the financial

statements, but is supplementary information required by U.S. generally accepted accounting principles and

OMB Circular No. A-136, Financial Reporting Requirements. We have applied certain limited procedures,

which consisted principally of inquiries of management regarding the methods of measurement and

presentation of this information. However, we did not audit this information and accordingly, we express no

opinion on it. As a result of such limited procedures, we believe that the Required Supplementary Information

related to deferred maintenance, heritage assets, and stewardship land may not be consistently prepared across

all USDA Forest Service locations and controls have not been effectively designed to ensure the accuracy,

completeness, and timeliness of the reported information.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Our consideration of internal control over financial reporting would not necessarily disclose all matters in the

internal control over financial reporting that might be reportable conditions. Under standards issued by the

American Institute of Certified Public Accountants, reportable conditions are matters coming to our attention

relating to significant deficiencies in the design or operation of the internal control over financial reporting

that, in our judgment, could adversely affect the USDA Forest Service’s ability to record, process, summarize,

and report financial data consistent with the assertions by management in the financial statements.

Material weaknesses are reportable conditions in which the design or operation of one or more of the internal

control components does not reduce to a relatively low level the risk that misstatements caused by error or

fraud, in amounts that would be material in relation to the financial statements being audited, may occur and

not be detected within a timely period by employees in the normal course of performing their assigned

functions. Because of inherent limitations in internal control, misstatements due to error or fraud may

nevertheless occur and not be detected.

In our fiscal year 2006 audit, we noted certain matters, described in Exhibits I and II, involving internal

control over financial reporting and its operation that we consider to be reportable conditions. We believe that

the two reportable conditions presented in Exhibit I are material weaknesses. Exhibit II presents the other

reportable conditions.

A summary of the status of prior year reportable conditions, including those open conditions on which we are

making no further recommendations in this report, is included as Exhibit III.

We noted certain additional matters that we have reported to management of the USDA Forest Service in a

separate letter.

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INTERNAL CONTROLS OVER REQUIRED SUPPLEMENTARY STEWARDSHIP

INFORMATION AND PERFORMANCE MEASURES

Under OMB Bulletin No. 06-03, the definition of material weaknesses is extended to other controls as

follows. Material weaknesses are reportable conditions in which the design or operation of one or more of the

internal control components does not reduce to a relatively low level the risk that misstatements caused by

error or fraud, in amounts that would be material in relation to the Required Supplementary Stewardship

Information or material to a performance measure or aggregation of related performance measures, may occur

and not be detected within a timely period by employees in the normal course of performing their assigned

functions. Because of inherent limitations in internal control, misstatements due to error or fraud may

nevertheless occur and not be detected.

Our consideration of the internal control over the Required Supplementary Stewardship Information and the

design and operation of internal control over the existence and completeness assertions related to key

performance measures would not necessarily disclose all matters involving the internal control and its

operation related to Required Supplementary Stewardship Information or the design and operation of the

internal control over the existence and completeness assertions related to key performance measures that

might be reportable conditions.

In our fiscal year 2006 audit, we noted a reportable condition involving the design and operation of internal

controls over the existence and completeness assertions related to key performance measures described in

Exhibit II that, in our judgment, could adversely affect the USDA Forest Service’s ability to collect, process,

record, summarize and report performance measures in accordance with management’s criteria. However, the

reportable condition is not believed to be a material weakness as defined above.

COMPLIANCE AND OTHER MATTERS

Our tests of compliance with certain provisions of laws, regulations, contracts, and grant agreements, as

described in the Responsibilities section of this report, exclusive of those referred to in FFMIA, disclosed

noncompliance with appropriation law as described in Exhibit IV that is required to be reported under

Government Auditing Standards and OMB Bulletin No. 06-03.

The majority of the deficiencies for noncompliance with appropriation law result from the USDA Forest

Service’s travel system limitations. The USDA Forest Service’s current system does not allow them to

obligate funds for travel.

The results of our tests of compliance with certain provisions of other laws and regulations, exclusive of those

referred to in FFMIA, disclosed no instances of noncompliance or other matters that are required to be

reported under Government Auditing Standards or OMB Bulletin No. 06-03.

The results of our tests of FFMIA disclosed instances, described in Exhibit IV, where the USDA Forest

Service’s financial management systems did not substantially comply with the three requirements discussed

in the Responsibilities section of this report.

RESPONSIBILITIES

Management’s Responsibilities. The United States Code Title 31 Sections 3515 and 9106 require agencies

to report annually to Congress on their financial status and any other information needed to fairly present their

financial position and results of operations. To meet these reporting requirements, the USDA Forest Service

prepares and submits financial statements in accordance with OMB Circular No. A-136.

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Management is responsible for the financial statements, including:

• Preparing the financial statements in conformity with U.S. generally accepted accounting principles;

• Preparing the Management Discussion and Analysis (including the performance measures), Required

Supplementary Information, and Required Supplementary Stewardship Information;

• Establishing and maintaining effective internal controls; and

• Complying with laws, regulations, contracts, and grant agreements applicable to the USDA Forest

Service, including FFMIA.

In fulfilling this responsibility, management is required to make estimates and judgments to assess the

expected benefits and related costs of internal control policies.

Auditors’ Responsibilities. Our responsibility is to express an opinion on the fiscal year 2006 and 2005

financial statements of the USDA Forest Service based on our audits. We conducted our audits in accordance

with auditing standards generally accepted in the United States of America; the standards applicable to

financial audits contained in Government Auditing Standards, issued by the Comptroller General of the

United States; and OMB Bulletin No. 06-03. Those standards and OMB Bulletin No. 06-03 require that we

plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of

material misstatement. An audit includes consideration of internal controls over financial reporting as a basis

for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the USDA Forest Service’s internal control over financial reporting.

Accordingly, we express no such opinion.

An audit also includes:

• Examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;

• Assessing the accounting principles used and significant estimates made by management; and

• Evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In planning and performing our fiscal year 2006 audit, we considered the USDA Forest Service’s internal

control over financial reporting by obtaining an understanding of the USDA Forest Service’s internal control,

determining whether internal controls had been placed in operation, assessing control risk, and performing

tests of controls in order to determine our auditing procedures for the purpose of expressing our opinion on

the financial statements. We limited our internal control testing to those controls necessary to achieve the

objectives described in Government Auditing Standards and OMB Bulletin No. 06-03. We did not test all

internal controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial

Integrity Act of 1982. The objective of our audit was not to provide assurance on the USDA Forest Service’s

internal controls over financial reporting. Consequently, we do not provide an opinion thereon.

As required by OMB Bulletin No. 06-03, in our fiscal year 2006 audit, we considered the USDA Forest

Service’s internal control over Required Supplementary Stewardship Information by obtaining an

understanding of the USDA Forest Service’s internal control, determining whether these internal controls had

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been placed in operation, assessing control risk, and performing tests of controls. We limited our testing to

those controls necessary to test and report on the internal controls over the Required Supplementary

Stewardship Information in accordance with OMB Bulletin No. 06-03. However, our procedures were not

designed to provide an opinion on internal control over the Required Supplementary Stewardship Information

and, accordingly, we do not provide an opinion thereon.

As further required by OMB Bulletin No. 06-03, in our fiscal year 2006 audit, with respect to internal controls

related to performance measures determined by management to be key and reported in the Management

Discussion and Analysis section, we obtained an understanding of the design of internal controls relating to

the existence and completeness assertions and determined whether these internal controls had been placed in

operation. We limited our testing to those controls necessary to test and report on the internal control over key

performance measures in accordance with OMB Bulletin No. 06-03. However, our procedures were not

designed to provide an opinion on internal control over reported performance measures and, accordingly, we

do not provide an opinion thereon.

As part of obtaining reasonable assurance about whether the USDA Forest Service’s fiscal year 2006 financial

statements are free of material misstatement, we performed tests of the USDA Forest Service’s compliance

with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which

could have a direct and material effect on the determination of financial statement amounts, and certain

provisions of other laws and regulations specified in OMB Bulletin No. 06-03, including certain provisions

referred to in FFMIA. We limited our tests of compliance to the provisions described in the preceding

sentence, and we did not test compliance with all laws, regulations, contracts, and grant agreements applicable

to the USDA Forest Service. However, providing an opinion on compliance with laws, regulations, contracts,

and grant agreements was not an objective of our audit and, accordingly, we do not express such an opinion.

Under OMB Bulletin No. 06-03 and FFMIA, we are required to report whether the USDA Forest Service’s

financial management systems substantially comply with (1) Federal financial management systems

requirements, (2) applicable Federal accounting standards, and (3) the United States Government Standard

General Ledger at the transaction level. To meet this requirement, we performed tests of compliance with

FFMIA Section 803(a) requirements.

RESTRICTED USE

This report is intended for the information and use of the USDA Forest Service’s management, the USDA

Office of the Inspector General (OIG), OMB, the U.S. Government Accountability Office and the U.S.

Congress and is not intended to be and should not be used by anyone other than these specified parties.

November 10, 2006

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Exhibit I

 (Continued)

INTRODUCTION

In FY 2004, the USDA Forest Service began a major transformation of business operations throughout the

agency, beginning with two business functions. The first involved its Information Resources Management

organization for which some segments were offered for competitive bid under OMB Circular No. A-76,

Performance of Commercial Activities. Government employees in the USDA Forest Service were the

successful bidders which resulted in a realignment of both organization and operations. The second was the

effort to consolidate its finance and accounting operations from 153 accounting centers to the Albuquerque

Service Center (ASC) in New Mexico. Significant work was accomplished in FY 2004 and 2005 to design

and staff the new organization, re-engineer finance and accounting business processes, and migrate work

from field locations. In FY 2006, new system design efforts were undertaken to accommodate for operational

gaps identified in the new business structure.

In the current FY, the USDA Forest Service also began to consolidate its human capital management (HCM)

operations from its field offices throughout the country to Albuquerque, New Mexico. Currently, HCM is

undergoing business processing re-engineering and new system design efforts, and expects to be fully

operational in FY 2007.

The USDA Forest Service is beginning to reap the benefits of consolidating its finance and accounting

operations at the ASC through improvements in its financial management, strengthened internal controls, and

consistency in the executing of its operations. Although the USDA Forest Service continues to make year

over year progress in correcting several prior year noted weaknesses, we believe the depth of many

weaknesses may require years to resolve. As with any major reorganization and/or implementation of new

systems, some additional control weaknesses have been identified.

For each weakness identified, we believe we have performed appropriate substantive procedures as applicable

to enable us to issue our opinion. In addition, we continue to recognize that certain recommended information

technology (IT) control enhancements pertaining to the USDA Forest Service’s operations cannot be

implemented solely by the USDA Forest Service, because the USDA Forest Service’s applications are in

many cases hosted on USDA – managed systems. As a result, several IT control weaknesses identified in this

report will require the combined effort of USDA and the USDA Forest Service management.

Exhibits I and II provide an update to prior year material weaknesses and reportable conditions, respectively,

as of and for the year ended September 30, 2006, and include applicable new recommendations. Exhibit III

summarizes the status of prior year recommendations. Exhibit IV provides an update of those instances of

noncompliance with laws and regulations and other matters and applicable new instances of noncompliance.

Exhibit V summarizes the status of prior year recommendations for noncompliance with laws and regulations.

USDA Forest Service management’s response is presented in Exhibit VI.

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Exhibit I

 (Continued)

MATERIAL WEAKNESSES

Number 1: The USDA Forest Service Needs to Continue to Improve its Financial Management and

Reporting Process (Repeat Condition)

During FY 2005 the USDA Office of the Chief Financial Officer (OCFO) instructed its agencies, including

the USDA Forest Service, that journal vouchers (JVs) could no longer be processed. Instead, USDA agencies

had to request that new accounting entry IDs (ACCTEIDs) be established generally based on specific

standard Treasury posting logic models. The USDA OCFO generally establishes these ACCTEIDs as

standard vouchers (SVs) as SVs are generally used to correct errors, abnormal balances, and out-of-balance

conditions.

Through the elimination of JVs and the consolidation effort discussed in the introduction section, the USDA

Forest Service continues to make progress in improving its financial management and reporting activities.

However, weaknesses continue to exist in the USDA Forest Service’s ability to produce accurate financial

information.

General Ledger Clean-up of Prior Year Non-routine Transactions is Necessary

During our current year testwork it was noted that the USDA Forest Service is not identifying, researching,

and correcting adjusting entries that no longer belong in the general ledger. Specifically, 50 samples (i.e.,

Transaction codes JVs, YEs, SVs, and RCs) which related to prior FY activity were invalid. These

documents were identified in general ledger accounts 4221, Unfilled Customer Orders without Advance,

2190, Other Liabilities, and 48XX, Undelivered Orders. The table below summarizes the dollar value of the

exceptions by transaction code and general ledger account.

OMB Circular A-123, Management Responsibility for Internal Control states that financial reporting means

that management can reasonably make the following assertions:

• All reported transactions actually occurred during the reporting period...; and

• All assets, liabilities, and transactions that should be reported have been included and no unauthorized

transactions or balances are included...

Recommendation Number 1:

We recommend that the USDA Forest Service management assign the Treasury Symbol analysis team the

responsibility to research and analyze all of the general ledger accounts to identify and remove potentially

erroneous entries from the general ledger.

Standard General Ledger Account

Transcode

4221 2190 48XX

Total

JV ($84,645,944) ($5,675,243) ($10,939,034) ($101,260,221)

RC - (10,837,494) - ($10,897,494)

SV - 102,690 (97,888) $4,802

YE - 14,172 (15,333) ($1,161)

 Total ($84,645,944) ($16,455,875) ($11,052,255) ($112,154,074)

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Exhibit I

 (Continued)

Improvement in the Recording of Non-routine Transactions is Necessary to Improve the Accuracy of

ULOs and Accruals

At the end of FY 2006, the USDA Forest Service continued to use mass general ledger entries, via an SV, for

delivered orders and ULOs that were not recorded into the various sub-systems due to the early year-end

cutoff. This policy was designed and implemented in FY 2005 to ensure completeness of data in the general

ledger. In order to accommodate the volume of both undelivered and delivered orders to be entered, summary

documents with detailed information were used to enter transactions.

As part of our non-routine year-end sampling, 17 ULO and 63 accrual transactions were selected as of

September 30, 2006. Of this sample the following errors were noted:

• 14 of the 17 ULO transactions were for delivered orders and therefore not properly recorded in the

general ledger, and

• 36 of the 63 accrual transactions were not valid accruals and therefore not properly recorded in the

general ledger.

The USDA Forest Service has two over-arching internal control policies and procedures that should ensure

the accuracy of the data entered into the general ledger. Those policies and procedures are as follows:

• The USDA Forest Service’s general ledger contains security profiles and a system configuration that

require two separate employees to enter and approve SV transactions.

• In addition, Chief Financial Officer (CFO) Bulletin 2002-010 SV Documentation Policy states “SV

documents require approval by an approving official and will process similar to balance vouchers, internal

vouchers, working capital fund vouchers and journal vouchers in that one individual will create the SV

and another (approving official) will approve the document before it is accepted in the Foundation

Financial Information System (FFIS). Approving the SV document means the approving official has

reviewed the supporting documentation and agrees that the SV transaction is appropriate, adequately

documented and should be made in the current accounting period.”

Although the USDA Forest Service does have these internal controls in place, they are not operating

effectively based on the errors cited above. As a result of the lack of adherence to the USDA Forest Service’s

policies and procedures for reviewing and approving period-end standard vouchers, erroneous ULO and

accrual transactions existed.

Recommendation Number 2:

We recommend that the USDA Forest Service management develop a plan to improve the operating

effectiveness of its review and approval of all period-end accrual adjustments.

Other Financial Reporting Issues

Although the USDA Forest Service has made significant improvements in its financial reporting process the

following areas for improvement were noted:

• The USDA Forest Service did not perform timely research to determine the reasons for abnormal general

ledger account balances, especially when abnormal balances were identified in general ledger flow

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Exhibit I

 (Continued)

accounts (i.e., revenues, expenses and budgetary accounts that close). As a result, our testwork disclosed

transactions that were identified as current year activity but in reality had a prior year effect.

• The USDA Forest Service needs to continue to refine its account relationship formulas to ensure that if

variances exist, they are legitimate when taking into consideration standard general ledger account

posting logic and the USDA Forest Service’s business processes. For example, during our review of the

formula for the account relationship entitled unexpended appropriations equals general ledger accounts

4450 through 4899, it was noted that general ledger account 4802, Undelivered Orders – Obligations

Prepaid/Advanced is considered in the account relationship formula. However it should not be, because

the unexpended appropriations account balance is not affected by advance transactions that are posted to

general ledger account 4802.

• The USDA Forest Service needs to develop a process for analyzing its budget clearing, suspense and

deposit funds at the end of each accounting period. At the end of the FY 2006, an abnormal balance of

$53 million was identified in general ledger account 2400, Liability for Deposit Funds, Clearing

Accounts, and Undeposited Collections. This general ledger account is used to record transactions, often

between other Federal agencies, when the offsetting obligation or other document attributes are not known

and need to be researched by the USDA Forest Service. If timely research is not performed, liabilities are

overstated and expenses and expended appropriations are understated.

Recommendation No. 3:

We recommend that the USDA Forest Service management develop a process for analyzing its budget

clearing, suspense and deposit funds at the end of each accounting period.

Also, we continue to recognize the need for the USDA Forest Service to provide Standard General Ledger

(SGL) training to employees; identify business processes that are causing irregularities in the general ledger

and develop an expedited corrective action plan; and to perform an effective monthly review, identification,

research and correction of all abnormal balance and account relationships as reported in the prior

recommendations 3 and 8 of Audit Report No. 08401-3-FM.

Number 2: The USDA Forest Service Needs to Improve its General Controls Environment (Repeat

Condition)

In response to previously reported weaknesses in this area, the USDA Forest Service has undertaken

initiatives to improve its information technology functions. Specifically, as part of the business operations

reorganization and consolidation, the USDA Forest Service recently established a contract-like relationship

with Federal employees to manage the USDA Forest Service IT infrastructure functions and processes. As a

result of the reorganization, the USDA Forest Service IT infrastructure functions and processes are currently

being centralized and updated.

While we commend USDA Forest Service’s efforts to centralize and improve its IT infrastructure functions,

more actions are necessary to fully address the general control weaknesses identified in prior years, as well as

to ensure an appropriate level of confidentiality, integrity, and availability of sensitive information systems

and resources.

Specifically, eight prior general control recommendations remain open. A description of the eight issues

comprising this material weakness follows. Furthermore, at the USDA level, the parent organization, the OIG

has identified a security weakness related to IT general controls. Actions to resolve the USDA issue are

incumbent upon resolution of the USDA Forest Service general control material weakness.

C-15
Exhibit I

 (Continued)

The criteria for this finding is based on the guidance in the Federal Information Security Management Act

(FISMA), passed as part of the Electronic Government Act of 2002, which mandates that the Federal entities

maintain IT security programs in accordance with the OMB and National Institute of Standards and

Technology (NIST) guidance. OMB Circular A-130, Management of Federal Information Resources, and

various NIST guidelines describe specific essential criteria for maintaining effective general IT controls.

The Entity-Wide Process for Assessing IT Risks Has Not Been Fully Implemented (Repeat Condition)

We previously reported that the USDA Forest Service did not have a formal risk assessment policy,

procedure, or guidance to allow for appropriate and complete risk assessments (RAs). During fiscal year

(FY) 2006, we reviewed the RAs for the USDA Forest Service Computer Base (FSCB), which is the USDA

Forest Service General Support System (GSS); Paycheck 7; Automated Timber Sale Accounting (ATSA); All

Service Receipts (ASR); and the Financial Transaction Request System (FTRS). The following weaknesses

were noted:

Risk Assessment (RA) Conditions Application

No RA existed ASR

FTRS

The RAs were not current FSCB

The vulnerability lists did not classify risk

levels for AIX (IBM Operating System)

ATSA

PAYCHECK 7

We continue to recognize the need for the USDA Forest Service to ensure that controls are established to

facilitate adherence to the USDA Forest Service’s risk assessment policies and procedures as reported in prior

recommendation 20 of Audit Report No. 08401-3-FM.

System Security Plans and the Computer Incident Response Team Charter Are Incomplete (Repeat

Condition)

We previously reported that the USDA Forest Service did not have policies to govern the development of

system security plans (SSPs). In fiscal year 2006, we reviewed the SSPs for FSCB, Paycheck 7,

Infrastructure (INFRA), ATSA, ASR and FTRS and noted the following weaknesses:

SSP Conditions Application

The SSP was not updated after the reorganization and

transition to the Information Solution Organization (ISO)

FSCB

There are no current SSPs ASR

FTRS

The SSP did not identify a system owner INFRA

No Memorandums of Understandings (MOUs) are

documented

ATSA

PAYCHECK 7

C-16
Exhibit I

 (Continued)

Additionally, we noted that the Computer Incident Response Team (CIRT) charter, which grants the CIRT its

authority, is still in draft.

Furthermore, we found that training for staff with specific information technology duties has not been

provided.

We continue to recognize the need for the USDA Forest Service management to establish controls to facilitate

adherence to USDA Forest Service SSPs as reported in prior recommendation 21 of Audit Report No. 08401-

3-FM.

Access Controls at Data Processing Facilities Need Improvement (Repeat Condition)

We previously reported that there were weak logical and physical access controls across the USDA Forest

Service entity-wide. Specifically, we found:

• Management had not periodically reviewed individual logical access privileges, unauthorized access

attempts or audit logs.

• Standard forms were not used to document the approval of data sharing, archiving, and deletion.

During our FY 2006 general controls review, we noted that improvements were made, such as:

• System software access paths had been identified and documented; and

• Health and Human Services (HHS) Payment Management System (PMS) access reviews were performed

and documented.

Although improvements were made to access controls, the following weaknesses still existed at the

Washington Office, the ASC, regional office in Atlanta, and regional office in Portland:

• Policies not communicated and enforced – While policies and processes surrounding logical and physical

access controls, wireless access, Intrusion Detection Software (IDS) or firewall software, audit logging,

and resource classification were all established in July of 2006; we found that the USDA Forest Service

had not established and finalized policies early enough in the fiscal year to allow for the policy to be

properly disseminated and promulgated throughout the agency.

• Unauthorized Remote Access to the USDA Forest Service Network – Four (4) out of thirty (30) USDA

Forest Service employees and contractors had remote access to the USDA Forest Service network without

proper approval.

• Weak logical access controls over system software and sensitive utilities – USDA Forest Service does not

have procedures in place for monitoring, logging, and reviewing system software access and system

utility use. Furthermore, access to system software is controlled through root access. Root access is

controlled through the Oracle “Password Application,” however; access to the password application is not

documented and maintained, and quarterly system software access reviews are not documented and

maintained. In addition, users have the ability to grant and remove access.

• Weak logical access controls over servers – All servers are not “hardened”, which means that users could

gain root server access anonymously, and actions could not be tracked to individual users. Currently forty

C-17
Exhibit I

 (Continued)

(40) percent of USDA Forest Service servers, maintaining applications such as the INFRA database and

FFIS, have not been hardened.

• No maintenance or review of audit trails – Procedures and processes for enabling, maintaining, and

reviewing audit logs have not been approved and disseminated. Currently, the USDA Forest Service is in

the process of implementing audit logging, which is scheduled to be implemented in phases. Logging and

monitoring of root access, remote access, Oracle Database (DBA) access, and network access is currently

not in place to document successful and unsuccessful logins attempts.

• Inadequate physical access controls over sensitive areas – Physical access to sensitive areas is not

restricted to individuals with pertinent job responsibilities. We found three (3) individuals out of fortytwo (42) with inappropriate physical access to sensitive areas at the ASC. Furthermore, one individual

did not have a documented access authorization form. We also noted that non-USDA Forest Service

employees have access to the USDA Forest Service server room located in Portland, OR and access to the

server room is not periodically reviewed. In addition, the authorization and periodic review of physical

access to sensitive areas in Atlanta is not documented and maintained.

• No safeguards for protecting sensitive personnel information – The USDA Forest Service records and

maintains sensitive personnel information within Office Personnel Folders (OPFs). The USDA Forest

Service has established an MOU with the Office of Personnel Management (OPM) to scan all OPFs and

convert them into electronic files (eOPF); however, no safeguards have been established to protect the

confidentiality and sensitivity of the OPF data. Furthermore, physical access to the HCM building was

not properly controlled as the badge entry system was not activated at the time of our review.

• No assignment of ownership of shared resources – USDA Forest Service has agreed to share resources

with the Bureau of Land Management (BLM), however no agreement exists establishing controls and

responsibilities for safeguarding resources and data.

We continue to recognize the need for the USDA Forest Service management to establish logical and physical

access controls to data processing facilities as reported in prior recommendation 6 of Audit Report No.

08401-6-FM and prior recommendation 22 of Audit Report No. 08401-3-FM.

Network Account Management and Access Controls Needs Improvement (Repeat Condition)

We previously reported that USDA Forest Service has not established a formal password policy.

Additionally, insufficient password parameters and login information existed across the USDA Forest

Service. Weak password controls existed on a significant number of hosts within the USDA Forest Service

information technology infrastructure. Specifically, several hosts were identified with weak administrator and

other power user account passwords, including blank passwords.

An external assessment was completed and identified several File Transfer Protocol (FTP) servers that

allowed anonymous users write access to the public directory, default FTP accounts, writable FTP directories,

and several default user names and password combinations present for various FTP accounts.

During the FY 2006 general controls review, we conducted an internal vulnerability assessment of the

Washington DC Office (WO), the ASC, and the regional office in Portland. The following weaknesses were

noted during the review:

C-18
Exhibit I

 (Continued)

• USDA Forest Service did not finalize Forest Service Manual (FSM) 6600 Chapter 6680 directive 6684.1,

“Password Management,” until July 19, 2006. As a result, this policy was not effective for the majority of

the fiscal year.

• At the WO we identified:

o Four instances of a Microsoft Windows 2000 local administrator account password equal to the user

account name.

o Five instances of a blank Microsoft Windows 2000 local administrator account password.

o Five instances of a Microsoft Windows 2000 power user account password equal to the user account

name.

o 98 instances of a Microsoft Windows 2000 local user account password equal to the user account

name.

o Two instance of a blank Microsoft SQL Server System Administrator (SA) password (Spida Worm).

o Six instances of the Microsoft Windows 2000 Autologin feature in use.

• At the regional office in Portland we identified:

o One instance of default Oracle database user name and password combinations present, including the

user name Scott and the password Tiger.

o 19 instances of a Microsoft Windows 2000 local user account password equal to the user account

name.

o One instance of a blank Microsoft SQL Server SA password (Spida Worm).

o Two instances of the Oracle TNS Listener service with a blank password.

o Five instances of the Microsoft Windows 2000 Autologin feature were in use.

o Two instances of TELNET with a blank username and password.

• At the ASC we identified:

o Seven instances of a Microsoft Windows 2000 local administrator account password equal to the user

account name.

o 22 instances of a Microsoft Windows 2000 local user account password equal to the user account

name.

o Two instances of the Oracle TNS brand listener service with a blank password.

o 11 instances of TELNET brand access with a blank username and password.

• As part of the FY 2006 external vulnerability assessment of USDA Forest Service, the following prior

year conditions were repeat conditions, including:

o Three hosts were identified as having default user name and password combinations present for

various FTP accounts, including oracle and anonymous.

o Three hosts were identified as having a writable FTP root directory.

We continue to recognize the need for the USDA Forest Service to develop access controls and to improve

the management of network accounts as reported in prior recommendation 7 of Audit Report No. 08401-6-

FM.

Patch Management and Configuration Guidance is Not Complete and There is a Lack of General

Policy Around System Software and Change Control (Repeat Condition)

We previously reported several findings in the area of system software and change control, and service

continuity related to the operating system software. Additionally, we found:

C-19
Exhibit I

 (Continued)

• The FSM 6600, Systems Management, subsection 6683.6, Hardware Systems and Software Maintenance,

and the Configuration Management Board (CMB) charter were in draft; and

• No formal policy provides access restrictions over software code, change control, emergency change

procedures, library management policies, or library access controls.

During the FY 2006 general control review, a lack of current formal policies and procedures still exists over

the change control processes. Specifically, the following formal documents were not found to exist:

• Software/application distribution policy;

• Enterprise policies and procedures for controlling the movement of programs and data among program

libraries;

• Procedures for logging and reviewing system software installations;

• Software change control forms;

• Procedures for scheduling and notifying system users of software installations; and

• Standard configuration for network software, links, and services.

We also identified the following control weaknesses during the change control and systems software review:

• Programmers are not trained on the System Development Life Cycle (SDLC) methodology;

• Management does not ensure that consistent change control standards are in place for all USDA Forest

Service application changes;

• Management does not ensure that application developers are segregating production and test libraries and

limiting access to software libraries to appropriate individuals;

• INFRA/I-Web developers have access to the production and development environment and are also able

to grant access to users;

• Results of the testing performed for changes is not consistently documented and maintained; and

• Vendor maintenance of system software is not logged.

During the FY 2006 external and internal vulnerability assessment of the WO, Portland Regional Office, and

the ASC, a significant number of issues were identified in four areas: outdated software; missing critical

patches on various services and/or software; improperly configured services or software; and outdated or

unnecessary services and/or software installed. The weaknesses included 59 instances of outdated software;

200 instances of hosts missing critical patches and/or updates; 33 instances of Oracle and 7 instances of

Adobe Acrobat Reader buffer overflows; 5 instances of missing miscellaneous service updates; 1 instance of a

Dell OpenManage web server with missing patches; 30 instances of improperly configured services; and 13

telnet and 20 remote procedure call (RPC) services were unnecessarily installed.

We continue to recognize the need for the USDA Forest Service to develop and implement a patch

management policy and configuration management policy to strengthen change controls and system software

controls as reported in prior recommendation 23 of Audit Report No. 08401-3-FM.

Weaknesses Still Exist in Continuity of Operations and Contingency Plans (Repeat Condition)

We previously reported service continuity control weaknesses at the USDA Forest Service indicating that

policies and procedures did not exist for the IT contingency and disaster recovery planning, emergency

procedures were not documented, a business impact analysis (BIA) was not performed for various regional

offices, application contingency plans were weak, and backup site procedures and agreements are not

documented.

C-20
Exhibit I

In our FY 2006 audit, we inspected the USDA Forest Service’s continuity of operations plans (COOP) and

disaster recovery documentation. COOPs provide procedures and capabilities to sustain an organization’s

essential, strategic functions at an alternate site. IT contingency plans provide procedures for recovering an

application. We noted that, while improvements had been made over the last year, the following weaknesses

were identified:

• Policies and procedures – USDA Forest Service did not finalize an IT recovery policy until July 19, 2006.

As a result this policy was not in effect for most of the year. This policy covers critical areas of:

o IT contingency planning,

o IT restricted space,

o Data backup and recovery, and

o Information identification and classification.

• USDA Forest Service IT Continuity of Operations Plans – The COOP plans from Regions 5 and 6, both

Network Operating Centers (NOC), and the ASC did not address the IT and telecommunication services

needed to resume service continuity.

• Procedures and agreements – Procedures and agreements regarding regional office backup facilities had

not been developed for instances where one region is the backup site for another region. Regional offices

had not established service agreements for emergency telecommunication services.

We continue to recognize the need for the USDA Forest Service to develop and implement a COOP policy

addressing IT contingency and disaster recovery planning as reported in prior recommendation 5 of Audit

Report No. 08401-6-FM.

The Certification and Accreditation (C&A) Process for General Support Systems and Major

Applications per the Requirements Set Forth in OMB Circular A-130 (Repeat Condition)

We previously reported that the USDA Forest Service did not have C&A policies and procedures for

continuous monitoring of the systems or performing annual self-assessments. Additionally, major

applications had incomplete C&A packages and one did not undergo C&A.

During our FY 2006 review, we identified that the USDA Forest Service did not have any pre-existing policy

regarding C&As and self-assessments prior to the approval of the FSM 6600 on July 17, 2006. We noted that

there was no time in the FY to implement the policy. As a result, we were not able to evaluate individual

C&A packages.

We continue to recognize the need for the USDA Forest Service to develop and implement a C&A policy

based on NIST Special Publication as reported in prior recommendation 19 of Audit Report No. 08401-3-FM.

C-21
Exhibit II

 (Continued)

REPORTABLE CONDITIONS

Number 1: USDA Forest Service Needs to Refine and Monitor its Expense Accrual

Statistical Accrual Model Needs Refinement

During FY 2006, USDA Forest Service developed a regression analysis model to determine a statistically

derived amount for a component of its expense accrual. This model is used to determine an estimate of the

amount of accrue on a macro level for many smaller dollar obligation transactions.

Regression analysis is a statistical tool that derives a mathematical relationship between two or more

quantitative variable of interest (the dependent variable) can be estimated by one or more of the others

(independent variable(s)). Typically, for regression models to produce valid and reasonably precise estimates,

the sample data must cover a wide range of values for the independent variable(s), and must also have enough

observations (i.e., data points) to ensure both the geometric shape and precision of the resulting estimates with

a high degree of statistical confidence. The number of sample observations required for such validity and

precision is generally accepted to be in excess of 50 plus the number of coefficients being estimated by the

model employed. In the case of a simple two-variable straight line model, a sample size of 52 or more would

be desirable; while with a more complex curvilinear model using two or more variables, a larger sample size

would be appropriate.

Currently the USDA Forest Service is planning to use several different geometric models as derived from the

currently available 33 data points. These different models incorporate both straight line and curvilinear

mathematical functions with potentially different forms of the variables being employed as the format for the

independent variable portion of the model. While it may be appropriate to have different geometric patterns

for accrual estimating equations for the various broad range of obligations, it was noted that all of these

models are producing wide ranges of variability around the estimating equations. The lack of precision (i.e.,

at the 95% confidence level) could be caused by either using the wrong geometric function or using the wrong

form of the various variables being employed. However, with the current number of observations (i.e., data

points), we are unable to tell whether those things are responsible for perhaps; there is some other root cause.

While these newly developed regression models appear to produce slightly better results overall then past

methods for the various accrual estimates, there are issues that should be noted on a go forward basis. Some

of these issues follow:

• Lack of Sufficient Number of Data Points –The USDA Forest Service uses 33 data points for establishing

the accruals model at the end of the third quarter. Ideally a minimum of 52 or more data points should be

used; however because the data are abased on time series, that goal will not be able to be achieved for

another 19 plus months.

• Correlation of ULO Balances and Payments- The statistical models developed by USDA Forest Service

use various geometric relationships between unliquidated obligations and payments; with payments being

the dependent variable of interest in each of the models. In each case, a correlation is developed from the

coefficient of determination (i.e., the ratio of the “explained variation” to the “total variation” of the

payment data). Because the correlation coefficients are relatively high for all of the models constructed,

the USDA Forest Service management has assumed that the models will be useful and precise enough to

provide tight estimates of the actual amounts earned by contractors and grantees, but not yet paid.

Various expert texts have shown that the correlation coefficient, while helpful in initially determining the

strength of the possible relationship of the variables in an estimation model, may not be the final indicator

C-22
Exhibit II

 (Continued)

of how appropriate and definitive a regression model might be. The paucity of data points might lead to

an incorrect conclusion for future estimation of future amounts to be accrued.

• The Use of Three Different Model Forms- The USDA Forest Service analysis has produced three different

geometric model forms; one for grant and agreements, one for construction contracts, and one for

operations. While the use of different curve forms for regression estimates is to be expected because of

the timing and billing differences implicit in the different types of obligations, it was noted that there

appeared to be a lack of consistency of “goodness of fit” or precision of estimate even when comparing

the models being used within a single type of obligation. Sometimes the curvilinear form is preferred; but

in other time frames, the straight line format provides a more precise estimate. The USDA Forest Service

management must plan to verify and validate the various models developed against data that are not part

of that which was used to develop the models. In addition, they must arrive at the geometric form that is

appropriate and consistently applied for each one of the three types of obligations. It is also possible that

they will need to consider the use of a multiple regression model (i.e., one with two or more independent

variables) in order to more fully describe the amount that needs to be accrued for a given obligation type.

• ULOs above $500,000- The data used starting at the beginning of FY 2004 and forward to analyze the

relationships between ULOs and payments, and to calculate the regression equations includes UDOs

above $500,000. However, the regression equations are then applied only to UDOs below $500,000.

This inconsistency might be responsible for some of the unexplained variation that is observed in the

various models.

The book entitled Regression Diagnostic written by M.S. Younger and published by John Wiley & Sons,

New York, NY 1977 suggests that model-building data sets for regression analysis should be sufficiently

large so that a reliable model can be developed. This reference suggests that the model data set should contain

at least 60 to 100 cases in order to identify a meaningful relationship between two variables. In addition, the

author also states that the coefficient of determination (R squared) is not an adequate indicator of the

usefulness of the regression relation; therefore, a combination of other statistical parameters and diagnostics

plots should be considered when evaluating a regression model. The reference describes, in detail, diagnostic

techniques and model-building characteristics that should be taken into consideration when developing a

regression model.

The variability in the various models developed and the inconsistency of results in comparison with actual

data results in a certain amount of uncertainty as to the reliability of the accrual estimates being made. Such

determinations can only be made as more data are made available over time and Forest Service management

verifies and validates the set of models that are finally arrived at for use in the accrual process. However, at

this time with the available information, we do not believe the variability observed would cause a material

misstatement in the USDA Forest Service’s financial statements.

Recommendation Number 4:

We recommend that USDA Forest Service management:

• Expand the number of data points in the various regression models to at least 52;

• Expand the number of variables to form multiple regression models and/or the types of analysis to include

the use of seasonal indexes in order to account for the various changes in the payment patterns by fiscal

quarter; and

• Test models with specific additional independent variables in some of the models may help to substantiate

and better expose the true nature of the relationships between ULOs and payments in the various types of

obligations.

C-23
Exhibit II

 (Continued)

Continued Monitoring of Field Site Expense Accrual Estimates is Required

Although the USDA Forest Service made significant progress in developing an auditable accrual methodology,

the accuracy of accruals and our subsequent disbursements testwork disclosed that not all transactions are

properly reported as accruals at period-end.

Our testwork of accruals recorded as of 9/30/06 disclosed 27 exceptions out of 184 transactions. Of these 27

exceptions: nine related to goods and services that were received and paid for prior to 9/30/06, 12 related to goods

and services that were not received as of 9/30/06, five lacked adequate supporting documentation, and one had an

ULO that was liquidated prior to 9/30/06.

Our subsequent disbursements testwork of 94 transactions disclosed 11 transactions that were not accrued at yearend by field offices. Over 50 percent of these transactions related to temporary travel. The remainder of the

transactions does not appear to have a consistent cause for the lack of an accrual and as a result are considered

anomalies that would only be identified and minimized from a robust monitoring program.

During the last quarter of 2006, the USDA Forest Service developed a monitoring program at the ASC that

should help minimize the conditions noted above. The USDA Forest Service has not had adequate time to fully

implement this monitoring program.

We continue to recognize the need for the USDA Forest Service ASC to implement an adequate monitoring

program for quarterly review of field compliance and accuracy with its methodology as reported in the prior

recommendation 15 of Audit Report No. 08401-3-FM.

Number 2: Accountability for ULOs Needs Continued Improvement (Repeat Condition)

During FY 2005 the USDA Forest Service experienced a lack of compliance with its policies and procedures

to review and certify the accuracy of ULOs. In response to the FY 2005 ULO material weaknesses, the

USDA Forest Service revised its policies and procedures regarding its certification of undelivered orders.

Although there was improvement in this area, internal control weakness still existed.

During FY 2006, an internal control sample of ULOs was selected from the USDA Forest Service’s May 31,

2006 ULO certification report at each of the ten field sites reviewed during the audit. Of the 53 sample items

tested, the following 14 were noted as exceptions:

• One ULO was not reviewed by the unit because the responsible party did not understand their

responsibility to review the ULO as the funding unit.

• Four ULOs were identified as invalid, but were not de-obligated prior to the required 30 day de-obligation

period subsequent to the certification.

• Eight ULOs were certified as valid, but were determined by our review to be invalid.

• One ULO did not have enough information to certify its validity. The ULO was subsequently identified

to be invalid and de-obligated after the 30 day de-obligation period.

Additionally, during the initial implementation of the USDA Forest Service’s new ULO certification policy,

the USDA Forest Service prepared report, used to assign ULO transactions to responsible offices, divided the

ULO balances into line balances rather than the transaction total for the ULO balance.

Because of the poor operating effectiveness of the internal controls over ULOs, the September 30, 2006 ULO

extract was reviewed in detail. The review results disclosed 34 of 188 routine ULO transactions as exceptions.

C-24
Exhibit II

 (Continued)

USDA Forest Service Directive 6500-218 states that for the months ending November 30, February 28, May

31 and August 31, all obligations that are:

• $250,000 or greater regardless of age,

• $100,000 to $249,000 and 36 months or older, and

• Under $100,000 and 60 months or older must be reviewed to determine that they are valid, accurate, and

supported. Any unliquidated obligations found to be invalid or incorrectly stated must be reported to ASC

Budget Execution to be de-obligated or adjusted no later than 15 days after the date of certification.

We continue to recognize the need for the USDA Forest Service management to continue to monitor its ULO

certifications and if necessary modify exiting policies and procedures as noted in prior year recommendation

1 of Audit Report No. 08401-4-FM.

Number 3: The Review of Purchase Card Transactions and Monitoring of the Program Needs

Continued Improvement (Repeat Condition)

The USDA Forest Service uses the purchase card to reduce administrative costs and allow its employees to

procure supplies and services faster than through traditional government procurement regulations.

Although internal control improvements have been noted in this area, weaknesses continue to exist as found

in the current year testwork. During our testwork over quarterly supervisory reviews of purchase card

transactions, three quarterly reviews out of 20 samples did not have evidence of supervisory review.

In addition, during testwork over the authorization for the use of purchase cards, the following exceptions

were noted in a sample of 121 cardholders:

• Six cardholders did not have their Micro-Purchase & PCMS (Purchase Card Management System)

System Training Certification Request forms signed by the Local Agency Program Coordinator (LAPC).

• One Micro-Purchase & PCMS System Training Certification Request form was not provided.

Also, while performing purchase card reviews, we noted the following control weaknesses:

• The ASC could not provide a list of purchase card holders who transferred to the ASC but had not

surrendered their purchase cards at the locations from which they were transferred.

• One cardholder had retired (approximately 18 months ago) but was still in the PCMS system.

• One cardholder did not have the same single purchase limit on the Micro-Purchase & PCMS System

Training Certification Request form and in PCMS.

USDA Departmental Regulation 5013-6 requires that supervisors of purchase card holders monitor the

purchasing activity of card holders in their units. Paragraph 18 of the Regulation states that all personnel

must be trained to use PCMS before a card may be conferred, and individuals issued a card will certify that

they have received the training, understand the regulations and procedures, and know the consequences of

inappropriate actions. In addition, on June 30, 2003, the WO sent a letter to USDA Forest Service activities

instructing them to have all USDA Forest Service cardholders authorized in writing by December 31, 2003

[and on a go-forward basis].

On April 19, 2004, the USDA Forest Service Director of Acquisition Management reminded the various

USDA Forest Service activities of the emphasis placed on the supervisor’s review of purchase card holders. A

C-25
Exhibit II

 (Continued)

supervisory review checklist was provided to document the reviews starting with the second quarter review

(January – March 2004). Documentation of these reviews should be maintained for three years.

Without effective quarterly supervisory reviews of PCMS transactions, the USDA Forest Service increases its

risks for inaccurate and inappropriate purchase card transactions. In addition, without complete and accurate

cardholder information in PCMS and adequate authorization/training records for PCMS cardholders, USDA

Forest Service management can not effectively monitor purchase card holders and transactions incurred by its

cardholders.

We continue to recognize the need for the USDA Forest Service management to reinforce its policies in this

area and incorporate procedures to test reviews of purchase card transactions in its Acquisition Management

reviews as reported in prior year recommendation 4 of Audit Report No. 08401-4-FM.

Number 4: Controls Related to Physical Inventories of Capital Assets Need Continued Improvement

(Repeat Condition)

The USDA Forest Service provides capitalized asset written physical inventory instructions to its reporting

units. We reviewed the instructions and believe they are effectively designed. For economy and efficiency,

the USDA Forest Service performs a physical inventory of personal property on a two-year cycle, preferably

in the even years. The last inventory was performed in the current fiscal year. Real property inventory

procedures were changed in FY 2002 to require inventories on a rolling basis every five years starting in FY

2003.

In our FY 2005 audit, we noted four types of deficiencies:

• Lack of Signatures and or Dates on Inventory Reports;

• Lack of Evidence of Segregation of Duties;

• Lost or Found Items Discovered during Physical Inventories were not Properly Documented and/or

Corrected in the Property Systems; and

• Lack of Inventory of Level 1 and 2 Roads.

In our FY 2006 audit, we noted the previous four and one new deficiencies which were primarily caused by a

lack of compliance by field units with the USDA Forest Service’s written inventory instructions.

• Lack of Signatures and/or Annotations on Inventory Reports- Inventory reports were either not signed or

not annotated by the inventory takers for 18 of 167 inventory reports. This deficiency existed at 7 of 10

units visited. Unsigned and undated physical inventory lists could result in a misstatement of assets

because the physical existence of assets is not verified and/or properly recorded.

• Lack of AgLearn Training for Inventory Takers – Documentation evidencing AgLearn training for

inventory takers was not available for 4 of 220 inventory takers. This deficiency existed at 3 of 10 units

visited. Lack of proper training of inventory takers can result in non-compliance with USDA Forest

Service inventory instructions and thus causing the misappropriation or misstatement of assets.

• Lack of Evidence of Segregation of Duties— The inventory was conducted and the inventory reports were

annotated only by the inventory taker. In other instances, the inventory taker was the accountable officer.

This condition existed in 4 of 147 inventory reports at 2 of the 10 units visited. Lack of proper oversight

of inventory can result in the misappropriation or misstatement of assets.

C-26
Exhibit II

 (Continued)

• Lost or Found Items Discovered during Physical Inventories were not Properly Documented and/or

Corrected in the Property Systems – Non-reconciling items discovered during the physical inventories

were not corrected in the property systems. This condition existed in 7 of 95 lost or found items at 2 of the

10 units visited. The effect is a misstatement of assets because assets were not properly recorded in the

property subsidiary ledgers.

• Lack of Inventory of Level 1 and 2 Roads – Level 1 and 2 roads were again not inventoried in FY 2006

and at the current rate of their inventorying, USDA Forest Service will not complete a 100% physical

inventory of roads within the five years.

We recommend that the USDA Forest Service increase their monitoring of reporting units for compliance

with the USDA Forest Service written physical inventory instructions and implement an appropriate

inventory methodology for level 1 and 2 roads as reported in prior year recommendation 9 of Audit Report

No. 08401-6-FM.

Number 5: The Design and/or Implementation of Controls Related to the Accurate Recording of

Revenue-Related Transactions Need Improvement (Repeat Condition)

During our prior year audit, we noted that revenue transactions were not recognized in the correct month

and/or year, were not sufficiently documented, or had values that were not supported by the documentation.

We also noted for accounts receivable that unbilled receivables were not reduced upon the issuance of actual

billings, and incorrect balances were caused by system transaction linking issues.

During our FY 2006 audit, we tested 208 timber revenue samples, 571 general revenue samples, 581 accounts

receivable samples, 124 unfilled customer orders with advance samples, and 306 unfilled customer orders

without advance samples and noted the following errors.

Timber Revenue

• Five samples, not accrued for in the prior FY, were recorded as a current economic event instead of a

prior year event. All of these samples related to a court settlement in which the USDA Forest Service was

aware of the $8.4M settlement in August of FY 2005.

• Two samples resulted in a misstatement of revenue in the current year that were not corrected before

9/30/06.

General Revenue

• 40 samples, not accrued for in the prior FY, were recorded as current economic event instead of a prior

year event. Of these, 12 were the result of the USDA Forest Service correcting an account balance that

was misstated at the end of FY 2005. The corrections were posted to a revenue account in FY 2006

instead of to the prior period adjustments account due to USDA not permitting its subsidiary agencies to

use that account.

• Three samples had insufficient documentation to support the sample amount.

• One sample recorded revenue in FY 2006 that had already been recognized in FY 2005.

• Two samples were recorded in FY 2007 however they should have been accrued in FY 2006.

Accounts Receivable

• 15 samples were collected, but the accounts receivable balance was not reduced.

C-27
Exhibit II

 (Continued)

• 11 samples were prior years unbilled that were not adjusted against advance or reversed at time when bills

were issued.

• Five samples were recorded as duplicate billings.

• Two samples were not valid receivables because prior period accrual entries had not been reversed.

• Two samples were still recorded as receivables even though the customers filed for bankruptcy and the

USDA Forest Service had no chance of collection.

• One sample had documentation that did not tie to the sample amount.

• One sample did not have sufficient documentation to support the sampled amount.

Unfilled Customer Orders

• Eight samples had an agreement with an expired period of performance.

• One sample was a refund payment that was incorrectly posted.

• Two samples showed an abnormal balance.

• Ten samples had insufficient documentation to support the sample amount.

• Two samples had agreements with expired authority.

• One sample revealed activity on an agreement that had expired.

• Five samples had an agreement amount that did not tie to the documentation.

• One sample had an advance that had been collected.

The effect of these deficiencies results in an over or underestimate of revenue and an overstatement of

unfilled customer orders.

We continue to recognize the need for the USDA Forest Service management to review and update its

policies and procedures for accurate recording of revenue as reported in prior year recommendation 6 of

Audit Report No. 08401-4-FM.

Number 6: The USDA Forest Service Needs to Continue to Improve its Internal Controls over its

Reconciliation and Management of Fund Balances with Treasury (Repeat Condition)

Financial Management Service (FMS) 6652 Reconciliation Process

During FY 2006 control testing, 50 sample items were selected from the FMS 6652 reports reconciliation

process. The test results disclosed that all 50 sample items were adequately researched and resolved.

However, 25 sample items were not corrected timely. Of these items, 22 were not reconciled timely due to

the backlog of credit card transaction processing at the USDA National Finance Center (NFC) Administrative

Billing and Collection Office (ABCO).

Government-wide Accounting System Reports Reconciliation Process

During FY 2006 control testing, 38 sample items were selected for our control tests of the Government-wide

Accounting System reports reconciliation process. The test results disclosed that all 38 sample items were

adequately researched and resolved. However, 14 sample items were not corrected timely. While this

demonstrates an improvement in the reconciliation process, the deficiencies noted in the prior years have not

been fully corrected.

We continue to recognize the need for the USDA Forest Service to ensure adequate reconciliations of Fund

Balance with Treasury as noted in prior year recommendation 27 of Audit Report No. 08401-3-FM.

C-28
Exhibit II

 (Continued)

Number 7: The Design and/or Implementation of Controls Related to the Accurate Recording of

Personal Property Transactions Needs Improvement (Repeat Condition)

The USDA Forest Service has improved its property internal controls during FY 2006, including monthly

general ledger to property subsidiary ledger reconciliations and other corrective actions.

However during FY 2006 substantive testing of 340 samples, we identified immaterial errors where the

recorded data did not agree with the supporting documentation. These errors included:

• 21 samples that related to FY 2005 or prior events that were recorded as FY 2006 activity;

• 13 samples that did not have sufficient supporting documentation;

• 13 samples with an overstatement in accumulated depreciation;

• Three samples with an overstated asset cost;

• Two samples with an understated asset cost; and

• One sample with understated accumulated depreciation.

Additionally, upon review of the year-end data downloads for the personal property sub-ledgers, Equipment

Management Information System (EMIS), and Personal Property Computer System (PROP) we identified

536 items (i.e., 110 PROP and 426 EMIS items) that did not meet the capitalization threshold at the time these

were placed in service. These items resulted in overstatement of asset cost by $4,084,338 and accumulated

depreciation of $(1,508,572).

We continue to recognize the need for the USDA Forest Service to increase its monitoring of compliance with

property recording policy as reported in prior recommendation 30 of Audit Report No. 08401-3-FM.

Number 8: The Compilation of Performance Measures Needs Improvement (Repeat Condition)

The USDA OIG identified, in a March 2005 report entitled Forest Service Implementation of the Government

Performance and Results Act, certain significant deficiencies in internal control over reported performance

measures that, in our judgment, could adversely affect the USDA Forest Service’s ability to collect, process,

record, summarize, and report performance measures in accordance with management’s criteria. Specifically,

the OIG reported the USDA Forest Service had not effectively implemented a comprehensive strategy for

collecting and reporting performance data. The OIG report identified several examples of inconsistencies,

errors, and omissions in measuring performance, and that the standards used to define performance varied

between regions, forests, and even among the districts in a forest. The report further stated that definitions of

performance measures were often vague and open to varied interpretation and were not always distributed

timely to the field.

During our FY 2006 audit follow-up work, we reviewed several USDA Forest Service performance review

reports and identified the following weaknesses:

• Accomplishment reporting databases were not integrated and some were not fully functional.

• There was an inconsistent application of performance management throughout the agency.

• Some business rules of work planning and accomplishment reporting appeared to be in conflict with onthe-ground efforts toward integrated work.

• No universal verification process had been followed. In addition, standards for documentation in support

of reported accomplishments were not in place.

• At different levels of the organization there were varied perspectives on the number and kind of

performance measures needed at the different levels of the organization.

C-29
Exhibit II

 (Continued)

• Primary purpose, in some areas, was not being followed. USDA Forest Service must follow primary

purpose to comply with Congressional intent, maintain validity of the reported accomplishment, and

ensure that the expenditure information is consistently reported.

In addition, we reviewed USDA Forest Service’s OMB Circular A-123 control evaluation documentation

which stated that, “USDA Forest Service has not effectively implemented a comprehensive strategy for

collecting and reporting performance data. The USDA Forest Service lacks an effective internal control

system to ensure data quality.”

Representatives from the USDA Forest Service’s Strategic Planning and Resource Assessment Office stated

that USDA Forest Service is moving forward with implementing the Performance Accountability System

(PAS) to accurately, consistently, and timely report performance information. However, PAS is still under

development and implementation is not scheduled until FY 2007.

Recommendation Number 5:

We recommend that the USDA Forest Service should:

• Refine its policies and procedures for gathering and verifying its performance measure data to ensure

consistent reporting across all offices.

• Implement PAS and adequately train personnel in the operation and use of the system.

• Ensure that an adequate quarter (at least June 30 reporting) and year-end reporting process is in place to

accurately and completely report its performance measures in the financial statements and Performance

and Accountability Report (PAR).

Number 9: The Compilation of the USDA Forest Service’s Required Supplementary Information (RSI)

Needs Improvement (Repeat Condition)

We noted that the USDA Forest Service does not have adequately designed controls to ensure the consistency

of information compiled and reported in its RSI section of the financial statements.

AU Section 558, sub section .07, a. requires the auditor to inquire if the required supplementary information

is (i) measured and presented within prescribed guidelines....and; b. The information is consistent with the

audited financial statements.....

We continue to recognize the need for the USDA Forest Service to revise its current control structure for data

collecting of RSI as reported in prior recommendation 37 of Audit Report No. 08401-3-FM.

Number 10: The Posting of Certain Transactions Needs to Contain the Proper Reference Data to Link

Related Transactions (Repeat Condition)

The USDA Forest Service business processes require that relevant subsequent transactions (e.g., an expense)

be linked to an initiating transaction (i.e., obligation) to provide for the transaction history and overall net

affect of a transaction. This link facilitates the matching of related transactions, such as an advance and the

draw down of that advance through subsequent payments, which results in a net balance. However, this

required information is not always entered in the general ledger.

C-30
Exhibit II

During our review of data extracts as of September 30, 2006 from the general ledger for accounts for 48XX

and 2190, we noted that trans-codes BG, Z7, DG, and DH remained open and unlinked in our extracts. The

following trans-codes and the respective balances were identified in each of the extracts:

Standard General Ledger Account Transcode

48XX extract 2190 extract

BG $4,118,962 ($2,623)

Z7 0 0

DG (5,167,006) (12,892,985)

DH (54,133) (3,799)

Totals ($1,102,177) ($12,899,407)

Although the extract as a whole is valued correctly, individual document transactions relating to undelivered

orders and accruals are overstated as of September 30, 2006.

We continue to recognize the need for the USDA Forest Service to ensure adequate linking of its transactions

as reported in prior recommendations 34, 35, and 36 of Audit Report No. 08401-3-FM.

Number 11: A Segregation of Duties Policy related to Electronic Data Processing (EDP) Must be Fully

Implemented (Repeat Condition)

We previously reported that, although a number of the controls around segregation of duties related to IT

were in place and new segregation of duties policy controls have been approved, weaknesses were still found:

• Management did not periodically review segregation of duties controls;

• Staff were unaware of a segregation of duties policy at all sites except the WO; and

• Segregation of duties training was not created or distributed to USDA Forest Service employees.

During our FY 2006 general controls review, we found that the weaknesses previously reported still exist.

Although the segregation of duties policy documented was in existence for the entire fiscal year, there were

no steps taken to implement this policy. Additionally, we found that performance plans and appraisals could

not be located for all staff.

We continue to recognize the need for the USDA Forest Service to develop and implement a segregation of

duties policy as reported in prior recommendation 10 of Audit Report No. 08401-6-FM.

C-31
Exhibit III

 (Continued)

STATUS OF PRIOR YEAR’S REPORTABLE CONDITIONS/MATERIAL WEAKNESSES

As required by Government Auditing Standards and OMB Bulletin No. 06-03, Audit Requirements for

Federal Financial Statements, we have reviewed the status of the prior year’s reportable conditions. The

following table summarizes these issues and provides our assessment of the progress USDA Forest Service

made in correcting these reported conditions. We have also provided the OIG report where the issue is

monitored for audit follow-up. These tables contain only those audit reports that are open. In addition, only

those recommendations that remain open or were closed in the current year are noted in the tables.

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-6-FM December 2005

(Replaced prior Audit Report: USDA OIG Audit Report No. 08401-5-FM)

Reported Condition Recommendation Status

The USDA Forest Service

Needs to Continue to Improve

its Financial Management and

Reporting Process

In addition to the prior recommendations 1, 3, 8, 11

(closed) of Audit Report No. 08401-3-FM, we recommend

that the USDA Forest Service:

• In conjunction with the USDA OCFO, complete the

existing project for producing the SOF [Statement of

Financing] on a transactional basis. Document the

propriety of all ACCTEIDs that constitute valid and

logical reconciling items in the SOF. Obtain training

for personnel involved in financial statement

preparation regarding the relationship of the SOF to

the statements of budgetary resources and net cost.

Perform a comprehensive technical review of the

SOF to ensure it is accurately prepared.

• Establish a separate general ledger sub-account

within GL 2190 to separately record unfunded

liabilities or otherwise segregate funded and

unfunded liabilities.

Closed

Closed

Accountability for

Unliquidated Orders (ULOs) is

Lacking

(2006 Reportable Condition;

2005 Material Weakness)

2. In addition to the prior year recommendation 1 of Audit

Report No. 08401-4-FM, we recommend that the

USDA Forest Service develop a plan to improve the

operating effectiveness of its review and approval of

all period-end accrual adjustments.

Open

Implementation of the USDA

Forest Service Accrual

Methodology Needs

Strengthening

(2005 Material Weakness)

3. We recommend that the USDA Forest Service modify

its accrual methodology to require responsible USDA

Forest Service officials to take additional/alternate

steps to obtain additional information when vendors

cannot provide the necessary information to determine

an accurate estimate, or when the USDA Forest

Service is aware that the information provided is

inaccurate.

4. We recommend that the USDA Forest Service improve

its quarterly monitoring function to ensure that

reviews of fire and other incident accruals are

performed accurately and completely and that such

recorded accrual amounts are valid.

Closed

Closed

C-32
Exhibit III

 (Continued)

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-6-FM December 2005

(Replaced prior Audit Report: USDA OIG Audit Report No. 08401-5-FM)

Reported Condition Recommendation Status

reviews of fire and other incident accruals are

performed accurately and completely and that such

recorded accrual amounts are valid.

The USDA Forest Service

Needs to Improve its General

Controls Environment

(2006 Material Weakness;

2005 Material Weakness)

5. We recommend that USDA Forest Service:

Complete, approve, communicate, and document the

enforcement of policies and procedures addressing IT

contingency and disaster planning and protection of

sensitive information and classification. These

policies and procedures should include the removal

and return of storage media and physical and

environmental security.

Additionally, USDA Forest Service should conduct a

Business Impact Analysis at the WO, Fort Collins, CO

– WO Detached, and Region 3 (supporting the ASC)

data centers to assist in identifying the criticality and

sensitivity of USDA Forest Service information,

systems, and facilities. The COOP for the Regional

headquarters, WO and Fort Collins – WO Detached

need to be enhanced. Also, the contingency plan for

ConnectHR/Paycheck7 needs to be enhanced. USDA

Forest Service should establish controls to certify all

COOP and contingency plans are tested annually and

updated based on test results. Regional service level

agreements or contracts with all backup site facilities

and telecommunication services should be developed.

Finally, we recommend that the USDA Forest Service

develop materials and provide employees identified as

occupying emergency roles with disaster recovery and

continuity of operations training.

6. We recommend that USDA Forest Service management

develop, communicate, and establish controls to

facilitate adherence to entity-wide policies and

procedures on access controls to address access key

controls, including:

• A standardized process for requesting access to the

USDA Forest Service network. Include procedures

for changes to existing user accounts and requesting,

granting, and removing temporary and emergency

access;

• Periodic management review of network account

access listings for appropriateness, identifying and

disabling inactive user accounts, and removing

network access for separated employees;

Open

Open

C-33
Exhibit III

 (Continued)

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-6-FM December 2005

(Replaced prior Audit Report: USDA OIG Audit Report No. 08401-5-FM)

Reported Condition Recommendation Status

access listings for appropriateness, identifying and

disabling inactive user accounts, and removing

network access for separated employees;

• Requesting, granting, and removing access to

system software, sensitive utilities, and database

management utilities;

• Periodic review of network, server operator, and

remote access audit logs as required by USDA

Forest Service Interim Directive 6680-2005-3,

“Technical Controls.” Include procedures and

requirements for investigating suspicious user

activity and reporting security violations;

• Management approval for archiving, deleting, and

sharing ATSA data;

• Finalize the USDA Forest Service Manual 6683.2,

“Physical and Environmental Security,” and

communicate requirements to FS personnel.

Establish controls to facilitate adherence to policy;

and

• The USDA Forest Service needs to modify server

settings on all USDA Forest Service servers to

ensure that users cannot gain root server access

anonymously. USDA Forest Service network audit

functions must be configured to maintain a history

of successful and unsuccessful login attempts and

user activity for the USDA Forest Service network

as required by USDA Forest Service Interim

Directive 6680-2005-3, “Technical Controls.”

USDA Forest Service management should identify

and document all access paths for the USDA Forest

Service network and servers. Finally, USDA Forest

Service needs to develop and implement a user

access review policy and procedure for the

Department of Health and Human Service’s

Payment Management System application.

7. We recommend that USDA Forest Service

management:

• Update the USDA Forest Service Interim Directive

6680-2005-3 to include the USDA requirement that

users change their password every 60 days and 30

days for system administrators;

• Establish controls to facilitate entity-wide adherence

Open

C-34
Exhibit III

 (Continued)

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-6-FM December 2005

(Replaced prior Audit Report: USDA OIG Audit Report No. 08401-5-FM)

Reported Condition Recommendation Status

to the USDA Forest Service Interim Directive 6680-

2005-3; including the application of strong

passwords to all user accounts identified as having a

weak password during the vulnerability assessment,

and the removal or disabling of all default,

temporary, and guest user accounts; and

• Continue with the USDA Forest Service

implementation of Microsoft Active Directory in

order to enforce screen saver passwords, account

lock-out after three invalid login attempts, and the

minimum password requirements documented in the

USDA Forest Service Interim Directive 6680-2005-

3 for all FS network users.

8 . We recommend that USDA Forest Service system

owners, in cooperation with the USDA OCIO [Office

of the Chief Information Officer] and in compliance

with USDA and USDA Forest Service information

security requirements:

• Complete, approve, communicate, and document the

enforcement of policies and procedures, specifically

addressing the conditions resulting from the new

business operations organization;

• Develop and implement a policy to include review

of personnel with access to sensitive facilities, the

appropriateness of FFIS and NFC access

authorizations, and the network security status;

• Install the latest software versions, service packs,

and security patches (and remove out-dated

versions);

• Develop and implement software configuration

standards for Windows, UNIX [operating system],

and all other USDA Forest Service platforms with

defined images that specify what software

applications should be in use and on what kinds of

machines these applications should be installed on;

and

• Use automated tools to detect and eliminate unused

or unauthorized applications including the use of

Internet Security Systems (ISS) Internet Scanner in

accordance with USDA Cyber Security Policy CS007.

Open

C-35
Exhibit III

 (Continued)

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-6-FM December 2005

(Replaced prior Audit Report: USDA OIG Audit Report No. 08401-5-FM)

Reported Condition Recommendation Status

Controls Related to Physical

Inventories of Capital Assets

Need Improvement

(2006 Reportable Condition;

2005 Reportable Condition)

9. We recommend that the USDA Forest Service increase

their monitoring of reporting units for compliance

with the USDA Forest Service written physical

inventory instructions and implement an appropriate

inventory methodology for level 1 and 2 roads.

Open

A Segregation of Duties Policy

related to EDP Must be Fully

Implemented

(2006 Reportable Condition;

2005 Reportable Condition)

10. We recommend that USDA Forest Service:

• Establish controls to facilitate adherence to the

segregation of duties policy and supporting

procedures as well as develop, implement and

document training so that employees are aware of

the policy and their responsibilities.

• Modify, approve, and communicate a policy to

address periodic management review of segregation

of duties.

Open

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-4-FM November 2004

Reported Condition Recommendation Status

Accountability for

Undelivered Orders is Lacking

(2006 Reportable Condition;

2005 Material Weakness;

2004 Material Weakness)

1. We recommend that USDA Forest Service

management:

• Require all locations to fully comply with review

and certification requirements and follow up to

resolve questionable items.

• Previously Closed.

Open

The Review of Purchase Card

Transactions Needs

Improvement

(2006 Reportable Condition;

2005 Reportable Condition;

2004 Reportable Condition)

4. We recommend that USDA Forest Service management

reinforce its policies in this area and incorporate

procedures to test the reviews of purchased

transactions in its Acquisition Management reviews.

Open

The Internal Controls Related

to Recording, Classification

and Accounting for

Information Related to Leases

Need Improvement

(2006 Management Letter

Comment; 2005 Reportable

Condition; 2004 Reportable

Condition)

5. We recommend that USDA Forest Service management

establish policies and procedures for the accurate

recording of leases, appropriately train reporting unit

personnel on such policies and procedures, and

monitor reporting units for compliance with its

policies and procedures.

Closed;

Downgraded

C-36
Exhibit III

 (Continued)

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-4-FM November 2004

Reported Condition Recommendation Status

The Design and/or

Implementation of Controls

Related to the Accurate

Recording of Revenue Related

Transactions Need

Improvement

(2006 Reportable Condition;

2005 Reportable Condition;

2004 Reportable Condition)

6. We recommend that USDA Forest Service management

review and update its policies and procedures for the

accurate recording of revenue, appropriately train

reporting unit personnel on such policies and

procedures, and monitor reporting units for

compliance with its policies and procedures.

Open

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-3-FM January 2004

The USDA Forest Service

Needs to Improve its Financial

Management and

Accountability

(2006 Material Weakness;

2005 Material Weakness,

2004 Material Weakness,

2003 Material Weakness)

1. We recommend that the USDA Forest Service

provide SGL training to selected employees and

appoint them to be “resident” SGL experts

responsible for preparing as well as reviewing and

approving the adjusting journal vouchers (AJVs).

3. We recommend that the USDA Forest Service

identify those business processes that are causing

irregularities in the general ledger and develop an

expedited corrective action plan to resolve and

correct any deficiencies identified.

6. We recommend that the USDA Forest Service

identify all revenue generating business processes

that are currently maintained in the budget

clearing accounts and work with OMB and U.S.

Department of the Treasury to establish a separate

receipt and expenditure Treasury symbol so that

revenue collections will not reside in the 12F3875

clearing account.

8. We recommend that the USDA Forest Service

follow its procedures in order to perform monthly

review, identification, research, and correction of

all abnormal balances, and report the status of all

abnormal balances of $5 million or more to the

USDA OCFO.

11. We recommend that the USDA Forest Service

implement an effective monthly process to review

general ledger account relationships. The process

must include the research, reconciliation, and

resolution of all significant differences in a timely

manner.

Closed

Open

Closed

Open

Closed;

Management

Letter Comment

C-37
Exhibit III

 (Continued)

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-3-FM January 2004

Implementation of the USDA

Forest Service Accrual

Methodology Needs

Strengthening

(2006 Reportable Condition;

2005 Material Weakness;

2004 Material Weakness;

2003 Material Weakness)

14. We recommend that the USDA Forest Service

WO Office of Finance [ASC Quality Assurance

Team] provide adequate communication and/or

training of the accrual methodology, as well as, a

summary of lessons learned from the fiscal year

2003 [including 2004 and 2005] audit to all of the

USDA Forest Service reporting units.

15. We recommend that the USDA Forest Service

WO Office of Finance [ASC Quality Assurance

Team] perform management oversight of the

accrual methodology through analysis and follow

up on large or unusual items, as well as the USDA

Forest Service units that do not report any data.

Closed

Open

The USDA Forest Service

Needs to Improve Its General

Controls Environment

(2006 Material Weakness;

2005 Material Weakness;

2004 Material Weakness;

2003 Material Weakness)

19. We recommend that USDA Forest Service

develop and implement a C&A policy based on

the NIST Special Publication 800-37, “Guide for

Certification and Accreditation of Federal

Information Systems.” Once the policy has been

developed, it is recommended that FS

management immediately reevaluate all major

information system C&A packages to determine

completeness based on the Forest Service policy.

Additionally, we recommend that USDA Forest

Service verify that each application’s Plan of

Action and Milestone (POA&M) report includes

the accurate status of all findings.

20. We recommend that USDA Forest Service

management establish controls to facilitate

adherence to the Forest Service Risk Assessment

policies and procedures. All risk assessments

should be developed in accordance with agency,

USDA, and federal guidelines. Additionally,

USDA Forest Service should revise any existing

risk assessments to align with the NIST Special

Publication 800-30.

21. We recommend that USDA Forest Service

management establish controls to facilitate

adherence to the USDA Forest Service’s SSP

policies and procedures and document SSPs in

accordance with agency, USDA, and federal

guidelines. All SSPs should be revised to align

with NIST Special Publication 800-18.

Additionally, USDA Forest Service should

complete, approve, communicate, and establish

controls to facilitate adherence to Forest Service

Computer Incident Response Team (CIRT)

policies and procedures, and provide guidance so

personnel are aware of the guidelines and their

roles.

Open

Open

Open

C-38
Exhibit III

 (Continued)

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-3-FM January 2004

policies and procedures, and provide guidance so

personnel are aware of the guidelines and their

roles.

22. USDA Forest Service management should develop

and implement enterprise-wide system architecture

standards for Internet-facing services. These

standards should ensure agency compliance with

USDA regulations and should address firewall

configuration, proper use of de-militarized zones,

and limiting the use of unsecured services to

ensure protection of internet-accessible data.

USDA Forest Service management should also

eliminate access to all unnecessary services from

the Internet and implement strong authenticated

access control to those services that are necessary.

23. It is recommended that management develop and

implement enterprise-wide policies and procedures

regarding software management and change

control. These policies and procedures should

address:

• Access restrictions over system software code

and program libraries;

• Emergency change procedures;

• FSM 6600, subsection 6683.6, ‘Hardware and

Systems Software Maintenance’;

• CMB Charter;

• Approval process for changes that fall below the

CMB watermark;

• Installation of the latest software versions,

service packs, and security patches (and removal

of out-dated versions);

• Software configuration standards (with defined

images that specify what software applications

should be in use and on what kinds of machines

these applications should be installed on); and

• Use of automated tools to detect and eliminate

unused or unauthorized applications (including

the use of ISS Internet Scanner in accordance

with USDA Cyber Security Policy CS-007).

Additionally, USDA Forest Service management

should review all systems for the presence of

outdated software or services, missing critical

patches and/or updates, and improperly configured

servers or systems. Forest Service should then

proceed to update or delete any identified outdated

software, test and install applicable patches or

updates, configure servers and systems in

accordance with Forest Service technical bulletins

and federal criteria, and remove any unneeded

services.

Open

Open

C-39
Exhibit III

 (Continued)

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-3-FM January 2004

updates, configure servers and systems in

accordance with Forest Service technical bulletins

and federal criteria, and remove any unneeded

services.

The USDA Forest Service

Needs to Continue to Improve

its Internal Controls over its

Reconciliation and

Management of Fund Balance

with Treasury

(2006 Reportable Condition;

2005 Reportable Condition;

2004 Reportable Condition;

2003Reportable Condition)

27. We recommend that the USDA Forest Service

perform complete and timely resolution of

reconciling items for all Fund Balance with

Treasury accounts within 60 days of report [FMS

6652 and Government-wide Accounting System

Reports] receipt.

Open

The Design and/or

Implementation of Controls

Related to the Accurate

Recording of Personal

Property Transactions Need

Improvement

(2006 Reportable Condition;

2005 Reportable Condition;

2004 Reportable Condition;

2003 Reportable Condition)

30. We recommend that the USDA Forest Service WO

improve its monitoring of reporting units for

compliance with the USDA Forest Service

property transaction recording policies.

Open

Postings of Certain

Transactions Needs to Contain

the Proper Reference Data to

Link Related Transactions

(2006 Reportable Condition;

2005 Reportable Condition;

2004 Reportable Condition;

2003 Reportable Condition)

34. We recommend that the USDA Forest Service

develop a methodology to link transactions that

are currently in the financial systems.

35. We recommend that the USDA Forest Service

work with the USDA and FFIS contractor to

incorporate edit checks that would disallow

processing of transactions that do not provide the

required data.

36. We recommend that the USDA Forest Service

establish direction and quality assurance protocols

to ensure that appropriate data is entered in the

system.

Open

Open

Open

Compilation of the USDA

Forest Service’s RSI Needs

Improvement

(2006 Reportable Condition;

2005 Reportable Condition;

2004 Reportable Condition;

2003 Reportable Condition)

37. We recommend that the USDA Forest Service

revise its current control structure for data collection

and reporting of RSI to ensure the timeliness and

completeness of the reported information.

Open

C-40
Exhibit III

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-3-FM January 2004

The USDA Forest Service

ATSA Application Controls

Need Improvement

(2005 Reportable Condition;

2004 Reportable Condition;

2003 Reportable Condition)

38. We recommend that USDA Forest Service

management update the SSP for the ATSA system.

SSP should be based on the ATSA Risk

Assessment results; and be approved by

management and reviewed and updated at least

annually to reflect any changes to the current

environment and the risks associated with those

changes. USDA Forest Service management

should incorporate in the ATSA SSP required

management review of activity logs. Currently, the

Security Plan identifies that audit trails exist but

does not indicate the frequency with which they

should be reviewed and who should review them.

These reviews should be performed on a consistent

basis regardless of whether potential unusual

activity is detected. USDA Forest Service should

also take steps to ensure required management

reviews of ATSA activity logs are carried out and

according to the updated security plan.

Additionally, USDA Forest Service should modify

the ATSA front end application to capture user

activities.

Closed

C-41
Exhibit IV

 (Continued)

COMPLIANCE AND OTHER MATTERS

The USDA Forest Service Does Not Obligate all Transactions Required by Appropriations Law

Obligation testwork performed over approximately 183 transactions disclosed that 74 transactions1were not

obligated as required by appropriation law prior to payment. The transactions that were not obligated included

temporary travel and reoccurring utility type transactions.

Due to the USDA Forest Service’s current system limitations, the USDA Forest Service can not obligate

temporary travel without a consider effort that would exceed expected benefits. The USDA Forest Service is

in process of migrating to a new travel system that will allow for the obligation of temporary travel

transactions. For other transactions not obligated, several USDA Forest Service offices did not obligate these

transactions because of the variability in determining the estimated cost for these types of transactions.

The Government Accountability Office (GAO), publication GAO/OGC-92-13, Appropriations Law, defines

an obligation in very general terms as, “an action that creates a liability or definite commitment on the part of

the government to make a disbursement at some later time. The obligation takes place when the definite

commitment is made, even though the actual payment may not take place until the following fiscal year.”

Furthermore, GAO’s Appropriations Law cites 9 criteria for recording obligations. When one criterion is met,

the agency not only may, but also must record that transaction as an obligation. Criterion 7 addresses travel

expenses. With regard to the timing, Appropriation Law states that, “the obligation is not incurred until the

travel is actually performed or until the ticket is purchased.” While the precise amount of the liability should

be recorded, the precise amount is not always known immediately. When this takes place, “the obligation

should be recorded on the basis of the agency’s best estimate.”

Without obligating all required transactions, obligations are understated at any one point in time. Also, as

existing obligations are used in determining accruals, these types of unobligated transactions are not

considered in the accrual determination process.

We continue to recognize the need for the USDA Forest Service to obligate all transactions as reported in

prior year recommendation 8 of Audit Report No. 08401-4-FM.

The USDA Forest Service’s Systems Do Not Comply with FFMIA of 1996

Federal Accounting Standards

Instances of FFMIA non-compliance relating to compliance with applicable Federal accounting standards

were identified during the fiscal year 2005 audit.

The following table lists those Statements of Federal Financial Accounting Concepts (SFFAC) and

Statements of Federal Financial Accounting Standards (SFFAS) that the USDA Forest Service did not

comply with during the audit period.

 1

 The 40% error rate would not be a true representation of the error rate to the population sampled. The 40% error rate is

skewed as a result of the type of statistical sampling used for audit testwork.

C-42
Exhibit IV

 (Continued)

FFMIA Non-compliance with Federal Accounting Standards

SFFAS/SFFAC

Number Accounting Deficiencies Noted

SFFAC 2  Unliquidated Obligation errors

 Preparing proper note disclosures (e.g., dedicated collections,

Statement of Budgetary Resources to President’s Budget

reconciliation)

 Not timely assessing the impact of abnormal balances

SFFAS 5  Incorrect accruals

SFFAS 7  Errors with recording timber and non-timber revenue

SFFAS 8  Improper stewardship reporting

Although the USDA Forest Service continues to improve its accounting operations, deficiencies still exist in

the processing of various transactions. The deficiencies noted in the above table resulted in additional time

and effort of the USDA Forest Service to research and resolve the deficiency.

We continue to recognize the need for the USDA Forest Service to identify business process causes for

noncompliance with accounting standards as reported in prior year recommendation 9 of Audit Report No.

8401-4-FM. In addition, we also recognize the need for the USDA Forest Service to develop a remediation

plan as reported in prior year recommendation 10 of Audit Report No. 08401-4-FM.

Financial Management Systems

As noted in our material weakness on the general controls environment, the USDA Forest Service did not

have policies and procedures for C&A until July 2006. Due to the late implementation of the C&A policies

and procedures, we were not able to evaluate the current year C&A packages. During FY 2005 we noted that

the USDA Forest Service did not fully comply with the requirements of OMB Circular No. A-130,

Management of Federal Information Resources. The USDA Forest Service systems that were impacted by

our FY 2005 testwork were Travel, Connect Human Resources (HR), INFRA, ATSA, and Paycheck 7

applications and their general support environment. A certification and accreditation that is fully compliant

with OMB Circular A-130 is a requirement for systems to comply with FFMIA.

We continue to recognize the need for the USDA Forest Service to implement its issued policies and

procedures to ensure that its system certification and accreditations are comprehensive and accurate as

reported in prior recommendation 1 of Audit Report No. 08401-3-FM.

Compliance with the United States Standard General Ledger

During our FY 2006 audit, we noted the following deficiencies in the USDA Forest Service’s standard

general ledger posting:

• EMIS is used to manage working capital fund equipment which consists of computer hardware and

vehicles. The system does not record depreciation at the equipment transaction level using the SGL. It

records depreciation by unit monthly at the summary level in the USDA Forest Service general ledger.

C-43
Exhibit IV

• USDA Forest Service capitalized lease and internal use software work in process transactions are not

recorded in the general ledger at the transactional level. Instead transactions are summarized from EMIS

and entered in the general ledger at the organizational level. Instead, they are maintained in off-line

spreadsheets and then recorded in the general ledger only at year-end closing.

• During testwork over general ledger account series 57XX, it was note that the USDA Forest Service

improperly debited 1010, Fund Balance with Treasury, and credited 3102, Unexpended AppropriationsTransfers-In, to record Non-expenditure financing sources. Instead, FS should have credited general ledger

account 5755, Non-expenditure Financing Sources-Transfers-In.

• During testwork over expenditures, it was noted that for stewardship land acquisitions, the USDA Forest

Services improperly debits 6100, Operating Expenses/Program Expenses instead of debiting 6908,

Stewardship Land Acquisition (Nonproduction Cost). At the end of the year FS transfers the total

stewardship land activity from general ledger account 6100 to 6908. This occurs because USDA current

doesn’t have a posting model at the transactional level to accommodate this business process. Because this

process requires manual involvement in increases the chances for human error. During FY 2006, USDA

Forest Service did not move approximately $2.2 million from general ledger account 6100 to 6908.

Recommendation Number 6:

We recommend that the USDA Forest Service develop posting models to appropriately record Non-expenditure

financing sources-transfers-in and stewardship land acquisitions.

C-44
Exhibit V

 (Continued)

STATUS OF PRIOR YEAR’S NONCOMPLIANCE FINDINGS AND OTHER MATTERS

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-6-FM December 2005

(Replaced prior Audit Report: USDA OIG Audit Report No. 08401-5-FM)

Reported Condition Recommendation Status

The USDA Forest

Service May Not be

in Compliance with

31 USC 1517

11. We recommend that the USDA Forest Service

fully investigate the circumstances surrounding this

issue and obtain appropriate legal advice from the

USDA Office of the General Counsel.

Closed

The USDA Forest

Service’s Systems Do

Not Comply with the

Federal Financial

Management

Improvement Act

(FFMIA)

(2006 Noncompliance)

12. We recommend that the USDA Forest Service

comply with recommendation 1 of this report as

well as develop systems and methodologies that

comply with the SGL at the transactional level.

Open

C-45
Exhibit V

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-4-FM November 2004

Reported Condition Recommendation Status

The USDA Forest

Service Does not

Obligate All

Transactions as

Required by

Appropriation Law

(2006 noncompliance; 2005

non-compliance;

2004 noncompliance)

8. We recommend that the USDA Forest Service

management develop policy and procedures to

obligate funds for transactions as required by

Appropriations Law.

Open

Instances of NonCompliance with

FFMIA were

Identified Related to

Federal Accounting

Standards

(2006 noncompliance; 2005

non-compliance;

2004 noncompliance)

9. We recommend that the USDA Forest Service

management identify the business process causes for

the noted instances of non-compliance, develop

adequate policies and procedures, and if necessary,

modify existing policies and procedures to ensure

that transactions are processed and reported in

accordance with Federal accounting standards.

10. We recommend that the USDA Forest Service

management develop a remediation plan within the

required time frames that includes extensive training

of personnel specifically addressing the deficiencies

noted above.

Open

Open

Open Conditions In this Table are Referenced In Exhibit I and II

USDA OIG Audit Report No. 08401-3-FM January 2004

Reported Condition Recommendation Status

The USDA Forest

Service Systems are

Not Compliant with

Federal Financial

Management System

Requirements

(2005 noncompliance; 2003

non-compliance.

1. We recommend that the USDA Forest

Service, working with the NFC, as necessary,

take steps to certify and accredit the ATSA,

and Paycheck 7 systems and their general

support environment or replace these legacy

systems.

Open

C-46
C-47
2006 2005

Assets:

Intragovernmental:

Fund Balance with Treasury (Note 2) $ 3,877 $ 4,187

Investments 5 5

Accounts Receivable, Net (Note 3) 45 181

Total Intragovernmental 3,927 4,373

Cash and Other Monetary Assets 1 2

Accounts Receivable, Net (Note 3) 209 88

General Property, Plant, and Equipment (PP&E), Net (Note 4) 3,585 3,695

Other 19 13

Total Assets $ 7,741 $ 8,171

 Stewardship PP&E (Note 5)

Federal Employee Benefits (Notes 6 & 7) $ 67 $ 65

Other (Note 8) 137 279

Total Intragovernmental 204 344

Accounts Payable 55 134

Federal Employee Benefits (Notes 6 & 7) 331 341

Environmental and Disposal Liabilities 53 17

Other (Note 8) 1,684 1,190

Total Liabilities (Note 6) 2,327 2,026

Commitments and Contingencies (Note 8)

Unexpended Appropriations 1,792

Unexpended Appropriations - other funds 1,054

Cumulative Results of Operations 4,353

Cumulative Results of Operations - earmarked funds (Note 10) 1,303

Cumulative Results of Operations - other funds 3,057

Total Net Position 5,414 6,145

Total Liabilities and Net Position $ 7,741 $ 8,171

(in millions)

U.S. Department of Agriculture

Forest Service

As of September 30, 2006 and 2005

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

Liabilities:

Intragovernmental:

Net Position:

C-48
2006 2005

Total Gross Costs $ 6,937 $ 5,831

Total Earned Revenue 1,034 789

Net Cost of Operations $ 5,903 $ 5,042

(in millions)

Program Costs (Note 11):

U.S. Department of Agriculture

Forest Service

CONSOLIDATED STATEMENTS OF NET COST

For the years ended September 30, 2006 and 2005

The accompanying notes are an integral part of these statements.

C-49
U.S. Department of Agriculture

Forest Service

CONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION

For the years ended September 30, 2006 and 2005

(in millions)

FY 2006 FY 2005

Earmarked

Funds All Other Consolidated Consolidated

(Note 10) Funds Total Total

Cumulative Results of Operations:

Beginning Balance $ 1,533 $ 2,820 $ 4,353 $ 4,091

Budgetary Financing Sources:

 Appropriations Used (2) 5,460 5,458 4,832

 Non-Exchange Revenue - (16) (16) 1

 Donations and Forfeitures of Cash - - - 1

 Transfers - In/Out without Reimbursement (28) 188 160 184

Other Financing Sources (Non-Exchange):

 Donations and Forfeitures Of Property - - - 31

 Transfers without Reimbursement - 1 1 -

 Imputed Financing - 303 303 247

 Other 4 - 4 8

Total Financing Sources (26) 5,936 5,910 5,304

Net Cost of Operations (204) (5,699) (5,903) (5,042)

Net Change (230) 237 7 262

Cumulative Results of Operations 1,303 3,057 4,360 4,353

Unexpended Appropriations:

Beginning Balance (2) 1,794 1,792 1,511

Budgetary Financing Sources:

 Appropriations Received - 4,632 4,632 5,030

 Appropriations Transfer - In/Out - 96 96 146

 Other Adjustments (rescissions, etc.) - (8) (8) (63)

 Appropriations Used 2 (5,460) (5,458) (4,832)

 Total Budgetary Financing Sources 2 (740) (738) 281

Total Unexpended Appropriations - 1,054 1,054 1,792

Net Position $ 1,303 $ 4,111 $ 5,414 $ 6,145

 The accompanying notes are an integral part of these statements. 

C-50
2006 2005

Budgetary Resources:

Unobligated balance, brought forward, October 1 $ 2,429 $ 1,738 

Recoveries of prior year unpaid obligations 78 169 

Budget authority:

Appropriations 5,362 5,812 

Spending Authority from offsetting collections:

Earned:

Collected 666 448 

Change in receivables from Federal sources (21) 12 

Change in unfilled customer orders:

Advance received 19 3 

Without advance from Federal Sources 36 72 

Expenditure transfers from trust funds 159 1 

Subtotal 6,221 6,348

Nonexpenditure transfers, net 3 51 

Permanently not available (65) (67)

Total Budgetary Resources (Note 14) $ 8,666 $ 8,239

Status of Budgetry Resources:

Obligations incurred: (Note 13)

Direct $ 6,382 $ 5,545 

Reimbursable 475 265 

Subtotal 6,857 5,810

Unobligated balance-apportioned 1,052 1,804 

Unobligated balance not available 757 625 

Total status of budgetary resources (Note 14) $ 8,666 $ 8,239

Change in Obligated Balance:

Obligated balance, net

Unpaid obligations, brought forward, October 1 $ 1,979 $ 1,827 

Less: Uncollected customer payments from 

Federal sources, brought forward October 1 (418) (334)

Total unpaid obligated balance, net 1,561 1,493

Obligations incurred net 6,857 5,810

Less: Gross outlays (6,375) (5,489)

Less: Recoveries of prior year unpaid obligations (78) (169)

Change in uncollected customer payments from Federal sources (15) (84)

Obligated balance, net, end of period

Unpaid obligations (Note 15) 2,383 1,979 

Less: Uncollected customer payments from Federal sources (433) (418)

Total, unpaid obligated balance, net, end of period $ 1,950 $ 1,561

Net Outlays:

Net Outlays:

Gross outlays $ 6,375 $ 5,489

Less: Offsetting collections (844) (451)

Less: Distributed offsetting receipts (457) (426)

Net Outlays $ 5,074 $ 4,612

(in millions)

The accompanying notes are an integral part of these statements.

U. S. Department of Agriculture

Forest Service

COMBINED STATEMENTS OF BUDGETARY RESOURCES

For the years ended September 30, 2006 and 2005

C-51
2006 2005

Resources Used to Finance Activities:

Budgetary Resources Obligated:

 Obligations incurred $ 6,857 $ 5,810

 Less: Spending authority from offsetting collections and recoveries 937 705

 Obligations net of offsetting collections and recoveries 5,920 5,105

 Less: Offsetting receipts 457 426

 Net obligations 5,463 4,679

Other Resources:

 Donations and forfeitures of property - 31

 Transfers in/out without reimbursement 1 -

 Imputed financing from costs absorbed by others 303 247

 Other 4 8

 Net other resources used to finance activities 308 286

Total resources used to finance activities 5,771 4,965

Resources Used to Finance Items not Part of the Net Cost of Operations:

 Change in budgetary resources obligated for goods, 

 services and benefits ordered but not yet provided (89) 7

 Resources that fund expenses recognized in prior periods (85) (29)

 Other budgetary offsetting collections and receipts that do not affect 

 net cost of operations 64 65

 Resources that finance the acquisition of assets (135) (164)

 Trust fund repayment - (149)

 Other resources or adjustments to net obligated resources that do not 

 affect the net cost of operations (59) (53)

 Total resources used to finance items not part of the net cost of operations (304) (323)

 Total resources used to finance the net cost of operations 5,467 4,642

Components of the Net Cost of Operations that will not Require or Generate 

Resources in the Current Period:

 Components Requiring or Generating Resources in Future Periods (Note 16):

 Increase in annual leave liability 21 -

 Increase in environmental and disposal liability 36 10

 Increase in exchange revenue receivable from the public (12) -

 Increase in accrued liability for payments to states 20 -

 Other 7 29

 Total components of Net Cost of Operations that will require or 72 39

 generate resources in future periods

Components not Requiring or Generating Resources:

 Depreciation and amortization 255 268

 Revaluation of assets or liabilities 3 -

 Allocation transfers (Note 17) 150 111

 Bad debt expense and other (44) (18)

 Total components of net cost of operations that will not require or

 generate resources 364 361

 Total components of net cost of operations that will not require or 

 generate resources in the current period 436 400

 Net Cost of Operations $ 5,903 $ 5,042

(in millions)

U.S. Department of Agriculture

Forest Service

CONSOLIDATED STATEMENTS OF FINANCING

For the years ended September 30, 2006 and 2005

C-52
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES 

A. REPORTING ENTITY 

The USDA Forest Service was established on February 1, 1905, as an agency of the United States 

Federal Government within the U.S. Department of Agriculture (USDA), for the purpose of maintaining 

and managing the Nation's forest reserves. It operates under the guidance of the Under Secretary for 

Natural Resources and Environment. The USDA Forest Service’s policy is implemented through nine 

regional offices, six research offices, one State and Private Forestry area office, the Forest Products 

Laboratory and the International Institute of Tropical Forestry, with 868 administrative units functioning 

in 46 states, Puerto Rico, and the Virgin Islands. 

The USDA Forest Service's mission includes the four major segments described below: 

• National Forests and Grasslands - Protection and management of an estimated 193 million acres 

(unaudited) of National Forest System (NFS) land that includes 34.8 million acres (unaudited) of 

designated wilderness areas. In addition, the USDA Forest Service partners with other nations 

and organizations to foster global natural resource conservation and sustainable development of 

the world’s forest resources; 

• Forest and Rangeland Research - Research and development of forest and rangeland 

management practices to provide scientific and technical knowledge for enhancing and 

protecting the economic productivity and environmental quality of the 1.6 billion acres 

(unaudited) of forests and associated rangelands in the United States; 

• State and Private Forestry – Cooperation with and assistance to state and local governments, 

tribal governments, forest industries, and private landowners to help protect and manage nonFederal forests and associated rangeland and watershed areas; and 

• Wildland Fire Management – Protection of life, property, and natural resources on an estimated 

193 million acres (unaudited) of NFS lands, and extending to an additional 20 million acres 

(unaudited) of adjacent state and private lands. 

The accompanying consolidated and combined financial statements of the USDA Forest Service account 

for all funds under the USDA Forest Service's control. Substantially all assets are considered “entity 

assets” and are available for use in the USDA Forest Service’s operations. 

C-53
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

B. BASIS OF PRESENTATION AND ACCOUNTING 

The consolidated balance sheets, statements of net cost, statements of changes in net position, and 

statements of financing, and the combined statements of budgetary resources (hereinafter referred to as 

the “financial statements”) were prepared to report the financial position, net costs, changes in net 

position, budgetary resources, and reconciliation of net costs to budgetary obligations of the USDA 

Forest Service. The financial statements have been prepared from the books and records of the USDA 

Forest Service in accordance with accounting principles generally accepted in the United States of 

America and in accordance with the Office of Management and Budget (OMB) Circular A-136, 

Financial Reporting Requirements, revised July 24, 2006. All material intra-agency transactions and 

balances have been eliminated for presentation on a consolidated basis. However, the Statements of 

Budgetary Resources are presented on a combined basis in accordance with OMB Circular A-136. 

These financial statements present proprietary and budgetary information. The accounting structure of 

Federal agencies is designed to reflect both accrual and budgetary accounting transactions. Under the 

accrual method of accounting, revenues are recognized when earned, and expenses are recognized when 

incurred, without regard to receipt or payment of cash. The budgetary accounting principles, on the 

other hand, are designed to recognize the obligation of funds according to legal requirements, which in 

many cases is prior to the occurrence of an accrual-based transaction. The recognition of budgetary 

accounting transactions is essential for compliance with legal constraints and controls over the use of 

Federal funds. 

 

The USDA Forest Service recognizes budgetary resources as assets when cash (funds held by Treasury) 

is made available through the U.S. Department of the Treasury General Fund warrants and other 

transfers. In addition to appropriated funds, the USDA Forest Service is authorized by law to retain 

specific earned revenues primarily from sales of forest products and services and to spend these monies 

on resource management activities identified in the governing legislation. Some examples of the USDA 

Forest Service’s earned revenues are monies collected from timber sales or recreation fees. The USDA 

Forest Service, pursuant to OMB directives, prepares additional financial reports that are used to 

monitor and control the USDA Forest Service’s use of budgetary resources. 

C. FUND BALANCE WITH THE U.S. TREASURY 

The U.S. Department of the Treasury processes cash receipts and disbursements on behalf of the USDA 

Forest Service. Funds on deposit with the U.S. Department of the Treasury are primarily appropriated, 

trust and other fund types such as special funds that are available to pay current liabilities and finance 

authorized purchase commitments. 

 D. OTHER ASSETS 

Payments made by the USDA Forest Service in advance of the receipt of goods and services are 

recorded as advances at the time of payment and recognized as expenditures/expenses when the related 

goods and services are received. 

C-54
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

E. GENERAL PROPERTY, PLANT, AND EQUIPMENT

General property, plant, and equipment (PP&E) includes real and personal property used in normal 

business operations. Real and personal property is recorded at cost or estimated fair value and must 

have an estimated useful life of 2 years or more. The USDA Forest Service capitalization threshold for 

real and personal property is $25 thousand or more. Internal use software is capitalized in accordance 

with Statement of Federal Financial Accounting Standard (SFFAS) No. 10, Accounting for Internal Use 

Software, if the fair value meets or exceeds $100 thousand. The USDA Forest Service recognizes 

liabilities for capital leases in accordance with SFFAS No. 6 Accounting for Property Plant and

Equipment. Under SFFAS No. 6 the cost of general PP&E acquired under a capital lease is equal to the 

amount recognized as a liability for the capital lease at its inception (net present value of the lease 

payments) unless the net present value exceeds the fair value of the asset. 

F. LIABILITIES 

Liabilities represent the amount of monies or other resources that are likely to be paid by the USDA 

Forest Service as a result of a transaction or event that has occurred. However, the USDA Forest 

Service cannot satisfy a liability without an appropriation. Liabilities for which there is no 

appropriation and for which there is no certainty that an appropriation will be enacted, are classified as 

unfunded liabilities. The U.S. government, acting in its sovereign capacity, can abrogate liabilities. 

G. ENVIRONMENTAL AND DISPOSAL LIABILITIES 

The USDA Forest Service’s estimated government-related environmental liabilities are principally 

associated with the future remediation of certain landfills, buildings, and other related sites in 

accordance with all applicable federal, state and local laws. Such estimates do not consider the effect of 

future inflation, new technology, laws or regulations. 

H. COMMITMENTS AND CONTINGENCIES 

The USDA Forest Service is a party in various administrative proceedings, legal actions, environmental 

lawsuits, and claims. In the opinion of the USDA Forest Service management and its legal counsel, the 

ultimate resolution of most of these proceedings is currently indeterminable. Where determinable, the 

full value of probable amounts related to unsettled litigation and other claims against the USDA Forest 

Service is recognized as a liability and expense. Expected amounts related to litigation and other claims 

include amounts to be paid by the Department of the Treasury on behalf of the USDA Forest Service 

from a permanent appropriation for judgments and from other appropriations. 

C-55
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

I. WORKERS’ COMPENSATION LIABILITY 

The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection to 

Federal civilian employees injured on the job, employees who have incurred a work related occupational 

disease and beneficiaries of employees whose death is attributable to a job-related injury or occupational 

disease. Benefit claims incurred for the USDA Forest Service’s employees under FECA are 

administered by the U.S. Department of Labor (DOL). The USDA uses USDA Forest Service funds to 

reimburse the DOL for FECA claims. Consequently, the USDA Forest Service recognizes a liability for 

this compensation comprised of: (1) an accrued liability that represents money owed for claims paid by 

the DOL through the current fiscal year and (2) an actuarial liability that represents the expected liability 

for USDA Forest Service approved compensation cases to be paid beyond the current fiscal year. 

J. EMPLOYEE ANNUAL, SICK, AND OTHER LEAVE 

Annual and other vested leave such as compensatory, credit hours, and restored leave is accrued as it is 

earned, and the accrual is reduced as leave is taken. Each quarter, the balance in the accrued annual 

leave account is adjusted to reflect the latest pay rates and unused hours of leave. Sick leave is 

generally nonvested. Funding will be obtained from future financing sources to the extent that current 

or prior year appropriations are not available to fund annual and other types of vested leave earned but 

not taken. Sick leave and other types of nonvested leave are expensed when used. 

K. PENSION AND OTHER RETIREMENT BENEFITS 

USDA Forest Service employees participate in either the Civil Service Retirement System (CSRS) or 

the Federal Employees Retirement System (FERS). The employees who participate in CSRS are 

beneficiaries of the USDA Forest Service’s matching contribution, equal to 8.51 percent of pay, 

distributed to their annuity account in the Civil Service Retirement and Disability Fund. 

FERS went into effect on April 1, 1987, pursuant to Public Law 99-335. FERS and Social Security 

automatically cover most employees hired after December 31, 1983. Employees hired prior to April 1, 

1984 could elect to join FERS and Social Security, or to remain in CSRS. FERS offers a savings plan to 

which the USDA Forest Service automatically contributes one percent of pay and matches any 

employee contribution up to an additional four percent of pay. For FERS participants, the USDA Forest 

Service also contributes the employer’s matching share for Social Security. 

The USDA Forest Service recognizes the imputed cost of pension and other health and life insurance 

retirement benefits during the employees’ active years of service. Office of Personnel Management 

(OPM) actuaries determine pension cost factors by calculating the value of pension benefits expected to 

be paid in the future and communicate these factors and information regarding the full cost of health and 

life insurance benefits to the USDA Forest Service for current period expense reporting. 

C-56
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

L. REVENUES AND OTHER FINANCING SOURCES 

The USDA Forest Service is funded principally through Congressional appropriations and other 

authorizations in the Budget of the United States. The USDA Forest Service receives annual, multi-year 

and no-year appropriations that are used, within statutory limits, for operating and capital expenditures. 

Other funding sources are derived through reimbursements for services performed for other Federal and 

non-federal entities, sale of goods to the public, gifts from donors, cost-share contributions and interest 

on invested amounts.

 

Appropriations are used at the time the related program or administrative expenses are incurred or when 

the appropriations are expended for capital property and equipment. Other revenues are recognized as 

earned when goods have been delivered or services rendered. 

In accordance with Federal government accounting guidance, the USDA Forest Service classifies 

revenue as either “exchange revenue” or “non-exchange revenue.” Exchange revenue arises from 

transactions that occur when each party to the transaction sacrifices value and receives value in return. 

An example of exchange revenue is the income from the sale of forest products. In some cases, the 

USDA Forest Service is required to remit exchange revenue receipts to the U.S. Department of the 

Treasury. In other instances the USDA Forest Service is authorized to use all, or a portion, of its 

exchange revenues for specific purposes. Non-exchange revenue is revenue the Federal government is 

able to demand or receive because of its sovereign powers. Penalties and cash donations received from 

private citizens and organizations are examples of non-exchange revenue. 

The USDA Forest Service reports the full cost of products and services generated from the consumption 

of resources. Full cost is the total amount of resources used to produce a product or provide a service 

unless otherwise noted. In accordance with SFFAS No.7, Accounting for Revenue and Other Financing 

Sources, the USDA Forest Service’s pricing policies are set to recover full cost except where mandated 

by law or for the public good, such as in the case of grazing fees. Also, costs and exchange revenue are 

disclosed in Note 11 as intragovernmental or with the public based on the related source or customer, 

respectively. 

M. IMPUTED FINANCING 

The USDA Forest Service recognizes as imputed financing the amount of accrued pension and postretirement benefit expenses for current employees. The assets and liabilities associated with such 

benefits are the responsibility of the administering agency, the OPM. Amounts paid from the Treasury 

Judgment Fund in settlement of claims or court assessments against the USDA Forest Service are also 

recognized as imputed financing. Imputed financing for the years ended September 30, 2006 and 2005 

was $303 million and $247 million, respectively. 

 

C-57
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

N. STATEMENTS OF BUDGETARY RESOURCES 

The USDA Forest Service receives four transfer allocations, as the child in a parent-child relationship, 

from appropriations of other agencies. The parent is the agency to which the funds were appropriated; 

the child is the agency receiving the funds from the parent to carry out some or all of the work. The 

parent agency has the budgetary reporting responsibility. The USDA Forest Service is the child for the 

four following accounts: 

Parent Agency Treasury Symbol Name

Department of Labor Job Corps Civilian Conservation 

Department of 

Transportation 

Federal Aid to Highways 

Department of Interior Southern Nevada Public Land 

Management 

Department of Interior Permit Processing Fund 

In accordance with OMB Circular A-136, the USDA Forest Service does not include these allocation 

transfers in its Statements of Budgetary Resources. However, as the transfer allocations are considered 

material, the proprietary financial activity is reported in the Balance Sheets, Statements of Net Cost, 

Statements of Changes in Net Position, and as a reconciling item in the Statements of Financing. 

O. USE OF ESTIMATES 

Management has made certain estimates and assumptions when reporting assets, liabilities, revenue, and 

expenses. Actual results could differ from these estimates. Significant estimates underlying the 

accompanying financial statements include the majority of accrued liabilities, environmental and 

disposal liabilities, and Federal Employee Benefits liabilities. 

C-58
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

P. EARMARKED FUNDS 

In accordance with SFFAS 27, Identifying and Reporting Earmarked Funds, which was effective in FY 

2006, the USDA Forest Service has reported the earmarked funds for which it has program management 

responsibility, using the following three criteria: 

1. A statute committing the Federal Government to use specifically identified revenues and other 

financing sources only for designated activities, benefits, or purposes; 

2. Explicit authority for the earmarked fund to retain revenues and other financing sources not used 

in the current period for future use to finance the designated activities, benefits, or purposes; and 

3. A requirement to account for and report on the receipt, use, and retention of the revenues and 

other financing sources that distinguishes the earmarked fund from the Government’s general 

revenues. 

In accordance with SFFAS No. 27, the USDA Forest Service did not restate the prior period columns of 

the financial statements and related disclosures. Previous to FY 2006, these funds were considered to be 

dedicated collections. 

See Note 10 for specific required disclosures related to the USDA Forest Service’s earmarked funds as 

of and for the year ended September 30, 2006. See Note 18 for specific required disclosures related to 

the USDA Forest Service’s dedicated collections as of and for the year ended September 30, 2005. 

Q. RECLASSIFICATIONS 

Certain reclassifications were made to the fiscal year 2005 statements to conform to the current year’s 

presentation. 

 

C-59
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 2. FUND BALANCE WITH TREASURY

Funds with the U.S. Department of the Treasury are primarily appropriated (general and special funds), 

revolving (working capital fund), and trust funds that are available to pay current liabilities and finance 

authorized purchase commitments. The category of other fund types includes deposit and clearing 

accounts. It is the USDA Forest Service’s policy to ensure the Fund Balance with Treasury reported on 

the Balance Sheets is consistent with the records of the U.S. Department of the Treasury. 

Fund Balance with Treasury as of September 30, 2006 and 2005 consisted of the following: 

 

2006 2005

(1) Trust Funds $451 $676

(2) Revolving Funds 123 128

(3) Appropriated Funds 3,265 3,342

(4) Other Fund Types 38 41

$3,877 $4,187

(1) Unobligated Balance

(a) Available $1,052 $1,804

(b) Unavailable 757 625

(2) Obligated Balance not yet Disbursed 1,950 1,561

(3) Other Balances 118 197

$3,877 $4,187

B. Status of Funds:

Total

(in millions)

A. Fund Balances:

Total

 

C-60
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 3. ACCOUNTS RECEIVABLE, NET 

Intragovernmental accounts receivable represent amounts due under reimbursable and cooperative 

agreements with Federal entities for services provided by the USDA Forest Service. An allowance for 

receivables deemed uncollectible is not established for these amounts because monies due from other 

Federal entities are considered fully collectible. As of September 30, 2006 and 2005, the 

intragovernmental accounts receivable balances were $45 million and $181 million, respectively. 

Non-intragovernmental accounts receivable are comprised primarily of timber harvest and 

reimbursements and refunds owed to the USDA Forest Service for fire prevention and suppression 

activities. An allowance for receivables deemed uncollectible is established against outstanding nonfederal accounts receivable, based on historical experience. Non-intragovernmental accounts receivable 

as of September 30, 2006 and 2005 consisted of the following: 

 

2006 2005 

Accounts Receivable $227 $158 

Allowance for Doubtful Accounts (18) (70)

Accounts Receivable, Net $209 $88 

(in millions)

C-61
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 4. GENERAL PROPERTY, PLANT, AND EQUIPMENT, NET 

Depreciation of PP&E for the USDA Forest Service is recorded on the straight-line method based on the 

estimated useful lives listed below. Capitalization thresholds are provided in Note 1, Section E. 

As of September 30, 2006 and 2005 the USDA Forest Service’s PP&E consisted of the following:

September 30, 2006 

(in millions) 

Property Class 

Estimated 

Useful 

Life 

(Years) Cost 

Accumulated 

Depreciation 

Book 

Value 

 

Personal Property 

Equipment 5 - 20 $752 ($563) $189 

Internal Use Software 5 134 (113) 21 

Internal Use Software in Development n/a 7 - 7 

Total Personal Property 893 (676) 217 

 

Real Property 

Land and Land Rights n/a 51 - 51 

Improvements to Land 10 - 50 4,979 (2,705) 2,274 

Construction in Progress n/a 311 - 311 

Buildings, Improvements and 

Renovations 30 803 (503) 300 

Other Structures and Facilities 15 - 50 1,510 (1,115) 395 

Assets Under Capital Lease 30 44 (16) 28 

Leasehold Improvements 10 11 (2) 9 

Total Real Property 7,709 (4,341) 3,368 

 

Total $8,602 ($5,017) $3,585 

C-62
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

September 30, 2005 

(in millions) 

Property Class 

Estimated 

Useful 

Life 

(Years) Cost 

Accumulated 

Depreciation Book Value 

 

Personal Property 

Equipment 5 - 20 $821 ($601) $220 

Internal Use Software 5 133 (95) 38 

Internal Use Software in Development n/a 6 - 6 

Total Personal Property 960 (696) 264 

 

Real Property 

Land and Land Rights n/a 50 - 50 

Improvements to Land 10 - 50 4,952 (2,590) 2,362 

Construction in Progress n/a 226 - 226 

Buildings, Improvements and 

Renovations 30 802 (480) 322 

Other Structures and Facilities 15 - 50 1,508 (1,070) 438 

Assets Under Capital Lease 30 40 (17) 23 

Leasehold Improvements 10 11 (1) 10 

Total Real Property 7,589 (4,158) 3,431 

 

Total $8,549 ($4,854) $3,695 

C-63
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 5. HERITAGE ASSETS AND STEWARDSHIP LANDS 

This note provides information on certain resources entrusted to the USDA Forest Service and certain 

stewardship responsibilities assumed by the USDA Forest Service. These resources and responsibilities 

are required to be referenced in the USDA Forest Service’s Balance Sheets and described below in 

accordance with SFFAS No. 29, Heritage Assets and Stewardship Land, which was effective in FY 

2006. 

 Stewardship Property, Plant, and Equipment (Stewardship PP&E) 

Stewardship PP&E are assets, the physical properties of which resemble those of the General PP&E that 

is traditionally capitalized in the financial statements. Due to the nature of these assets, however, 

valuation would be difficult and matching costs with specific periods would not be meaningful. 

Stewardship PP&E includes heritage assets and stewardship land. 

The mission of the USDA Forest Service is to sustain the health, diversity, and productivity of the 

Nation’s forests and grasslands to meet the needs of present and future generations. The USDA Forest 

Service also strives to achieve quality land management under the sustainable multiple-use management 

concept to meet the diverse needs of people. 

Heritage Assets 

Heritage assets are unique for their historical or natural significance, for their cultural, educational, or 

artistic importance, or for their significant architectural characteristics. The USDA Forest Service 

generally expects that these assets will be preserved indefinitely. 

The USDA Forest Service’s non-collection heritage assets are comprised primarily of historic and 

prehistoric sites located on national forest wilderness areas, primitive areas, national monument areas, 

and scenic river areas. Some heritage assets are listed on the National Register of Historic Places, and 

some are designated as National Historic Landmarks. Assets held at museums and universities are 

managed by those entities. Heritage assets that are not used for administrative or public purposes 

receive no annual maintenance. 

The USDA Forest Service uses the Condition Assessment Survey (CAS) method to describe the 

condition of its heritage assets. The CAS method is based on a 5-point scale for condition, where 1 

represents excellent; 2 is good; 3 is fair; 4 is poor; and 5 is very poor. Assets with a condition 

assessment level between 1 and 3 are defined as being suitable for public display. The USDA Forest 

Service’s heritage assets are in poor to fair condition. 

C-64
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

Stewardship Land 

Stewardship land consists primarily of the national forests and grasslands owned by the USDA Forest 

Service. Stewardship land is valued for its environmental resources, recreational and scenic value, 

cultural and paleontological resources, vast open spaces, and resource commodities and revenue 

provided to the Federal government, states, and counties. 

C-65
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 6. LIABILITIES NOT COVERED BY BUDGETARY RESOURCES 

Liabilities not covered by budgetary resources as of September 30, 2006 and 2005 consisted of the 

following: 

2006 2005

Intragovernmental:

Treasury Judgment Fund $14 $9

Federal Employee Benefits (Note 7) 67 65

Total Intragovernmental 81 74

Federal Employee Benefits (Note 7) 331 341

Annual Leave Liability 194 173

Contingent Liabilities 5 28

Accrued Liability for Payments to States 398 378

Environmental and Disposal Liabilities 53 17

Total Liabilities Not Covered by Budgetary Resources 1,062 1,011

Total Liabilities Covered by Budgetary Resources 1,265 1,015

Total Liabilities $2,327 $2,026

(in millions)

C-66
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 7. FEDERAL EMPLOYEE BENEFITS 

Federal Employees’ Compensation Act Liabilities: Liabilities under the Federal Employees’ 

Compensation Act (FECA) are incurred as a result of workers' compensation benefits that have accrued 

to employees but have not yet been paid by the USDA Forest Service. 

Workers' compensation benefits include the current and expected future liability for death, disability, 

medical, and other approved costs. The U.S. Department of Labor (DOL) actuarially determines the 

expected future liability for the U.S. Department of Agriculture as a whole, including the USDA Forest 

Service. The USDA Forest Service is billed annually as its claims are paid by the DOL. Payments to 

the DOL are deferred for two years so that the bills may be funded through the budget. Payments to the 

DOL are also recognized as an expense when billed and recorded in the Statements of Net Cost. The 

amounts of unpaid FECA billings constitute the accrued FECA payable.

The total components of accrued FECA payable as of September 30, 2006 and 2005 consisted of the 

following: 

 

2006 2005

Intragovernmental Federal Employee Benefits 

(Note 6) $67 $65

Federal Employee Benefits (Note 6) 331 341

Total $398 $406

(in millions)

C-67
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 8. OTHER LIABILITIES 

 

Non-Current Current Total Non-Current Current Total

Intragovernmental 

Employer Contributions & Payroll Tax - $ 14 $ 14 $ - $ - $ - $ 

Accrued Liabilities 14 105 119 - 101 101 

Advances from Others - 24 24 - - - 

Deposit Liabilities (34) (34) - - 87 87 

Custodial Liabilities - 14 14 - 57 57 

Other - - - 9 25 34 

Total Intragovernmental $ 123 14 $ 137 $ 9 $ 270 $ 279 $ 

Other 

Accrued Liabilities $ 916 - $ 916 $ - $ 575 $ 575 $ 

Advances from Others 44 44 - - - - 

Deposit Liabilities 73 73 - - - - 

Purchaser Road Credits 2 2 - - - - 

Accrued Liability for Payments to States - 398 398 - 378 378 

Annual Leave Liability 194 194 - - 173 173 

Contingent Liabilities - 5 5 28 - 28 

Custodial Liabilities 24 24 - - - - 

Capital Leases (Note 9) 2 28 21 26 2 23 

Other - - - - 13 13 

Total Other $ 1,653 31 $ 1,684 $ 49 $ 1,141 $ 1,190 $ 

Total Other and Intragovernmental Liabilities $ 1,776 45 $ 1,821 $ 58 $ 1,411 $ 1,469 $ 

(in millions)

2006 2005

As of September 30, 2006 and 2005, the USDA Forest Service’s major components of other liabilities 

are as follows: 

Accrued Liabilities: Intragovernmental accrued liabilities consist primarily of accruals for payroll and 

for receipt of goods and services. 

Deposit Liabilities: Deposit liabilities consist primarily of collections deposited in deposit funds and 

clearing accounts, including suspense accounts, awaiting disposition or reclassification. 

Custodial Liabilities: Custodial liabilities consist of amounts held in special receipt accounts that 

belong to non-USDA Forest Service entities. 

C-68
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

Accrued Liability for Payments to States: The Twenty-Five Percent Fund (Act of May 23, 1908, as 

amended) (16 U.S.C. 500), authorized the Payments to States, National Forest Fund program. This 

program requires revenue generated by the sale of goods and services on the national forests to be 

shared with the states for public schools and public roads in the county or counties in which the national 

forests are located. 

Contingent Liabilities: As of September 30, 2006, the USDA Forest Service had several legal actions 

pending. Based on information provided by legal counsel, management believes some adverse decisions 

are probable and approximately $5 million, related to such actions, has been accrued. The USDA Forest 

Service has a potential liability for approximately $14 million, related to claims where the amount or 

probability of judgment is uncertain. There are no estimated obligations related to cancelled 

appropriations for which there is a contractual commitment for payment. In addition, there are no 

contractual arrangements which may require future financial obligations. 

C-69
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 9. LEASE LIABILITIES 

The USDA Forest Service enters into leasing agreements through the General Service Administration 

(GSA) and through leasing authority delegated by GSA for general facilities (buildings and office 

space), equipment and land. Leases may include renewal options for periods of one or more years. 

Most leases are subject to cancellation upon certain funding conditions. The USDA Forest Service’s 

assets under capital lease as of September 30, 2006 and 2005 and future capital and operating lease 

agreement payments as of September 30, 2006, consisted of the following: 

2006 2005

Land, Buildings, Machinery, & Equipment $44 $40

Accumulated Amortization (16) (17)

Total $28 $23

Land & Buildings, Machinery 

& Equipment

Fiscal Year

Year 1 (2007) $7

Year 2 (2008) 7

Year 3 (2009) 7

Year 4 (2010) 7

Year 5 (2011) 7

After 5 Years 52

$87 

(54)

(5)

28

$28

-

(in millions)

 Fiscal Year

Land & Buildings, Machinery 

& Equipment

 Year 1 (2007) $36

 Year 2 (2008) 35

 Year 3 (2009) 33

 Year 4 (2010) 32

 Year 5 (2011) 30

 After 5 Years 246

$412

Capital Leases: 

(in millions)

Summary of Assets Under Capital Leases

Future Payments Due:

Total Future Lease Payments

Less: Imputed Interest

Less: Executory Costs 

 Subtotal

Total Future Lease Payments

Lease Liabilites covered by Budgetary Resources

Lease Liabilites not covered by Budgetary Resources

Operating Leases:

Future Payments Due:

C-70
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

 

NOTE 10. EARMARKED FUNDS 

In accordance with SFFAS 27, Identifying and Reporting Earmarked Funds, the USDA Forest Service 

administers certain earmarked funds, which are specifically identified revenues, often supplemented by 

other financing sources that remain available over time. These funds predominately finance the 

enhancement and maintenance of National Forest System lands including reforestation. Donations are 

handled on a cash basis and all other collections are accounted for on an accrual basis. The following is 

a list of earmarked funds and their base treasury symbols for which USDA Forest Service has program 

management responsibility. 

Treasury Account Symbols and Titles 

5004 Land Acquisition 5367 State, Private and International Forestry 

5008 National Forest Fund Receipts Land and Water Conservation Fund 

5010 Recreation Fees for Collection Costs 5462 Hardwood Technology Transfer and 

5072 Fees, Operation and Maintenance of Applied Research Fund 

 Recreation Facilities 5540 Stewardship Contracting Product Sales, 

5201 Payments to States, National Forest Fund Funds Retained 

5202 Timber Roads Purchaser Election 5573 Permit Processing Fund 

5203 Roads and Trails for States, National Forest Funds 5896 Payments to Counties, National 

5204 Timber Salvage Sales Grasslands 

5206 Expenses, Brush Disposal 8028 Cooperative Work, Forest Service 

5207 Range Betterment Fund 8029 Mount Saint Helens Highway 

5208 Acquisition of Lands for National Forests, Special Acts 8034 Gifts, Donations, and Bequests for 

5212 Construction of Facilities or Land Acquisition Forest and Rangeland Research 

5213 Payments to Minnesota (Cook, Lake and St. Louis 8039 Land Between the Lakes Trust Fund 

 Counties), National Forest Funds 8046 Reforestation Trust Fund 

5214 Licensee Program 8083 Federal Highway Trust Fund 

5215 Restoration of Forest Lands and Improvements 8203 Gifts and Bequests, Department of 

5216 Acquisition of Lands to Complete Land Exchanges Agriculture 

5217 Tongass Timber Supply Fund 

5219 Operation and Maintenance of Quarters 

5220 Resource Management Timber Receipts 

5223 Quinault Special Management Area 

5224 Strawberry Valley Land Transfer 

5225 Pacific Yew, Forest Service 

5232 Southern Nevada Public Land Management 

5260 Federal Land Disposal Account 

5264 Timber Sales Pipeline Restoration Fund 

5268 Recreation Fee Demonstration Program 

5277 MNP Rental Fee Account 

5278 Midewin National Tallgrass Prairie 

 Restoration Fund 

5360 Land Between the Lakes Management 

 Fund 

5361 Administration of Rights-of-Way and 

 Other Land Uses Fund 

5363 Valles Caldera Fund 

C-71
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

The following earmarked funds are authorized by specific legislative acts as permanent indefinite 

appropriations to USDA Forest Service: Recreation Fee Collection Costs, Brush Disposal, License 

Programs for Smokey Bear and Woodsy Owl, Restoration of Forest Lands and Improvements, Roads 

and Trails for States, National Forest Fund, Timber Road Purchaser Elections, Timber Salvage Sale 

Operations and Maintenance of Quarters. 

Financial information for the significant earmarked funds, identified by total asset value, is shown 

below: 

Earmarked Funds

As of and for the year ended September 30, 2006

(in millions)

 Cooperative 

Work 

 Payments to 

States, National 

Forest Fund 

 Recreation Fee 

Demonstration 

Program 

 Other 

Funds Total 

ASSETS 

Fund Balance with Treasury $412 $324 $133 $571 $1,440

Investments - - - 5 5 

Accounts Receivable, Net 4 - 2 34 40 

Advances To Others - - - 3 3 

General Property, Plant & Equipment, Net 18 4 4 89 115 

TOTAL ASSETS $434 $328 $139 $702 $1,603

LIABILITIES 

Accounts Payable $1 $1 $1 $1 $4

Other Liabilities 56 200 3 37 296 

TOTAL LIABILITIES 57 201 4 38 300 

Total Net Position 377 127 135 664 1,303 

TOTAL LIABILITIES AND NET POSITION $434 $328 $139 $702 $1,603

CHANGE IN NET POSITION 

Beginning Balances $594 $101 $131 $705 $1,531

Budgetary Financing Sources: 

Donations and Forfeitures of Cash - - - - - 

 Transfers -in/out without Reimbursement (159) - - 131 (28) 

 Other - - 4 4 

Total Financing Sources (159) - - 135 (24) 

Revenue 115 271 54 179 619 

Expenses (173) (245) (50) (355) (823) 

Net Cost of Operations (58) 26 4 (176) (204) 

ENDING BALANCES $377 $127 $135 $664 $1,303

C-72
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

Descriptions of the significant earmarked funds are as follows: 

Cooperative Work 

Cooperative contributions are deposited into Treasury account 12X8028 for disbursement in compliance 

with the terms and provisions of the agreement between the cooperator and the USDA Forest Service. 

Cooperators include timber purchasers, not-for-profit organizations, and local hunting and fishing clubs. 

The governing authorities are the Act of June 30, 1914 (16 U.S.C. 498), and the Knutson-Vandenberg 

Act. 

Payments to States, National Forest Fund 

The Payments to States, National Forest Fund Treasury account 12X5201 receives amounts from receipt 

account 125008, the National Forest Fund. These monies are generated by the sale of goods and 

services on the national forests. Annually, revenue-sharing payments are made to the States in which 

the national forests are located, for public schools and public roads in the county or counties in which 

the national forests are situated. The Act of May 23, 1908, as amended (16 U.S.C. 500), authorized the 

Payments to States, National Forest Fund program. 

Recreation Fee Demonstration Program 

The Recreation Fee Demonstration Program Treasury account 12X5268 receives deposits of recreation 

fees collected from projects that are part of the Recreation Fee Demonstration program. These monies 

are retained and used for backlog repair and maintenance of recreation areas, sites or projects. These 

funds are also used for interpretation, signage, habitat or facility enhancement, resource preservation, 

annual operation, maintenance, and law enforcement related to public use of recreation areas and sites. 

The Recreation Fee Demonstration Program is authorized by 16 U.S.C. 4601-6a. 

C-73
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 11. SUBORGANIZATION PROGRAM COSTS/PROGRAM COSTS BY SEGMENT 

The USDA Forest Service reflects costs through four primary responsibility segments: National Forests 

and Grasslands, Forest and Rangeland Research, State and Private Forestry, and Wildland Fire 

Management. 

The following tables illustrate program costs by segment for the years ended September 30, 2006 and 

2005. 

C-74
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

Program Costs by Segment 

For the year ended September 30, 2006 

(in millions) 

 

National 

Forests and 

Grasslands

Forest and 

Rangeland 

Research

State and 

Private 

Forestry

Wildland Fire 

Management Total

 Intragovernmental Gross Costs: 

Benefit Program Costs $ 1 366 $ - $ 10 $ 377 $ 

Imputed Costs - 303 - - 303 

Reimbursable Costs 21 189 51 165 426 

Total Intragovernmental Gross Costs 858 22 51 175 1,106 

 Less: Intragovernmental Earned Revenue 210 31 15 130 386 

 Intragovernmental Net Costs (9) 648 36 45 720 

Gross Costs With the Public:

Grants and Indemnities 1 409 255 20 685 

Stewardship Land Acquisition (Note 12) - 69 - - 69 

Other:

Operating Costs 299 1,868 93 2,302 4,562 

Depreciation Expense 2 227 - 26 255 

Reimbursable Costs 33 90 17 120 260 

 Total Other 334 2,185 110 2,448 5,077 

Total Gross Costs with the Public 2,663 335 365 2,468 5,831 

Less: Earned Revenues from the Public 503 3 6 136 648 

Net Costs with the Public 332 2,160 359 2,332 5,183 

Net Cost of Operations $ 323 2,808 $ 395 $ 2,377 $ 5,903 $ 

C-75
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

Program Costs by Segment 

For the year ended September 30, 2005 

(in millions) 

 

National 

Forests and 

Grasslands

Forest and 

Rangeland 

Research

State and 

Private 

Forestry

Wildland Fire 

Management Total

 Intragovernmental Gross Costs: 

Benefit Program Costs $ - 364 $ - $ - $ 364 $ 

Imputed Costs - 247 - - 247 

Reimbursable Costs 20 126 46 126 318 

Total Intragovernmental Gross Costs 737 20 46 126 929 

 Less: Intragovernmental Earned Revenue 125 29 12 108 274 

 Intragovernmental Net Costs (9) 612 34 18 655 

Gross Costs With the Public:

Grants and Indemnities 2 377 212 16 607 

Stewardship Land Acquisition (Note 12) - 71 - - 71 

Other:

Operating Costs 276 1,879 118 1,461 3,734 

Depreciation Expense 3 240 - 25 268 

Reimbursable Costs 28 115 13 66 222 

 Total Other 307 2,234 131 1,552 4,224 

Total Gross Costs with the Public 2,682 309 343 1,568 4,902 

Less: Earned Revenues from the Public 477 3 - 35 515 

Net Costs with the Public 306 2,205 343 1,533 4,387 

Net Cost of Operations $ 297 2,817 $ 377 $ 1,551 $ 5,042 $ 

C-76
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 12. COST OF STEWARDSHIP PP&E 

Stewardship assets acquired through purchase in fiscal years 2006 and 2005 amounted to $69 and $71 

million, respectively, and consisted of land, easements, and rights-of-way. Stewardship land is land and 

land rights owned by the Federal Government and is excluded from General Property, Plant, and 

Equipment. Examples of stewardship land include land used for forests, grazing, and wildlife. 

Costs for stewardship land include all costs to acquire and prepare the land for its intended use. 

C-77
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 13. APPORTIONMENT CATEGORIES OF OBLIGATIONS INCURRED 

The Office of Management and Budget usually distributes budgetary resources in an account or fund by 

specific time periods, activities, projects, objects or a combination of these categories by a process 

called apportionments. Apportionments by fiscal quarters are classified as category A and all other 

apportionments are classified as category B. The funds on quarterly apportionment are National Forest 

System (12X1106) and Wildland Fire Management (12X1115). Presented below is the amount of direct 

and reimbursable obligations incurred by apportionment category for fiscal years 2006 and 2005. 

Apportionment 

Category A

Apportionment 

Category B Total

Obligations Incurred - Direct $3,901 $2,481 $6,382

Obligations Incurred - Reimbursable 413 62 475

Total Obligations Incurred $4,314 $2,543 $6,857

Apportionment 

Category A

Apportionment 

Category B Total

Obligations Incurred - Direct $3,189 $2,356 $5,545

Obligations Incurred - Reimbursable 167 98 265

Total Obligations Incurred $3,356 $2,454 $5,810

For the year ended September 30, 2006

(in millions)

For the year ended September 30, 2005

(in millions)

 

C-78
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 14. EXPLANATION OF DIFFERENCES BETWEEN THE STATEMENT OF 

BUDGETARY RESOURCES AND THE BUDGET OF THE UNITED STATES GOVERNMENT 

The differences between the fiscal 2005 Statement of Budgetary Resources (SBR) and the fiscal 2005 

actual numbers presented in the fiscal 2007 Budget of the United States Government (Budget) are 

summarized in the table below. The material differences are explained in Note (a) below the table. 

 SBR Budget Dollar Percentage

SBR Line Description Amount Amount Variance Variance Note

Total Budgetary Resources/Status of Resources 8,237 $ 8,243 $ (6) $ 0%

Total Status of Resources 8,239 8,243 (4) 0%

New Budget Authority 5,812 5,807 5 0%

Net transfers, current year authority 50 50 - 0%

Unobligated Balance-Beginning of Year 1,738 1,726 12 1%

Net transfers, prior year balances, actual 1 - 1 0%

Offsetting Collections-Collected 448 450 (2) 0%

Change in Uncollected Payments 86 87 (1) -1%

Recoveries of Prior Year Obligations 169 188 (19) -10%

Temporary/Permanently not Available (67) (65) (2) 3%

Total New Obligations 5,810 5,826 (16) 0%

Unobligated Balance & Unobligated Balance not Available 2,429 2,417 12 0%

Obligated Balance - Beginning of Year 1,493 1,492 1 0%

Obligated Balance - End of Year 1,561 1,552 9 1%

 Net Outlays 5,039 5,037 2 0%

Offsetting Receipts 426 595 (169) -28% (a)

Note (a) Of the $169 million variance, $167 million was for fire transfer payback which was 

properly not reported as a distributed offsetting receipt in the Statement of Budgetary Resources. 

(in millions)

C-79
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 15. UNDELIVERED ORDERS 

The undelivered orders included in unpaid obligations as of September 30, 2006 and 2005 are $1,310 

and $1,226 million, respectively. 

C-80
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 16. RELATIONSHIP BETWEEN LIABILITIES NOT COVERED BY BUDGETARY 

RESOURCES ON THE BALANCE SHEET AND THE CHANGE IN COMPONENTS 

REQUIRING OR GENERATING RESOURCES IN FUTURE PERIODS. 

 

The change in liabilities not covered by budgetary resources should be the same as the change in 

components requiring or generating resources in future periods, except for other components requiring 

or generating resources in future periods that are reported separately. The components requiring or 

generating resources in future periods as reported on the Statement of Financing differ from the 

components requiring or generating resources in future periods reflected below for the portion of 

liabilities not covered by budgetary resources. 

FY 2006 FY 2005

Current year liabilities not covered by budgetary resources 

as disclosed in Note 6 1,062 $ 1,011 $ 

Less: Prior year liabilities not covered by budgetary resources 1,011 998 

Net increase in liabilities not covered by budgetary resources 51 13 

Add back FY2006 net decreases in FECA Actuarial Liability 

and Contingent Liability 33 - 

Add back FY2005 net decreases in FECA Actuarial Liability, 

Payments to States and Annual Leave Liability - 26 

Gross increase in liabilities not covered by budgetary resources 84 39 

Less: increase in exchange revenue receivable from the public 12 - 

(in millions)

$ 39 72 $ 

Components requiring or generating resources in future periods, 

as reported on the Statement of Financing

 

C-81
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 17. OTHER STATEMENT OF FINANCING DISCLOSURES 

In the event the funds appropriated to the Wildland Fire Management Fund are insufficient for current 

year operations related to fire suppression, the USDA Forest Service is permitted to borrow monies from 

other funds, which must be repaid in subsequent years. The FY05 Statement of Financing includes such 

a repayment of $149 million to the Cooperative Work Trust Fund as resources used to finance items not 

part of the net cost of operations. This transaction represents a budgetary obligation for the Wildland 

Fire Management Fund in the Statement of Budgetary Resources but it does not represent an operating 

expense in the Statement of Net Cost. This conforms to Treasury guidance for making expenditure 

transfers from general fund expenditure accounts (Federal Funds Group) to trust funds (Trust Fund 

Group). 

The USDA Forest Service has allocation transfers that are reconciling items on the Statement of 

Financing as explained in Note 1N. 

C-82
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 18. DEDICATED COLLECTIONS 

The USDA Forest Service administers certain dedicated collection funds, which as described in Notes 1 

and 10 are reported as earmarked funds in FY 2006. Financial information for the largest dedicated 

collection funds, identified by asset value, for FY 2005 is shown below: 

Dedicated Collections

As of and for the year ended September 30, 2005

(in millions)

 Cooperative 

Work 

 Payments to 

States, National 

Forest Funds 

 Recreation Fee 

Demonstration 

Program 

 Land 

Acquisition 

 Timber 

Salvage 

Sales 

 Other 

Funds Total 

ASSETS 

Fund Balance with Treasury $624 $165 $131 $67 $101 $419 $1,507

Investments - - - - - 5 5 

Accounts Receivable, Net 2 - 1 20 2 27 52 

Advances To Others - - - - - - - 

General Property, Plant & Equipment, Net 17 3 3 48 1 22 94 

TOTAL ASSETS $643 $168 $135 $135 $104 $473 $1,658

LIABILITIES 

Accounts Payable $ - $1 $1 $ - -$1 $1 $2

Other Liabilities 49 66 3 1 5 70 194 

TOTAL LIABILITIES 49 67 4 1 4 71 196 

Total Net Position 594 101 131 134 100 402 1,462 

TOTAL LIABILITIES AND NET POSITION $643 $168 $135 $135 $104 $473 $1,658

CHANGE IN NET POSITION 

Beginning Balances $442 $69 $44 $145 $95 $331 $1,126

Budgetary Financing Sources: 

 Transfers -in/out without Reimbursement 149 - 81 61 - 149 440 

Total Financing Sources 149 - 81 61 - 149 440 

Revenue 112 115 50 20 72 60 429 

Expenses (109) (83) (44) (92) (67) (138) (533) 

Net Cost of Operations 3 32 6 (72) 5 (78) (104) 

ENDING BALANCES $594 $101 $131 $134 $100 $402 $1,462

C-83
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

Descriptions for the first three dedicated collections are included in Note 10. Descriptions for the 

remaining significant dedicated collections for FY 2005 are as follows: 

Land Acquisition 

Each fiscal year the USDA Forest Service’s Treasury account 12X5004 receives a transfer of recreation 

user fees from the Department of the Interior’s Land and Water Conservation Fund, to be used for the 

acquisition of land or waters, or interest therein, including administrative expenses, to carry out the 

provisions of the Land and Water Conservation Fund Act of 1965, as amended (16 U.S.C. 460l-4-11), 

pertaining to the preservation of watersheds. The Land Acquisition program is authorized by the 

Interior and Related Agencies Appropriations Act of December 30, 1982 (96 Stat. 1983, Public Law 97-

394). 

Timber Salvage Sales 

The Salvage Sale Fund, Treasury account 12X5204, was established to facilitate the timely removal of 

timber damaged by fire, wind, insects, diseases, or other events. Amounts collected from the sale of 

salvaged timber are used on other qualifying salvage sales to cover the cost of preparing and 

administering the sales. The Timber Salvage Sales program is authorized by 16 U.S.C. 472(a). 

C-84
U. S. Department of Agriculture 

Forest Service 

Notes to the Consolidated and Combined Financial Statements 

For the years ended September 30, 2006 and 2005 

NOTE 19. SEIZED PROPERTY 

A seizure is the act of taking possession of goods in consequence of a violation of public law. Seized 

property may consist of monetary instruments, real property, tangible personal property and evidence. 

Until judicially or administratively forfeited, the USDA Forest Service does not legally own such 

property. Seized evidence includes cash, weapons, illegal drugs and non-monetary valuables. 

Pursuant to Federal Financial Accounting and Auditing Technical Release No. 4, Reporting on NonValued Seized and Forfeited Property (Release No. 4), property that is seized but not forfeited (e.g., 

weapons, chemicals, drug paraphernalia, gambling devices) is not included on the balance sheet. Also, 

the USDA Forest Service has not included seized financial and personal property in its balance sheets 

due to immateriality. 

The USDA Forest Service has custody of illegal drugs and weapons seized as evidence for legal 

proceedings. Illegal drugs and weapons have no saleable value to the Federal government and are 

destroyed upon resolution of legal proceedings. Marijuana represents the major significant seized drug 

for the USDA Forest Service. As of September 30, 2006 and 2005, the amount of marijuana on hand 

was 32,504(kg) and 35,579(kg), respectively. Since the amount of seized property is deemed to be 

immaterial, a schedule of brought forward balances, additions, deletions and adjustments is not 

presented. 

C-85
Part D

REQUIRED SUPPLEMENTARY

INFORMATION

(Unaudited)

D-1
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2006 and 2005

REQUIRED SUPPLEMENTARY INFORMATION

DEFERRED MAINTENANCE

Overview

Deferred maintenance is maintenance that was scheduled to be performed but was delayed until a future

period. Deferred maintenance represents a cost that the Federal Government has elected not to fund

and, therefore, the costs are not reflected in the financial statements.

Maintenance is defined to include preventive maintenance, normal repairs, replacement of parts and

structural components, and other activities needed to preserve the asset so that it continues to provide

acceptable service and achieve its expected life. Maintenance excludes activities aimed at expanding the

capacity of an asset or otherwise upgrading it to service needs different from, or significantly greater than,

those originally intended.

Deferred maintenance is reported for general Property, Plant, and Equipment (PP&E), heritage assets,

and stewardship assets. It is also reported separately for critical and noncritical amounts of maintenance

needed to return each class of asset to its acceptable operating condition. Critical maintenance is

defined as a serious threat to public health or safety, a natural resource, or the ability to carry out the

mission of the organization. Noncritical maintenance is defined as a potential risk to the public or

employee safety or health (e.g., compliance with codes, standards, or regulations), and potential adverse

consequences to natural resources or mission accomplishment.

The U.S. Department of Agriculture (USDA) Forest Service uses condition surveys to estimate deferred

maintenance on all major classes of PP&E. No deferred maintenance exists for fleet vehicles and

computers that are managed through the agency’s working capital fund (WCF). Each fleet vehicle is

maintained according to schedule. The cost of maintaining the remaining classes of equipment is

expensed.

Currently, no comprehensive national assessment of Forest Service property exists. Deferred

maintenance estimates for all assets are based on condition surveys performed on a 5-year maximum

revolving schedule, with the exception of bridges that are on a 2-year maximum revolving schedule.

Condition surveys were performed on a statistical sample of closed and very low traffic volume roads.

The overall agency indirect cost for managing the program is 17.8 percent, which is not included in the

figures in Exhibit 1.

Exhibit 1: Deferred Maintenance Totals by Asset Class as of September 30, 2006

Asset Class Overall

Condition

Cost To Return To

Acceptable

Condition

Critical

Maintenance

Noncritical

Maintenance

Bridge Varies $ 116,580,904 $ 27,391,922 $ 89,188,982

Building Varies 482,746,286 105,963,808 376,782,478

Dam Varies 21,044,460 7,605,258 13,439,202

Minor constructed features Varies 88,155,381 88,155,381

Fence Varies 402,894,966 402,545,116 349,850

Handling facility Varies 23,734,644 23,722,557 12,087

Heritage Varies 31,571,396 8,534,602 23,036,794

Road Varies 4,053,764,747 748,180,046 3,305,584,701

Trail bridge Varies 9,654,311 3,778,694 5,875,617

Wastewater Varies 30,784,748 17,156,794 13,627,954

Water Varies 84,625,212 46,884,748 37,740,464

D-2
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2006 and 2005

Asset Class Overall

Condition

Cost To Return To

Acceptable

Condition

Critical

Maintenance

Noncritical

Maintenance

Wildlife, Fish, TES1 Varies 6,313,386 4,414,068 1,899,318

Trail Varies 242,601,514 18,514,504 224,087,010

TOTALS $ 5,594,471,955 $ 1,414,692,117 $ 4,179,779,838

In previous years, the Forest Service reported deferred maintenance estimates for General Forest Areas

(GFA) and Developed Sites (Minor Constructed Features) in this exhibit. The new Heritage Assets and

Stewardship Lands Standard (SFFAS 29) provides the Forest Service the means to report these land

units’ deferred maintenance by their respective individual asset, although deferred maintenance for the

Minor Constructed Features located on the Developed Sites will remain in this exhibit.

The overall condition of major asset classes range from poor to good depending on the location, age, and

type of property. The standards for acceptable operating condition for various classes of general PP&E,

stewardship, and heritage assets are as follows.

Conditions of roads and bridges within the National Forest System (NFS) road system are measured by

various standards:

1. Federal Highway Administration regulations for the Federal Highway Safety Act;

2. Best management practices (BMP) for the nonpoint source provisions of the Clean Water Act

from Environmental Protection Agency and States;

3. Road management objectives developed through the National Forest Management Act (NFMA)

forest planning process;

4. Forest Service Directives—Forest Service Manual (FSM) 7730, Operation and Maintenance

(January 2003 amendment was superseded with August 25, 2005, revision); Forest Service

Handbook (FSH) 7709.56a, Road Preconstruction, and FSH 7709.56b, Transportation Structures

Handbook.

Dams shall be managed according to FSM 7500, Water Storage and Transmission, and FSH 7509.11,

Dams Management Handbook, as determined by condition surveys. The overall condition of dams is

below acceptable. The condition of a dam is acceptable when the dam meets current design standards

and does not have any deficiencies that threaten the safety of the structure or public. For dams to be

rated as in acceptable condition, the agency needs to restore the dams to the original functional purpose,

correct unsightly conditions, or prevent more costly repairs.

Buildings shall comply with the National Life Safety Code, the Forest Service Health and Safety

Handbook, and the Occupational Safety Health Administration as determined by condition surveys. These

requirements are found in FSM 7310, Buildings and Related Facilities, revised November 19, 2004. The

condition of administrative facilities ranges from poor to good. Approximately half of these buildings are

obsolete or in poor condition, needing major repairs or renovation. Approximately a quarter of these

buildings are in fair condition, and the remaining facilities are in good condition.

Recreation facilities include developed recreation sites, general forest areas, campgrounds, trailheads,

trails, water and wastewater systems, interpretive facilities, and visitor centers. These components are

included in several asset classes of the deferred maintenance exhibit. All developed sites are managed in

accordance with Federal laws and regulations (CFR 36). Detailed management guidelines are contained

in FSM 2330, Publicly Managed Recreation Opportunities, and forest- and regional-level user guides.

Quality standards for developed recreation sites were established as Meaningful Measures for health and

cleanliness, settings, safety and security, responsiveness, and the condition of the facility.

 1

 TES is threatened and endangered species.

D-3
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2006 and 2005

The condition assessment for range structures (fences and stock handling facilities) is based on (1) a

determination by knowledgeable range specialists or other district personnel of whether the structure

would perform the originally intended function, and (2) a determination through the use of a protocol

system to assess conditions based on age. A long-standing range methodology is used to gather this

data.

Heritage assets include archaeological sites that require determinations of National Register of Historic

Places status, National Historic Landmarks, and significant historic properties. Some heritage assets may

have historical significance, but their primary function in the agency is as visitation or recreation sites and,

therefore, may not fall under the management responsibility of the heritage program.

Trails (and trail bridges) are managed according to Federal law and regulations (CFR 36). More specific

direction is contained in FSM 2350, Trail, River, and Similar Recreation Opportunities, and the FSH

2309.18, Trails Management Handbook.

Deferred maintenance of structures for wildlife, fish, and threatened and endangered species (TES) is

determined by field biologists using their professional judgment. The deferred maintenance is considered

critical if resource damage or species endangerment would likely occur if maintenance were deferred

much longer.

STEWARDSHIP—PROPERTY, PLANT, AND EQUIPMENT

The stewardship objective of Federal financial reporting requires the Forest Service to report on its

stewardship over certain resources entrusted to it, and certain responsibilities assumed by it, that cannot

be measured in traditional financial reports.

These resources and responsibilities do not meet the criteria for assets and liabilities that are reported in

the financial statements, but are important for understanding the operations and financial condition of the

Forest Service at the date of the financial statements, and in subsequent periods.

Stewardship resources involve substantial investment by the Forest Service for long-term benefits for the

American public. By treating stewardship resources as expenses in the year the costs are incurred, the

Forest Service demonstrates our accountability for them. Depending on the nature of the resources,

stewardship reporting could consist of financial or nonfinancial data.

To achieve the objectives of SFFAS 29 for Heritage Assets and Stewardship Lands, resources and

responsibilities for which the Forest Service has stewardship accountability have been moved from the

Required Supplementary Stewardship Information (RSSI) component of the financial statements to the

Required Supplementary Information (RSI) for the short term. In FY 2008, heritage assets and

stewardship lands information will move to the financial statements. The section on the Condition of NFS

Lands will remain in the RSI.

Stewardship PP&E consists of assets whose physical properties resemble those of the general PP&E,

traditionally in financial statements. However, due to the nature of these assets, valuation would be

difficult and matching costs within a given reporting period would not be meaningful. One category of

stewardship PP&E is heritage assets, which are historically or culturally significant property, memorials,

and Federal monuments. A second category is stewardship land, which is land other than that acquired

for, or in connection with, general PP&E.

Heritage Assets

The Forest Service estimates that more than 320,000 heritage assets2 are on land that it manages. Some

of these assets are listed on the National Register of Historic Places, and some are designated as

 2

 This information is estimated from the nine Forest Service regions and from the annual Department of Interior report to Congress.

D-4
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2006 and 2005

National Historic Landmarks. Collection assets held at museums and universities are managed by those

entities, and not the Forest Service.

The historic structures are works consciously created to serve some human purpose, such as buildings,

monuments, logging and mining camps, and ruins.

Heritage assets designated as National Historic Landmarks are sites, buildings, or structures that

possess exceptional value in commemorating or illustrating the history of the United States, and

exceptional value or quality in illustrating and interpreting the heritage of the United States. The Secretary

of the Interior is the official designator of National Historic Landmarks.

Heritage assets listed in the National Register of Historic Places include properties, buildings, and

structures that are significant in U.S. history, architecture, and archaeology, and in the cultural foundation

of the Nation. Sites formally determined as eligible for the National Register by the Keeper of the

National Register, or documented through consultation with State Historic Preservation Offices, are

considered potentially eligible for the National Register.

The Forest Service heritage resource specialists on the 155 national forests maintain separate

inventories of heritage assets. Most assets not used for administrative or public purposes receive no

annual maintenance. A long-term methodology to better assess the extent and condition of these assets

is being formulated to comply with Executive Order 13287, Preserve America. The real property

management module in INFRA was implemented to manage heritage assets. The Healthy Forests

Initiative and competing budget priorities, however, have prevented full population of the database.

Acquisition and Withdrawal of Heritage Assets

The Forest Service generally does not construct heritage assets, although in some circumstances

important site-structural components may be rehabilitated or reconstructed into viable historic properties

to provide forest visitors with use and interpretation. Heritage assets can be acquired through the

procurement process, but this rarely occurs. Normally, heritage assets are part of the land acquisition and

inventory process. Withdrawal occurs through land exchange or natural disasters. Most additions occur

through inventory activities, where previously undocumented sites are discovered and added to the total.

Although not technically additions—they already existed on NFS lands—they do represent an increased

management responsibility commensurate with the spirit of “additions.”

Exhibit 2 shows the major heritage assets by category and condition for FY 20053.

Exhibit 2: Major Heritage Assets by Category and Condition, FY 2005

Category 2004 Final

Sites Additions Withdrawals

FY 2005

Ending

Balance

Condition

Total heritage assets 318,259 24,103 1 342,361 Poor - Fair

Eligible for the National Register of Historic Places 57,925 0 3,963 53,962 Poor - Fair

Listed on the National Register 3,397 82 1 3,478 Fair

Sites with structures listed on the National Register 1,874 82 0 1,956 Poor - Fair

National Historic Landmarks 19 1 0 20 Fair - Good

Stewardship Land

National Forest System

The Forest Service manages an estimated 193 million acres of public land, most of which are classified

as stewardship assets. These stewardship assets are valued for the following reasons:

 3

 Data totaled through fiscal year (FY) 2005. FY 2006 data is gathered in the first half of FY 2007.

D-5
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2006 and 2005

 Environmental resources;

 Recreational and scenic values;

 Cultural and paleontological resources;

 Vast open spaces; and

 Resource commodities and revenue they provide to the Federal Government, States, and

counties.

Land needed to protect critical wildlife habitat and cultural and historic values, to support the purposes of

congressional designation, and for recreation and conservation purposes is acquired through purchase or

exchange.

National Forests

The national forests are formally established and permanently set aside and reserved for national forest

purposes. The following categories of NFS lands have been set aside for specific purposes in designated

areas:

 National Wilderness Areas. Areas designated by Congress as part of the National Wilderness

Preservation System.

 National Primitive Areas. Areas designated by the Chief of the Forest Service as primitive areas.

They are administered in the same manner as wilderness areas, pending studies to determine

sustainability as a component of the National Wilderness Preservation System.

 National Wild and Scenic River Areas. Areas designated by Congress as part of the National Wild

and Scenic River System.

 National Recreation Areas. Areas established by Congress for the purpose of assuring and

implementing the protection and management of public outdoor recreation opportunities.

 National Scenic Research Areas. Areas established by Congress to provide use and enjoyment of

certain ocean headlands and to ensure protection and encourage the study of the areas for

research and scientific purposes.

 National Game Refuges and Wildlife Preserve Areas. Areas designated by Presidential

proclamation or Congress for the protection of wildlife.

 National Monument Areas. Areas including historic landmarks, historic and prehistoric structures,

and other objects for historic or scientific interest, declared by Presidential proclamation or

Congress.

National Grasslands

National grasslands are designated by the Secretary of Agriculture and permanently held by the USDA

under Title III of the Bankhead-Jones Farm Tenant Act.

Purchase Units

Purchase units are land designated by the Secretary of Agriculture or previously approved by the National

Forest Reservation Commission for purposes of Weeks Law acquisition. The law authorizes the Federal

Government to purchase lands for streamflow protection and maintain the acquired lands as national

forests.

Land Utilization Projects

Land utilization projects are reserved and dedicated by the Secretary of Agriculture for forest and range

research and experimentation.

Research and Experimental Areas

Research and experimental areas are reserved and dedicated by the Secretary of Agriculture for forest

and range research experimentation.

Other Areas

There are areas administered by the Forest Service that are not included in one of the above groups.

D-6
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2006 and 2005

Exhibit 3 shows the net change in acres between FY 2005 and FY 2006 on NFS lands by various

purposes.

Exhibit 3: Net Change in Acres in National Forests by Various Purposes (FY 2005 to

FY 2006)

FY 2005 FY 2006 FY 2006 FY 2006

Description Balance Additions Withdrawals Balance

NFS Land (in acres):

National Forests 144,460,314 (403,999) 144,056,315

National Forest Wilderness Areas 34,957,078 (140,850) 34,816,228

National Forest Primitive Areas 173,762 0 173,762

National Wild and Scenic River

Areas 930,633 681 931,314

National Recreation Areas 2,818,268 94,308 2,912,576

National Scenic Areas 130,653 196 130,849

National Scenic—Research Areas 6,637 0 6,637

National Game Refuges and

Wildlife Preserve Areas 1,198,099 0 1,198,099

National Monument Areas 3,660,074 0 3,660,074

National Monument Volcanic

Areas 167,427 0 167,427

National Historic Areas 6,540 0 6,540

National Grasslands 3,838,166 (296) 3,837,870

Purchase Units 370,031 4,718 374,749

Land Utilization Projects 1,876 0 1,876

Research and Experiment Areas 64,862 9 64,871

Other Areas 355,279 2,631 357,910

National Preserves 89,716 0 89,716

Total NFS Land (in acres) 193,229,415 102,543 (545,145) 192,786,813

Condition of NFS Lands

The condition of NFS lands varies by purpose and location. The Forest Service monitors the condition of

NFS lands based on information compiled by two national inventory and monitoring programs—Forest

Inventory and Analysis (FIA) and Forest Health Monitoring (FHM).

The FIA program conducts annual inventories of forest status and trends. FIA has historic inventory data

in all 50 States and is currently collecting annual inventory data in 45 States, including 38 of the 41 States

containing NFS land. Active throughout all 50 States, FHM provides surveys and evaluations of forest

health conditions and trends.

Although most of the estimated 193 million acres of NFS forest lands continue to produce valuable

benefits (i.e., clean air, clean water, habitat for wildlife, and products for human use), significant portions

are at risk to pest outbreaks or catastrophic fires. About 25.03 million acres of NFS forest land are at risk

to future mortality from insects and diseases, based on the current Insect and Disease Risk Map;

4

 and

nearly 111 million acres are at risk of losing key ecosystem components from wildland fire based on

current condition and departure from historic fire regimes5.

 4

 The newly revised Insect and Disease Map will be available in early 2007 (calendar year).

5 Historic fire regimes are Fire Regimes 1, 2, and 3 and Condition Classes 2 and 3.

D-7
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2006 and 2005

The LANDFIRE dataset is mapping vegetation for fire behavior and fire regime across all ownerships,

including NFS lands, at a 30-meter pixel resolution from Landsat Satellite Imagery. The 2005 release of

the LANDFIRE Rapid Assessment included subject matter experts’ maps of current fire regime condition

class6. The national LANDFIRE dataset, available in 2009, will document fire regime condition class of all

lands based on satellite imagery and plot data, displaying departure from the historic fire regimes.

Invasive species of insects, diseases, and plants continue to affect our native ecosystems by causing

mortality to, or displacement of, native vegetation. Insect and disease prevention and suppression

treatments were completed on 154,000 acres of NFS lands in FY 2006.

 6

 Fire Regime Condition Class does not equate to fire risk, but is a measure of ecological status in fire prone ecosystems.

D-8
National Forest Forest and State and Capital Improvement Wildland Fire Permanent and Working

Budgetary Resources : and Grasslands Rangeland Research Private Forestry and Maintenance Management Trust Funds Capital Fund Total

Unobligated balance, brought forward, October 1: $ 184 $ 41 $ 56 $ 99 $ 769 $ 1,177 $ 103 $ 2,429

Recoveries of prior year unpaid obligations 7 - 1 2 67 - 1 78

Budget authority:

Appropriations 1,568 283 314 448 1,879 870 - 5,362

Spending authority from offsetting collections:

Earned:

Collected 110 40 22 15 248 30 201 666

Change in receivables from Federal sources (18) (5) (1) 1 3 - (1) (21)

Change in unfilled customer orders:

Advance received - 9 3 - - 7 - 19

Without advance from Federal sources 86 (10) - 17 (57) - - 36

Expenditure transfers from trust funds - - - - 159 - - 159

Subtotal 1,746 317 338 481 2,232 907 200 6,221

Nonexpenditure transfers, net (5) 22 84 (3) (75) (10) (10) 3

Permanently not available (24) (5) (3) (6) (26) - - (65)

Total Budgetary Resources $ 1,907 $ 375 $ 476 $ 573 $ 2,967 $ 2,074 $ 294 $ 8,666

Status of Budgetry Resources:

Obligations incurred: 

Direct $ 1,589 $ 307 $ 399 $ 460 $ 2,434 $ 993 $ 200 $ 6,382

Reimbursable 93 32 16 12 322 - - 475

Subtotal 1,682 339 415 472 2,756 993 200 6,857

Unobligated balance-apportioned 168 31 39 87 (45) 756 16 1,052

Unobligated balance not available 57 5 22 14 256 325 78 757

Total status of budgetary resources $ 1,907 $ 375 $ 476 $ 573 $ 2,967 $ 2,074 $ 294 $ 8,666

Change in Obligated Balances:

Obligated balance, net

Unpaid obligations, brought forward, October 1 $ 292 $ 119 $ 611 $ 312 $ 527 $ 92 $ 26 $ 1,979

Less: Uncollected customer payments from 

Federal sources, brought forward October 1 (96) (50) (24) (23) (224) - (1) (418)

Total unpaid obligated balance, net 196 69 587 289 303 92 25 1,561

Obligations incurred net 1,682 339 415 472 2,756 993 200 6,857

Less: Gross outlays (1,599) (340) (446) (547) (2,289) (958) (196) (6,375)

Less: Recoveries of prior year unpaid obligations (7) - (1) (2) (67) - (1) (78)

Change in uncollected customer payments from Federal sources (68) 15 1 (18) 54 - 1 (15)

Obligated balance, net, end of period

Unpaid obligations 368 118 578 235 927 127 30 2,383

Less: Uncollected customer payments from Federal sources (164) (35) (22) (41) (170) - (1) (433)

Total, unpaid obligated balance, net, end of period $ 204 $ 83 $ 556 $ 194 $ 757 $ 127 $ 29 $ 1,950

Net Outlays:

Gross outlays: $ 1,599 $ 340 $ 446 $ 547 $ 2,289 $ 958 $ 196 $ 6,375

Less: Offsetting collections (109) (49) (26) (15) (407) (37) (201) (844)

Less: Distributed offsetting receipts 33 - - - - (490) - (457)

Net Outlays $ 1,523 $ 291 $ 420 $ 532 $ 1,882 $ 431 $ (5) $ 5,074

For the year ended September 30, 2006 

(in millions)

Statement of Budgetary Resources by Major Budget Account

D-9
National Forest Forest and State and Capital Improvement Wildland Fire Permanent and Working

Budgetary Resources : and Grasslands Rangeland Research Private Forestry and Maintenance Management Trust Funds Capital Fund Total

Unobligated balance, brought forward, October 1: $ 198 $ 29 $ 80 $ 106 $ 313 $ 901 $ 111 $ 1,738

Recoveries of prior year unpaid obligations 52 10 29 13 62 2 1 169

Budget authority:

Appropriations 1,581 280 346 597 2,128 880 - 5,812

Spending authority from offsetting collections:

Earned:

Collected 86 27 11 8 109 26 181 448

Change in receivables from Federal sources 11 2 (21) 2 28 (8) (2) 12

Change in unfilled customer orders:

Advance received 1 (4) 3 - - 3 - 3

Without advance from Federal sources (34) 15 14 (12) 89 - - 72

Expenditure transfers from trust funds - - 1 - - - - 1

Subtotal 1,645 320 354 595 2,354 901 179 6,348

Nonexpenditure transfers, net (70) 22 92 8 (82) 81 - 51

Permanently not available (21) (4) (6) (6) (30) - - (67)

Total Budgetary Resources $ 1,804 $ 377 $ 549 $ 716 $ 2,617 $ 1,885 $ 291 $ 8,239

Status of Budgetry Resources:

Obligations incurred: 

Direct $ 1,510 $ 304 $ 464 $ 601 $ 1,769 $ 708 $ 189 $ 5,545

Reimbursable 109 32 29 16 79 - - 265

Subtotal 1,619 336 493 617 1,848 708 189 5,810

Unobligated balance-apportioned 140 33 187 96 555 750 43 1,804

Unobligated balance not available 45 8 (131) 3 214 427 59 625

Total status of budgetary resources $ 1,804 $ 377 $ 549 $ 716 $ 2,617 $ 1,885 $ 291 $ 8,239

Change in Obligated Balances:

Obligated balance, net

Unpaid obligations, brought forward, October 1 $ 322 $ 118 $ 553 $ 279 $ 437 $ 86 $ 32 $ 1,827

Less: Uncollected customer payments from 

Federal sources, brought forward October 1 (118) (32) (32) (32) (107) (9) (4) (334)

Total unpaid obligated balance, net 204 86 521 247 330 77 28 1,493

Obligations incurred net 1,619 336 493 617 1,848 708 189 5,810

Less: Gross outlays (1,597) (325) (407) (572) (1,696) (700) (192) (5,489)

Less: Recoveries of prior year unpaid obligations (52) (10) (29) (13) (62) (2) (1) (169)

Change in uncollected customer payments from Federal sources 23 (17) 7 10 (117) 8 2 (84)

Obligated balance, net, end of period

Unpaid obligations 293 120 609 312 527 91 27 1,979

Less: Uncollected customer payments from Federal sources (96) (50) (24) (23) (224) - (1) (418)

Total, unpaid obligated balance, net, end of period $ 197 $ 70 $ 585 $ 289 $ 303 $ 91 $ 26 $ 1,561

Net Outlays:

Gross outlays: $ 1,597 $ 325 $ 407 $ 572 $ 1,696 $ 700 $ 192 $ 5,489

Less: Offsetting collections (87) (24) (14) (8) (108) (29) (181) (451)

Less: Distributed offsetting receipts (1) - - - - (425) - (426)

Net Outlays $ 1,509 $ 301 $ 393 $ 564 $ 1,588 $ 246 $ 11 $ 4,612

For the year ended September 30, 2005 

(in millions)

Statement of Budgetary Resources by Major Budget Account

D-10
Part E

REQUIRED SUPPLEMENTARY

STEWARDSHIP INFORMATION

(Unaudited)

E-1
Required Supplementary Stewardship Information—Unaudited

For the Years Ended September 30, 2006 and 2005

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION

The stewardship objective of Federal financial reporting includes accountability for Stewardship

Investments.

STEWARDSHIP INVESTMENTS

Stewardship investments are expenses and investments incurred for education and training of the public

that is intended to increase national economic productive capacity (investment in human capital), and

research and development intended to produce future benefits.

Human Capital—Job Corps Civilian Conservation Center

FY 2006 Net Cost of Operations: $110 Million

The Forest Service’s Job Corps Civilian Conservation (Job Corps) Centers, in coordination with the

Department of the Interior (DOI) National Park Service, U.S. Fish and Wildlife Service, and Bureau of

Reclamation, continued “Empowering Youth and Enhancing Communities and Natural Resources.”

In partnership with the U.S. Department of Labor (DOL), the Forest Service operates 19 Job Corps

Centers. Job Corps is the only Federal residential employment and education training program for

economically challenged young people ages 16 to 24. The purpose of the program is to provide young

adults with the skills necessary to become employable, independent, and productive citizens. The

program is administered in a structured, coeducational, residential environment that provides education,

vocational and life skills training, counseling, medical care, work experience, placement assistance and

followup, recreational opportunities, and biweekly monetary stipends. Job Corps students choose from a

wide variety of careers, such as urban forestry, heavy equipment operations and maintenance, business,

clerical, carpentry, culinary arts, painting, cement and brick masonry, welding, auto mechanics, health

services, building and apartment maintenance, warehousing, and plastering.

Job Corps is funded from DOL annually on a program year; the fiscal year is July 1 to June 30. During

Job Corps’ FY 2006, accomplishments included the following:

 8,732 participants received 4,116 placements with an average starting hourly wage of $.55 more

than the DOL national average.

 Approximately 1,806 female students received training in nontraditional vocations.

 634 students received high school diplomas, and 1,429 students obtained general equivalency

diplomas.

 Approximately 1,223 Job Corps students and staff assisted the agency in its firefighting efforts.

 Students accomplished conservation work appraised at $26.4 million on NFS lands.

Since 1964, the Forest Service’s Job Corps Centers have trained and educated more than 300,000

young men and women. On January 10, 2005, the agency successfully transferred the Mingo Job Corps

Center from the DOI Fish and Wildlife Service to the USDA Forest Service.

Research and Development—Forest and Rangeland Research

FY 2006 Net Cost of Operations: $318 Million

Of the $318 million, $296 million was an investment of Research and Development funding (FRRE), and

$22 million was an investment of National Fire Plan funding (FRF2).

Forest Service Research and Development provides reliable, science-based information that is

incorporated into natural resource decisionmaking. Efforts consist of developing new technology and then

adapting and transferring this technology to facilitate more effective resource management. Major

research strategic program areas include the following:

E-2
Required Supplementary Stewardship Information—Unaudited

For the Years Ended September 30, 2006 and 2005

 Fire

 Invasives

 Recreation

 Research Management and Use

 Water and Air

 Fish and Wildlife

 Research Data and Analysis

Research staff are involved in all areas of the Forest Service, supporting agency goals by providing more

efficient and effective methods where applicable.

A representative summary of FY 2006 accomplishments using Forest Service appropriated funds include

the following:

 54 new interagency agreements and contracts

 15 interagency agreements and contracts continued

 1,691 articles published in journals

 1,817 articles published in all other publications

 7 patent granted

 1 right to inventions established

E-3
APPENDIX A

USDA FOREST SERVICE

ORGANIZATIONAL CHARTS

Appendix A-1
Appendix A-2
Appendix A-3
APPENDIX B

ACRONYMS AND ABBREVIATIONS

Appendix B-1
Acronym and Abbreviations Explanation

ADA Americans with Disabilities Act

ADR Alternative Dispute Resolution

ADS Avue Digital Service

ALP Automated Lands Program

AML abandoned mine lands

AONs assessments of needs

APD Application for permit drilling

APHIS Animal and Plant Health Inspection Service

APR Annual Performance Report

AQM Acquisition Management

ASC Albuquerque Service Center

ATSA Automated Timber Sales Accounting

B&F Budget and Finance

BFES Budget Formulation and Execution System

BLM Bureau of Land Management

BMP Best Management Practices

BOTP Business Operations Transformation Program

BPR business process reengineering

C&A Certification and Accreditation

CCC Civilian Conservation Corps

CDW construction and demolition waste

CFO Chief Financial Officer

CFR Code of Federal Regulations

CG Comptroller General

CGA continuing Government activity

CI&M Capital Improvement and Maintenance

CIO Chief Information Officer

CIP Continuous Improvement Process

CIRT Computer Incident Response Team

CNF Caribbean National Forest

CRIA Civil Rights Impact Analysis

CSPO Competitive Sourcing Program Office

CSRS Civil Service Retirement System

CUA Concentrated Use Area

CWAG Chief’s Workforce Advisory Group

CWPP Community Wildfire Protection Plans

DBMS Database Management System

DC disallowed cost

DOI Department of the Interior

DOL U.S. Department of Labor

EA enterprise architecture

EA environmental assessment

EAB emerald ash borer

EAP Economic Action Programs

EAR enterprise architecture repository

ECAP Environmental Compliance and Protection

ECD estimated completion date

EDRR Early Detection and Rapid Response

EEO Equal Employment Opportunity

EEOCMD Equal Employment Opportunity Commission Management Directive

EERA Emergency Equipment Rental Agreements

EIP Early Intervention Program

EIS Environmental Impact Statement

ELT Executive Leadership Team

EMC Ecosystem Management Coordination

EMIS Equipment Management Information System

EPA Environmental Protection Agency

EVM earned value management

FAM Fire and Aviation Management

FA&O Fire, Administration, and Other

FBWT fund balance with treasury

FCI Facility Condition Index

FDW financial data warehouse

FEA Federal Enterprise Architecture

FECA Federal Employees’ Compensation Act

Appendix B-2
FERS Federal Employees’ Retirement System

FFIS Foundation Financial Information System

FFMIA Federal Financial Management Improvement Act

FHM Forest Health Monitoring

FHP Forest Health Protection

FIA Forest Inventory and Analysis

FIN Financial Management

FISMA Federal Information Security Management Act

FLAs Forest Legacy Areas

FLIS Forest Legacy Information System

FLP Forest Legacy Program

FMFIA Federal Managers’ Financial Integrity Act

FPA Fire Program Analysis

FPL Forest Products Laboratory

FRCC Fire Regimen Condition Class

FRF2 National Fire Plan funding

FRRE Research and Development funding

FS Forest Service

FSH Forest Service handbook

FSM Forest Service manual

FSNRA Forest Service Natural Resource Applications

FSP Forest Stewardship Program

FTBU funds to be put to better use

FTE full-time equivalent

FTRS Financial Transaction Request System

FWS Fish and Wildlife Service

FY fiscal year

GAAP Generally Accepted Accounting Principles

GAO Government Accountability Office

GFA General Forest Areas

GIS Geographic Information System

GPRA Government Performance and Results Act

GS General Schedule (pay plan)

GSA General Services Administration

HA heritage assets

HCM Human Capital Management

HCAAF human capital assessment and accounting framework

HHS PMS Health and Human Services Payment Management System

HRM Human Resources Management

IAS Integrated Acquisition System

ID Interim Directive

IDP Individual Development Plans

IG Inspector General

IMPROVE Interagency Monitoring of Protected Visual Environments

INFRA Infrastructure application, one of the FSNRA corporate applications

IP International Programs (Program Staff)

IPIA Improper Payment Information Act

IQA Information Quality Act

IRM Information Resources Management (Program Staff)

ISO Information Solutions Organization

IT information technology

K-V Knutson-Vandenberg, a trust fund for timber sale area improvements

KM knowledge management

KPMG an independent auditor

LEI Law Enforcement and Investigations (Program Staff)

LMP Land Management Plan

LMS Learning Management System

M4R Managing for Results

MAR Management Attainment Reporting

MD&A Management’s Discussion and Analysis

MOU Memorandum of Understanding

MW Material Weakness

NAPA National Academy of Public Administration

NASF National Association of State Foresters

NEP National Energy Plan

NEPA National Environmental Policy Act

Appendix B-3
NFC National Finance Center

NFMA National Forest Management Act

NFP National Fire Plan

NFPORS National Fire Plan Operations and Reporting System

NFR notice of finding and recommendation

NFS National Forest System (Deputy Area)

NIMO National Incident Management Organization

NIMS National Information Management System

NIPF non-industrial private forest

NIST National Institute of Standards and Technology

NITC National Information Technology Center

NLT National Leadership Team

NPO nonprofit organizations

NPS National Park Service

NRS Northern Research Station

NRCS Natural Resource Conservation Service

NRE Natural Resources and Environment (USDA)

NRIS Natural Resource Information System, one of the FSNRA corporate applications

NWCG Northwest Coordinating Group

OBPA Office of Budget and Program Analysis

OCFO Office of the Chief Financial Officer

OHV off-highway vehicles (interchangeable with ORV)

OIG Office of Inspector General (USDA)

OGC Office of General Counsel

OMB Office of Management and Budget

OPM Office of Personnel Management

ORMS Office of Regulatory and Management Services

ORV off-road vehicles (interchangeable with OHV)

OSHA Occupational Safety Health Administration

OSOH Office of Safety and Occupational Health

P&BA Program and Budget Analysis

P&AR Performance and Accountability Report

PART Program Assessment Rating Tool

PAS Performance Accountability System

PCA Project Cost Accounting

PL&C Programs, Legislation, and Communication (Deputy Area)

PAOT persons at one time

PAS Performance Accountability System

PMA President’s Management Agenda

PMAS Performance Measures Accountability System

POA&M plan of actions and milestones

PONTIUS Purchase Order Normal Tracking and Inventory System

PP&E Property, Plant, and Equipment

PRCH Purchase Order System

PRM Performance Reference Model

PROP Personal Property System

PWS performance work statement

QAR USDA quarterly accomplishment report

R&D Research and Development (Deputy Area)

RAR Roads Accomplishment Report

RBAIS Research Budget Attainment Information System

RFPs request for proposals

RHWR Recreation, Heritage, and Wilderness Resources (Program Staff)

RMET Resource Mapping Evaluation Toolset

RND results not demonstrated

ROSS Resource Order and Status System

ROW rights-of-way

RSA regions, stations, and areas

RSI Required Supplementary Information

RSSI Required Supplementary Stewardship Information

S&PF State and Private Forestry (Deputy Area)

SCEP Student Career Experience Program

SDET Standard Data Evaluation Tool

SEWF stabilizing engineered wood fiber

SES Senior Executive Service

SFA State Fire Assistance

Appendix B-4
SFFAS Statements of Federal Financial Accounting Standards

SGL Standard General Ledger

SL stewardship lands

SOD Sudden Oak Death

SPA strategic program areas

SPOTS Strategic Placement of Treatments

SPRA Strategic Planning and Resource Assessment

STA Small Tracts Act

STARS Sales Tracking and Reporting System

STRATUM Street Tree Resource Analysis Tool

SUDS Special Uses Database System

SUPO Surface Use Plan of Operations

TES threatened and endangered species

TIM timber information management

TMDL total maximum daily load

TRACS Timber Activity Control System

TSA Timber Sale Accounting System

TSA Transportation Security Administration

TSP Thrift Savings Plan

U&CF Urban and Community Forestry (Program Staff)

UDO undelivered order

U.S.C. United States Code

USDA United States Department of Agriculture

USGS United States Geological Survey

UTN Universal Telecommunications Network

VFA Volunteer Fire Assistance

WCF Working capital fund

WFLC Wildland Fire Leadership Council

WFSU Wildland Fire Suppression

WFU wildland fire use

WFW Watershed, Fish, Wildlife, Air and Rare Plants

WFWAR Wildlife, Fish, Water, and Air Research

WO Washington Office

WUI wildland-urban interface

Appendix B-5
APPENDIX C

FOUNDING LEGISLATION AND

HISTORY OF THE FOREST SERVICE’S

TRADITIONAL ROLE

Appendix C-1
Founding Legislation and History of the Forest Service’s Traditional

Role

A century ago, the idea of conservation of Federal forests culminated with Congress passing the

Forest Reserve Act of 1891, creating forest reserves from public domain land. Six years later,

Congress passed the 1897 Organic Act (part of the Sundry Civil Appropriations Act), giving the

U.S. Department of the Interior General Land Office and the U.S. Geological Survey (USGS)

three management goals for those forest reserves: (1) improve and protect the public forests; (2)

secure favorable water flows; and (3) provide a continuous supply of timber, under regulation. In

1905, these responsibilities were transferred to the U.S. Department of Agriculture to a newly

created bureau, the Forest Service, and in 1907 the forest reserves were renamed as national

forests. In those early days, the Forest Service was responsible for the conservation and the

protection of the forests.

The Weeks Law of 1911 enabled the Federal Government to purchase forest lands in the East

that had been previously harvested. Those purchased lands were then transferred to the Forest

Service. Throughout the agency’s early history, the Forest Service’s primary activities, in addition

to conservation and protection, included developing trails, ranger stations, and a pool of expert

natural resource managers.

The Great Depression was incentive for a massive youth employment program–—the Civilian

Conservation Corps (CCC)—with some 3 million enrollees over a 9-year period. The CCC’s focus

was in developing recreation and fire protection on the national forests, as well as on other

Federal and State lands.

After World War II, the Forest Service worked with Congress to provide lumber for the rapidly

growing home market. During the 1950s, timber management became an area of emphasis for

the agency. Timber production increased through the 1960s and 1970s. In 1960, Congress

passed the Multiple-Use Sustained-Yield Act. This act gave recreation, fish, wildlife, water,

wilderness, and grazing priority, along with timber management, conservation and protection, and

Forest Service resource planning.

The passage of the Wilderness Act of 1964 provided additional protection for a national system of

wildernesses in the national forests and applied to the missions of the other Federal land

management agencies as well. Additional legislation throughout the 1970s addressed the

management of roadless areas on national forests.

The National Forest Management Act (NFMA) of 1976 brought 10-year forest management plans

to the Forest Service. From this period throughout the 1990s, the Forest Service saw increased

public debate and public involvement in the management of natural resources, especially from

environmental, timber industry, and other interest groups and stakeholders.

This keen and proactive public involvement resulted in many of the Forest Service’s large-scale

assessments: the Interior Columbia Basin Ecosystem Management Project in the Pacific

Northwest; the Southern Forest Resource Assessment for the southeastern portion of the

country; and the Sierra Nevada Framework for Conservation and Collaboration covering the

Sierra Nevada Mountains of California.

Appendix C-2
APPENDIX D

WASHINGTON OFFICE OVERSIGHT

PERFORMANCE REVIEWS

Appendix D-1
USDA Forest Service

Program and Budget Analysis Staff

WO Oversight Performance Reviews

Region 5

April 3 – 7, 2006

Region 9

May 1 – 5, 2006

Region 4

May 15 – 19, 2006

Region 1

June 12 – 16, 2006

Review Team Members

Ron Ketter, Assistant Director Program & Budget Analysis (P&BA) (R5 only)

Virginia Nichols, P&BA, Program Analyst (all regions)

Ray Thompson, P&BA, Management Analyst (R9, R4 & R1)

Geri Rivers, NFS - Assistant Deputy Area Budget Coordinator (R5, R9, & R1)

Bill Eby, NFS Deputy Area Budget Analyst (R4)

Kathy Paris, NFS Lands, Recreation, Heritage, and Wilderness Budget Coordinator (R1)

Larry Mastic, SPRA - Performance Accountability System Coordinator (R5)

Loren Ford, SPRA - State & Private Forestry Program Coordinator (R9)

Deborah Hennessy, SPRA – Management Analyst (R4 & R1)

Sandy Coleman, Assistant Director FIN, GAO/OIG Audit Liaison (R9, R4, & R1)

Pat O’Day, R6 Budget Officer (R1 only)

R5, R9 & R1 Regional Budget Officer & some Regional Budget Analysts (all regions)

Appendix D-2
EXECUTIVE SUMMARY

Management is responsible for establishing and maintaining internal controls to achieve effective and

efficient operation, reliable financial reporting and compliance with applicable laws and regulations. All

regions, stations, and areas are required, per interim direction in the Forest Service manual, to perform

internal control and data reviews of their performance information on two of their units each year. The

four regions reviewed by the Washington Office Oversight Review Team, received heightened attention,

over and above the directive’s requirements. These reviews were considered as meeting the intent of the

interim directive requirement.

The objectives for the reviews were to:

• Evaluate the effectiveness of performance measures, their definitions, and the use of

performance measures data in supporting management decisions

• Identify and assess issues related to performance management, accomplishment reporting,

and data quality

• Understand significant variations in accomplishment between units to identify knowledge that

might be gained from these variations.

An exit conference was held in each regional office to discuss the findings from the interviews conducted

on their units. A single report is being issued covering the findings in all four regions.

The following items summarize the key findings of the reviews.

• Performance measures that do not have assigned performance targets are viewed as less

important.

• Accomplishment reporting systems are not integrated and some are not fully functional.

• There is inconsistent use of performance data by managers found in the units that were

reviewed.

• Some business rules of work planning and accomplishment reporting appear to be in conflict

with on-the-ground efforts toward integrated work.

• No universal verification process has been followed. In addition, standards for documentation

in support of reported accomplishments are not in place

• At different levels of the organization there are varied perspectives on the number and kind of

performance measures needed.

• Primary Purpose, in some areas, is not being followed.

The document includes an action plan reflecting a strategy to address key findings from the review.

Appendix D-3
FY2006 WO OVERSIGHT PERFORMANCE REVIEW REPORT

BACKGROUND

Recent Office of Inspector General (OIG) and Government Accountability Office (GAO) audit reports have

found that the Forest Service (FS) lacks an effective system of internal controls to ensure data quality.

Without a viable system in place, the FS cannot ensure that the data provided to interested parties

regarding accomplishments is consistent, adequate, reliable, verifiable, useful and supported. The March

2005 OIG audit report recommended that the Washington Office performs reviews of field units and

identify areas where performance measures are reported inconsistently or erroneously. (OIG Audit Report

No. 08601-01-HY, page 14). Performance accountability is a good business practice that makes us more

effective while remaining competitive in a tighter budget environment. Management is responsible for

establishing and maintaining internal controls to achieve effective and efficient operation, reliable financial

reporting and compliance with applicable laws and regulations.

The objectives for the reviews were to:

• Evaluate the effectiveness of performance measures, their definitions, and the use of

performance measures data in supporting management decisions

• Identify and assess issues related to performance management, accomplishment reporting,

and data quality

• Understand significant variations in accomplishment between units to identify knowledge that

might be gained from these variations.

The reviews were conducted by WO-P&BA, Program Analysis Staff; WO-NFS Budget Coordinators; WOSPRA Staff; WO Financial Management Staff; and Regional Budget Staff.

The Review team interviewed regional office, forest and ranger district staff in four regions: Region 5 –

Eldorado and Tahoe National Forests; Region 9 – Ottawa and Hiawatha National Forests; Region 4 –

Payette and Boise National Forests; and Region 1 – Beaverhead-Deerlodge and Flathead National

Forests.

The reviews began in the WO with the analysis of performance targets assigned in the FY 2006 Program

Direction, and a review of the FY 2005 and FY 2006 WorkPlans. An exit conference was held in each

regional office to discuss a summary of the findings from the interviews conducted on their units. A single

report is being issued covering the findings in all four regions. The following items are the key findings of

the reviews.

Appendix D-4
FINDINGS

1. At different levels of the organization there are varied perspectives on the number and kind of

performance measures needed to describe the agency’s accomplishments. In addition,

performance items that do not have assigned targets are viewed as less important. At times,

accomplishments for non-targeted items are not being reported. When all accomplishments are

not being reported, it may have an effect on program information presented to Congress and

other interested parties.

a) Line Officers typically want fewer measures.

b) Program managers and project planners generally want more measures to account for all of

the work they are doing.

c) The development of relevant, high quality, outcome measures, annual accomplishment

milestones, and other annual output measures continues to be a struggle.

d) There are fewer resources available to do work on the ground, as well as to enter

accomplishment data into systems of record. There are some activities that require

information to be entered into several systems for program management and

accomplishment reporting purposes.

e) There is a lack of understanding, clear communication, and training about GPRA and the

President’s Management Agenda.

f) There is a lack of understanding of the use or purpose of the performance measures and

accomplishment data.

g) There is varied understanding about the significance of Executive Priority measures versus

all other measures.

Action Plan:

• Develop criteria/methodology for establishing agency and unit-level performance

targets that justifies the relevance of the establishment of a target.

• Develop and implement a communication strategy that describes the relevance and

various uses of all reported performance data, targeted and non-targeted, and the

significance of performance reporting to the overall accountability of the agency.

2. Various systems used for accomplishment reporting are not integrated and some are not fully

functional. This is a barrier to assuring complete and accurate accomplishment reporting in a

timely manner.

a) With some systems and applications, a significant number of data input fields are required to

be completed before the user is able to enter performance information for the purpose of

meeting the assigned target (i.e. recording noxious weed accomplishments).

b) Accomplishment reporting is time consuming due to the time required to enter information

into the systems.

c) Need to investigate the ‘systems of record’ being used for accomplishment reporting – are

they the most efficient way to report and retrieve accomplishment information.

d) The reporting due dates often conflict or overlap with field season.

Action Plan:

• Investigate the most efficient way to report accomplishments and recommend

alternatives where efficiencies can be recognized.

3. There is inconsistent use of performance data by managers found in the units that were reviewed.

Appendix D-5
a) Accomplishment data often is not used to determine or inform future work priorities or budget

allocations.

b) Individuals responsible for accomplishment reporting sometimes do not use or access the

information available, or are unaware of its existence.

Action Plan:

• Produce a set of tools that demonstrates how performance data can be used in

managerial decision-making. References to the location of available data would be

included.

• Provide a quick and efficient web portal to performance information. This could

possibly be done with some update and restructure of the Managing for Results web

page.

4. Some business rules of work planning and accomplishment reporting appear to be in conflict with

on-the-ground efforts toward integrated work. Agency policy and guidance is for projects to be

integrated to effectively achieve Strategic Plan goals and objectives, as well as desired outcomes

on the ground.

a) There is a perception that all work cannot be reported for integrated projects.

b) Performance measures are generally output measures based on function (timber, recreation,

fuels, wildlife, minerals, etc.) and don't serve well to integrate multi-program efforts toward

desired outcomes.

c) The annual performance measure accomplishments do not link from one year to the next and

do not describe incremental milestones toward a multi-year outcome.

Action Plan:

• Develop alternative accomplishment reporting rules that provide for complete and

integrated reporting. Where there are limited system capabilities, provide examples on

how the current systems allow users to show accomplishment for integrated projects.

5. No universal verification process has been followed and, in addition, standards for documentation

in support of reported accomplishments are not in place. At the ground level a substantial

amount of documentation does take place, but not in a uniform way from location to location.

a) Data verification seems to be largely based on trust. But trust doesn’t leave an audit trail and

recent audits conducted by GAO and OIG found data quality issues.

b) Reviews of field work are generally focused on quality of work rather than verification of

reported accomplishments.

c) Many of the performance measures lack documentation standards.

Action Plan:

• Within the Metrics Management application, establish and maintain a documentation

standard for each performance measure making these standards easily and widely

accessible.

• Program Direction will require that future reviews be focused on reported

accomplishments, data quality, and associated documentation.

Appendix D-6
6. Primary Purpose, in some areas, is not being followed. Our agency must follow primary purpose

to comply with Congressional intent, maintain validity of the reported accomplishment and ensure

that the expenditure information is consistently reported.

a) The high incidences of earmarks provide less flexibility for budget planning. This causes some

people to feel they must accomplish other high priority work by stretching the Primary

Purpose rules.

b) In a few cases there is a perception that the new rules for financing NEPA work allows them to

multi-finance, much like the old benefiting function rules. Further they have extended the

new NEPA financing rule to all project financing. Some even said Primary Purpose no longer

exists.

Action Plan:

• Develop and provide training on Primary Purpose including an emphasis on its

mandatory use.

• Establish a plan for WO review of field compliance with the Primary Purpose policy.

Highlights of the Reviews

There were some very progressive and innovative efforts witnessed in a number of the locations

visited.

 Region 9’s emphasis on performance management throughout the organization. The Region

as a whole has done an excellent job at communicating the relevance of the individual’s work

in the field to the region and agency’s goals and objectives.

 Innovations that all four regions have developed to inform their staffs, or improve the collection

and validation of accomplishment data (i.e. Region 4’s comprehensive and detailed training

package on the Basics of Accomplishment).

ACTION PLAN

The following table displays the action plan items listed above, assigns the lead responsibility for

completion to a staff group or team, and establishes an estimated completion date for the task.

FY2006 PERFORMANCE REVIEW ACTION PLAN

(Note: Virginia Nichols, P&BA, is lead for the review and will oversee closure of these actions).

Action Item Responsible

Staff/Person

Estimated

Completion Date

A. Develop criteria/methodology for establishing

agency and unit-level performance targets that

justifies the relevance of the establishment of a

target.

P&BA - Performance

Accountability Team

December 1, 2006

B. Develop and implement a communication strategy

that describes the relevance and various uses of all

reported performance data, targeted and nontargeted, and the significance of performance

reporting to the overall accountability of the agency.

Office of

Communication with

subject matter

experts

April 1, 2007

Appendix D-7
FY2006 PERFORMANCE REVIEW ACTION PLAN

(Note: Virginia Nichols, P&BA, is lead for the review and will oversee closure of these actions).

Action Item Responsible

Staff/Person

Estimated

Completion Date

C. Investigate the most efficient way to report

accomplishments and recommend alternatives

where efficiencies can be recognized.

Chief Information

Officer

April 1, 2007

D. Produce a set of tools that demonstrates how

performance data can be used in managerial

decision-making. References to the location of

available data would be included.

P&BA - Performance

Accountability Team

April 1, 2007

E. Provide a quick and efficient web portal to

performance information. This could possibly be

done with some update and restructure of the

Managing for Results web page.

P& BA – Program

Analysis

December 1, 2006

F. Develop alternative accomplishment reporting rules

that provide for complete and integrated reporting.

Where there are limited system capabilities, provide

examples on how the current systems allow users

to show accomplishment for integrated projects.

1. Agency high-level measure business rules

2. Agency-wide Operational Business Rules

3. Investigate the possibility of using an

acceptable ‘difference tolerance’ between the

accomplishment report and the system of

record.

P&BA - Performance

Accountability Team

1. November 1,

2006

2. January 1,

2007

3. April 1, 2007

G. Within the Metrics Management application

establish and maintain a documentation standard

for each performance measure making these

standards easily and widely accessible.

P&BA - Performance

Accountability Team

December 1, 2006

H. Program Direction will require that future reviews be

focused on reported accomplishments, data quality,

and associated documentation.

P& BA – Program

Analysis

October 25, 2006

I. Develop and provide training on Primary Purpose

including an emphasis on its mandatory use.

Primary Purpose

Advisory Team

April 1, 2007

J. Establish a plan for WO review of field compliance

with Primary Purpose policy.

Primary Purpose

Advisory Team

On-going annually.

Complete plan by

March 31, 2007

Appendix D-8
CONCLUSION

In March of 2005, an audit conducted by the USDA Office of Inspector General (OIG) found that the

Forest Service had not effectively implemented a comprehensive strategy to ensure that the performance

data provided to interested parties is consistent, valid and supported. As a part of a multi-pronged effort,

in FY2005, the agency provided direction for each Region, Station, and Area to review two of their units

annually, focusing on data quality and reporting accuracy. In FY2006, the agency increased its emphasis

on performance management by replacing the self reviews in four regions with WO Oversight

Performance reviews conducted by a team from the Washington Office.

While the approach for these reviews was aimed at information gathering, versus specific, detailed data

verification, the team acquired a great deal of knowledge, and made many useful observations. By

spending the time necessary to interview employees at all levels of each region, a well-rounded picture of

current practices and challenges associated with performance management began to be realized in the

form of reoccurring findings. The review team grouped these findings and developed an action plan to

address many of the global issues.

In future years, the WO Oversight reviews will be refined to meet internal and external performance

management and reporting needs. The four reviews conducted in FY2006 provided a foundation for the

identification of and elimination of several global issues that have blocked Agency progress toward its

goal of consistent, valid, and supported performance data. In FY2007, a more specific and detailed

review of reported accomplishment data and their documentation is planned.

Next steps: The report will be shared with Regional Foresters, Station and Area Directors, and

Washington Office Deputies and Directors and their staff.

• Continue WO Oversight reviews in FY 2007 with a focus on validating reported accomplishments

and reviewing documentation records.

• Complete three Region and three Station reviews in FY 2007.

• Complete three Regions, two Stations and one Area review in FY 2008.

Appendix D-9
http://www.fs.fed.us/