MESSAGE FROM THE CHIEF.............................................................................. i

PART A: MANAGEMENT’S DISCUSSION AND ANALYSIS (Unaudited)....................... A-1

Mission Statement................................................................................................. A-2

Organizational Structure.......................................................................................... A-2

Mitigating Factors That Could Affect Performance........................................................... A-4

Analysis of Financial Statements and Stewardship Information....................................... A-5

Assets................................................................................................................ A-5

Liabilities and Net Position....................................................................................... A-6

Net Cost of Operations............................................................................................ A-7

Expenses............................................................................................................ A-8

Budgetary Resources.............................................................................................. A-8

Analysis of Systems, Controls, and Legal Compliance................................................... A-9

FY 2008 Financial Statement Audit Report Results.......................................................... A-9

Management Assurances.......................................................................................... A-9

 Federal Managers’ Financial Integrity Act Assertions.................................................... A-9

 Federal Financial Management Improvement Act......................................................... A-10

 Federal Information Security Management Act............................................................ A-11

Internal Controls Over Financial Reporting Assertions...................................................... A-12

Anti-Deficiency Act............................................................................................... A-13

Improper Payments Act........................................................................................... A-14

Limitations of Financial Statements.......................................................................... A-15

PART B: FINANCIAL SECTION............................................................................ B-1

Message from the Chief Financial Officer..................................................................... B-2

Report of the Office of Inspector General...................................................................... B-4

Independent Auditor’s Report.................................................................................... B-6

Management’s Response to Audit Report...................................................................... B-47

Consolidated Balance Sheets..................................................................................... B-48

Consolidated Statements of Net Cost........................................................................... B-49

Consolidated Statements of Changes in Net Position......................................................... B-50

Combined Statements of Budgetary Resources................................................................ B-51

Notes to the Consolidated and Combined Financial Statements............................................. B-52

PART C: REQUIRED SUPPLEMENTARY INFORMATION (Unaudited)........................ C-1

PART D: REQUIRED SUPPLEMENTARY STEWARDSHIP

INFORMATION (Unaudited) .................................................................................

D-1

PART E: OTHER ACCOMPANYING INFORMATION (Unaudited).............................. E-1
Part A

MANAGEMENT’S DISCUSSION

AND ANALYSIS

Unaudited

A-1
Management’s Discussion and Analysis—Unaudited

MANAGEMENT’S DISCUSSION AND ANALYSIS

The Forest Service, U.S. Department of Agriculture (USDA), has chosen to produce an

alternative to the consolidated Performance and Accountability Report (PAR) called an Agency

Financial Report (AFR). This AFR was produced in accordance with the Office of Management

and Budget (OMB) Circular A-136, Financial Reporting Requirements.

The AFR provides an overview of the agency’s financial performance and results to help

Congress, the President, and the public assess our stewardship over the financial resources

entrusted to us.

The agency will include its fiscal year (FY) 2008 annual performance report and FY 2010

performance plan with its Congressional Budget Justification and will post it on the Forest

Service Web site at http://www.fs.fed.us in February 2009.

In addition, the Forest Service will produce a Citizens’ Report and post it on the Forest Service

Web site at http://www.fs.fed.us by January 15, 2009. The Forest Service anticipates that this

approach will improve its performance reporting in the following ways—

 Eliminating redundancy, especially where actual data can be used in lieu of estimates

due to timing of the report

 Making the information more meaningful and transparent to the public

 Providing a more succinct and easily understood analysis of the Forest Service’s

accountability over its resources

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

2008 performance for the Forest Service.

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. Functioning in nearly all States, Puerto Rico, and the Virgin Islands,

Forest Service policy is implemented through nine National Forest System (NFS) regional

offices, one State and Private Forestry (S&PF) area office, five research offices (R&D), the

Forest Products Laboratory (FPL), and the International Institute of Tropical Forestry (IITF).

A-2
Management’s Discussion and Analysis—Unaudited

Reporting to the Chief are the deputy areas: Business Operations, R&D, NFS, S&PF, as well as

the Chief Financial Officer (CFO).

Throughout this year’s AFR, there may be references to a transformation of the Washington

Office, regional offices, and S&PF’s Northeastern Area (WO/RO/Area).

The purpose of the WO/RO/Area Transformation is to focus on designing fundamentally different

ways of delivering integrated leadership, direction, and oversight at the top two levels of the

Forest Service organization. Achieving this will help the agency:

 Invest a greater portion of resources toward mission delivery

 Have improved and more efficient processes that help us better serve our customers and

partners

 Be well integrated in addressing the most important current and emerging issues facing

the Forest Service today and in the future

Included in the Transformation are all staff areas at the WO/RO/Area, including detached units.

Not included in the Transformation are research stations, Human Capital Management (HCM)

and Budget and Finance (B&F) at the Albuquerque Service Center (ASC), the Chief Information

Office (CIO), the Enterprise Program, and Job Corps.

In the financial statements and notes section of this report, 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 34.8 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.

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

MITIGATING FACTORS THAT COULD AFFECT PERFORMANCE

The Forest Service is challenged with restoring fire-adapted forests to more resilient conditions,

providing natural resource materials to the American public, sustaining recreational opportunities,

combating the spread of invasive species, restoring watershed health, and mitigating the loss of

open space.

Historically, wildland fire has been a natural component of ecosystem processes. Suppression

efforts in recent decades allowed trees and underbrush to increase in density, creating hazardous

conditions when combined with prolonged drought and lower than average precipitation. This

combination of factors increased the risk of catastrophic wildland fire in the dense underbrush,

threatening both communities and the environment. While wildland fire is a natural element of

ecosystem processes, these catastrophic wildland fires are not.

Meanwhile, the annual increase in the number of private residences adjacent to national forest

land in the wildland-urban interface (WUI) has increased the agency’s land and resource

management, fire suppression, and law enforcement responsibilities.

The high priority on wildland fire suppression resulted in a dramatic impact on the budget in the

last several years, affecting the Forest Service’s program delivery. The Forest Service recognizes

that it cannot maintain its current organization and infrastructure while providing programs and

services that the public demands. Therefore, changes are taking place to create a flexible, more

contemporary Forest Service that is better positioned to adapt to future needs.

The Forest Service is undertaking a number of major initiatives—all with the aim of intensively

reviewing and, in some cases, making fundamental changes to the future organization and its

culture. These initiatives are far-reaching and represent a dramatic change in the organization and

its operations, creating a significant challenge for the Forest Service.

Any organizational transformation of this magnitude necessitates an investment of time and a

commitment of resources to succeed at an interdisciplinary approach to a 21st century design.

Forest Service leadership acknowledges the challenges and accepts the risks of investing in these

initiatives. It is leadership’s intent to transform the agency into an organization that focuses on the

highest priorities, provides the safest environment in which to provide services, and maximizes

efficiencies to accomplish the mission.

A-4
Management’s Discussion and Analysis—Unaudited

ANALYSIS OF FINANCIAL STATEMENTS AND STEWARDSHIP INFORMATION

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 four principal statements are as

follows:

 Consolidated Balance Sheet

 Consolidated Statement of Net Cost

 Consolidated Statement of Changes in Net Position

 Combined Statement of Budgetary Resources

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,

2008, financial statements provides the following highlights. The exhibits below reflect the

comparative amounts for FY 2008 and FY 2007.

ASSETS

The Forest Service reports $5.8 billion in assets at the end of September 30, 2008, representing a

decrease of 21 percent from FY 2007 amounts.

The agency attributes this primarily to a decrease in General Property, Plant and Equipment

(General PP&E), resulting from a voluntary change in accounting principle to reclassify NFS

road (road prism) assets from General PP&E to Stewardship PP&E.

Further information on this change is presented in Financial Statement Note 19—Change in

Accounting Principle.

The three major asset categories are shown in Exhibit 1.

Exhibit 1. Assets (in millions)

Difference ASSET FY

2008

FY

2007 Dollars Percentages

Fund Balance with Treasury $4,066 $3,641 $425 12%

Accounts Receivable, Intragovernmental,

and Non-Intragovernmental 303 220 83 38%

General Property, Plant, and Equipment 1,375 3,458 (2,083) (60%)

Total of Major Categories $5,744 $7,319 ($1,575) (22%)

Other Asset Categories 31 20 11 55%

Grand Total Assets $5,775 $7,339 ($1,564) (21%)

General PP&E consists primarily of forest road surface improvements, culverts, bridges,

campgrounds, administrative buildings, other structures, and equipment.

A-5
Management’s Discussion and Analysis—Unaudited

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–Stewardship

PP&E, and in the Required Supplementary Information (RSI).

LIABILITIES AND NET POSITION

Liabilities

The Forest Service reported $2.1 billion in liabilities as of September 30, 2008, representing

probable future expenditures arising from past events. This amount is consistent with the reported

balance as of September 30, 2007.

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 FY

2008

FY

2007 Dollars Percentages

Accounts Payable, Intragovernmental and

Non-Intragovernmental $52 $64 ($12) (19%)

Unfunded Leave and FECA Benefits 605 576 29 5%

Payments to States 531 394 137 35%

Other Liability Categories 895 1,027 (132) (13%)

Grand Total Liabilities $2,083 $2,061 $22 1%

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

such payments and OMB has apportioned the funds. A portion of liabilities reported 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 are 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 Payments to States, which authorizes 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’s (Treasury) general receipts are apportioned when the payments are made in the

following year.

 

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

Net Position

The Forest Service reported a net position of $3.7 billion for FY 2008, representing a decrease of

30 percent from FY 2007 amounts. The decrease is attributed primarily to a change in accounting

principle to reclassify NFS road (road prism) assets from General PP&E to Stewardship PP&E,

and expense the related costs as reflected in an adjustment to the beginning balance of

Cumulative Results of Operations.

Net position represents unexpended appropriations consisting of undelivered orders, as well as

unobligated funds and the cumulative results of operations. In accordance with the Statement of

Federal Financial Accounting Standards (SFFAS) 27—Identifying and Reporting Earmarked

Funds, earmarked funds for which the Forest Service is responsible for program management are

presented separately on the Statement of Changes in Net Position. Both earmarked and other fund

totals are included in Exhibit 3.

Unexpended appropriations reflect the spending authority 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 FY

2008

FY

2007 Dollars Percentages

Unexpended Appropriations, as Adjusted $1,970 $1,307 $663 51%

Cumulative Results of Operations 1,722 3,971 (2,249) (57%)

Total Net Position $3,692 $5,278 ($1,586) (30%)

NET COST OF OPERATIONS

The Forest Service’s net cost of operations was $5.8 billion for the year ended September 30,

2008, representing an increase of 1 percent from FY 2007 amounts.

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 and other authorities.

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

with Public Law (PL) 106-393, Secure Rural Schools and Community Self-Determination Act of

2000, as amended by PL 110-343, Section 601, (H.R. 1424).

A-7
Management’s Discussion and Analysis—Unaudited

EXPENSES

Forest Service program costs are $6.7 billion for the year ended September 30, 2008, representing

an increase of 6 percent from FY 2007. For FY 2008, the agency had increases in Wildland Fire

Management costs and Payments to States accruals. Legislation passed on October 3, 2008,

retroactively provided additional Payments to States monies.

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

2008, and September 30, 2007.

Exhibit 4. Gross Expenses (in millions)

Difference

GROSS EXPENSES FY

2008

FY

2007 Dollars Percentage

s

Program Costs

National Forests and Grasslands $3,309 $3,277 $32 1%

Forest and Rangeland Research 334 302 32 11%

State and Private Forestry 407 378 29 8%

Wildland Fire Management 2,661 2,358 303 13%

Total Program Costs $6,711 $6,315 $396 6%

BUDGETARY RESOURCES

The Forest Service's total budgetary resources were $8.6 billion in FY 2008, representing an

increase of 8 percent from FY 2007. The increase is related to additional Wildland Fire

Management appropriations in FY 2008.

A-8
Management’s Discussion and Analysis—Unaudited

ANALYSIS OF SYSTEMS, CONTROLS, AND LEGAL COMPLIANCE

FY 2008 FINANCIAL STATEMENT AUDIT REPORT RESULTS

The FY 2007 Financial Statement Audit report identified a material weakness under the heading

“General Controls Environment.” In FY 2008, this finding was reduced to a significant

deficiency. In addition, the FY 2008 Financial Statement report identified eight (8) significant

deficiencies.

Corrective action plans (CAPs) are in place to address these and other deficiencies.

MANAGEMENT ASSURANCES

Federal Managers’ Financial Integrity Act (FMFIA) Assertions

The FMFIA3 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 2008, the Forest Service took the steps necessary to ensure that evaluations of the

system of internal controls for the agency were conducted in accordance with OMB guidelines.

The Forest Service’s annual evaluation, conducted at all levels throughout the agency, indicated

that the agency’s controls, in general, are achieving their intended objectives. During FY 2008,

these controls also provided reasonable assurance that the above-mentioned objectives have been

met.

In the FY 2008 FMFIA report, the Forest Service noted the following USDA Office of the

Inspector General (OIG) audit identified significant deficiencies. The status of the deficiencies

and planned corrective actions for open items are described below:

Significant Deficiencies

Number 1: The Forest Service Needs To Continue To Improve Its Financial Management and

Reporting Process

The estimated completion date is June 2009.

Number 2: The Compilation of Performance Measures Needs Continued Improvement

Forest Service completed all action items in June 2008: this deficiency is in the closure process.

Number 3: Accountability for Unliquidated Obligations (ULOs) Needs Continued Improvement

 

3

 This is also known as the Integrity Act.

A-9
Management’s Discussion and Analysis—Unaudited

The estimated completion date is June 2009.

Number 4: The Forest Service Needs To Refine and Monitor Its Expense Accrual

The estimated completion date is June 2009.

Number 5: The Forest Service Needs To Improve Its Business Process for Revenue Transactions

The estimated completion date is June 2009.

Number 6: Controls Related to Physical Inventories of Pooled Real Property Need Continued

Improvement

The estimated completion date is June 2009.

Number 7: Review of Credit Card Transactions and Controls Over the Programs Needs

Continued Improvement

The corrective action plan for FY 2007 is complete. The FY 2008 audit report indicates additional

action will be required to completely close the issue.

Number 8: Process Improvements Are Needed Over Personal Property Transactions

Forest Service will establish a stronger internal control environment over the development and

capitalization of internal use software. The estimated completion date (ECD) is December 2008.

Number 9: The Forest Service Needs To Improve Internal Controls Over Its Environmental and

Disposal Liabilities (EDL) Process

Forest Service will analyze and evaluate the control design of the EDL process to determine

where improvements are necessary to ensure compliance. ECD is December 2009.

Number 10: The Forest Service Needs To Continue To Improve Its General Controls

Environment; Downgraded From a Material Weakness in FY 2007 to a Significant Deficiency in

FY 2008.

During FY 2009, the Forest Service will close out all remaining information technology (IT)

audit findings, complete the SecureCAP project work of finalizing and implementing policies and

procedures, and put the necessary resources and tools in place to sustain the improved IT security

posture in the agency. The documentation to support closure of audit findings from FY 2008 and

prior years has been submitted; closure is in process.

Number 11: Adequate Segregation of Duties

Forest Service completed all action items and closed this deficiency in September 2008.

Federal Financial Management Improvement Act (FFMIA)

The FFMIA4 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; and

3. The U.S. Standard General Ledger (SGL) at the transaction level.

 

4

 This is known as the Improvement Act.

A-10
Management’s Discussion and Analysis—Unaudited

FY 2008 Results

For FY 2008, the Forest Service was not in full compliance with the FFMIA in two out of the

three areas. Specifically, the agency’s financial management systems did not comply with Federal

Financial Management System Requirements and the SGL at the transaction level.

Federal Financial Management System Requirements

In the FY 2008 Forest Service Financial Statement audit, the internal control material weakness

on the general controls environment was downgraded to a significant deficiency.

Contributing to the significant deficiency and noncompliance were the following issues:

 Vulnerabilities existed with regards to weak access controls and system patches not

being updated

 Security planning controls had not been finalized

 Segregation of duties conflicts were found in specific applications

 Audit log weaknesses existed

SGL Compliance at the Transaction Level

During FY 2008, the agency completed all action items related to the development of posting

models to appropriately record nonexpenditure financing sources transfers-in and stewardship

land acquisitions, and this portion of the deficiency is in the closure process.

Three instances of auditor-identified noncompliance remain:

Equipment Management Information System (EMIS). The EMIS, used to manage the working

capital fund (WCF) equipment (aircraft and vehicles), does not record depreciation of equipment

at the transaction level using the SGL. EMIS records the depreciation by administrative unit on a

monthly basis at the summary level in the Forest Service’s general ledger. Modifying the current

system would be extensive and the costs unreasonable, given the eminent data migration to a new

system. Therefore, the Forest Service will not be in compliance until EMIS is migrated to another

system.

The agency did not use proper posting logic to record losses on the disposition of real property

assets. Losses were not appropriately recorded as losses; instead, they were recorded as negative

gains.

Forest Service’s capitalized lease and internal use software (IUS) work in process transactions are

not recorded in the general ledger at the transaction level. Instead, they are maintained in off-line

spreadsheets and recorded in the general ledger on a quarterly basis.

Remediation for these items will require replacement of the current financial systems.

Federal Information Security Management Act (FISMA)

The FISMA provides the framework for securing the Federal Government's IT. 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.

A-11
Management’s Discussion and Analysis—Unaudited

Security audit findings, security deficiencies identified in systems’ 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, 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 has made great strides to correct the information security controls deficiencies.

FY 2008 Results

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

FY 2008, the agency made significant progress in implementing the necessary corrective actions

to resolve remaining deficiencies.

Highlights were in the areas of:

 Vulnerability Assessment: Forest Service revamped the patch management process by

formalizing procedures to identify and categorize vulnerabilities by severity. Once

categorized, a risk-based approach to remediation occurs.

 Change Control: Maintained documentation of policies and procedures, testing, approval,

and logs.

 Entitywide Security: Made progress in completing C&A packages as required.

The Forest Service will continue with plans to complete the correction of deficiencies in

information security controls in FY 2009.

INTERNAL CONTROL OVER FINANCIAL REPORTING ASSERTIONS

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 30 processes that were applicable for

assessment under these requirements.

The eight cycles included Funds Control, Funds Management, Human Capital Management

(HCM), 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 self-assessment. Each process was mapped and evaluated for internal control

design effectiveness.

For the 2008 Assurance Year (ending June 30 of the fiscal year), Forest Service tested all cycles

or processes. The outcome of the A-123 testing identified no new material weaknesses and 11

significant deficiencies in Financial Reporting and Property Management Cycles. The Forest

Service developed remediation plans for the identified deficiencies and implemented a

monitoring process.

The deficiencies in Property Management were in the areas of acquisitions funds certification and

inventory controls.

The summary remediation efforts for Property have an ECD of July 31, 2009, and include:

 Conduct root cause analysis and develop optimal solution.

A-12
Management’s Discussion and Analysis—Unaudited

 Implement new process to include controls over the proper accounting, documentation, and

classification of capitalized property.

 Develop a monitoring tool to assess progress of implementation of plan.

 Monitor inventory process by requiring submission of documentation to ensure compliance

with requirements.

 Develop new documentation to include narrative, flowchart, and a risk and control matrix

for the controls within the new process. The A-123 Team will develop these items and then

develop new test plans to test operating effectiveness over the new controls.

 Conduct A-123 Validation testing on inventory for both real and personal property in

accordance with USDA sampling requirement for annual controls. Testing will include

observation of actual inventory taking as well as inspection of documentation.

 Ensure that USDA reviews documentation and clears remediation status for A-123.

In the Financial Reporting Cycle, the controls over the ULO certification process were

ineffective.

The summary remediation efforts for Financial Reporting have an ECD of January 31, 2009, and

include:

 Ensure compliance with Interim Directive (ID) No. 6509.11k, Forest Service Handbook

(FSH) that was issued April 25, 2008. The ID provides servicewide direction for quarterly

reviews and annual certification of ULOs and addresses responsibilities and requirements

for quarterly review and annual certification.

 Implement new process to include newly designed controls.

 Conduct A-123 validation testing on third and fourth quarters of 2008, and first quarter of

2009 certification process.

THE ANTI-DEFICIENCY ACT

The Forest Service provides aviation support for emergency fire suppression incidents. In FY

2006, a footnote on the apportionment document limited spending of fire suppression funds on

aviation resources to no more than $100 million. The agency exceeded this amount by $17

million in August 2006. The agency requested a legal opinion from the USDA Office of the

General Counsel (OGC) as to whether exceeding the footnote was an Anti-Deficiency Act (ADA)

violation.

In July 2007, the agency was advised that OGC had rendered an opinion that exceeding the

footnote limitation was an ADA violation. Subsequently, the Forest Service requested an opinion

from the Government Accountability Office (GAO).

In February 2008, GAO concurred with OGC that the Forest Service violated the ADA by

obligating wildfire suppression funds prior to submitting an Exhibit 3005

. GAO recognized the

Forest Service for taking immediate action to address the issue by seeking and obtaining a

reapportionment to cover obligations and making necessary adjustments in the same fiscal year.

 

5

 Exhibit 300 refers to OMB Circular A-11, Part 7 (section 300). It establishes policy for planning, budgeting,

acquisition and management of Federal capital assets, and instructs agencies on budget justification and reporting

requirements for major information technology (IT) investments and for major non-IT capital assets.

A-13
Management’s Discussion and Analysis—Unaudited

Forest Service implemented the following corrective actions as a result of this violation:

 Instituted a more rigorous apportionment monitoring process in which the Albuquerque

Service Center (ASC) receives daily accruals of wildfire suppression obligations and

reports status to the Washington Office. On a daily basis, personnel track apportionment

limits in “real-time” and seek timely reapportionments, if necessary, when limits are

approached.

 Required line officers to certify wildfire suppression cost estimates within its wildfire

decision support systems. Senior Forest Service officials were notified of the costs

associated with wildfires that could require reappointments.

In addition, the Forest Service will revise administrative control of funds and applicable

regulations to prevent a recurrence of the violation and submit to the Director of OMB for

approval pursuant to 31 USC 1514. The revision will ensure obligations and expenditures against

each appropriation or fund does not exceed amounts available; enhance accountability of

responsible personnel; and improve the transparency of apportionments, allotments, and

allocations.

IMPROPER PAYMENTS INFORMATION ACT (IPIA)

Information on the Forest Service’s IPIA evaluation and FY 2008 results is discussed in the Other

Accompanying Information (OAI) section of the AFR.

A-14
Other Accompanying Information—Unaudited

LIMITATIONS OF FINANCIAL STATEMENTS

The Forest Service’s principal financial statements have been prepared to report the financial

position and results of operations of the agency, 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 (GAAP) 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 that are prepared from the same books and records.

These statements should be read with the realization that they are for a component of the U.S.

Government, a sovereign entity.

A-15
Part B

FINANCIAL SECTION

B-1
Message From the Chief Financial Officer

The Forest Service, an agency of the U.S. Department of Agriculture (USDA), continued its high standard 

of financial management and reporting during the past fiscal year. As Chief Financial Officer for the Forest 

Service, I am proud to present the Fiscal Year 2008 results for our stewardship and management of the public 

funds entrusted to the Agency.

During FY 2008, the Forest Service took the steps necessary to ensure that

	 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.

The Forest Service’s annual evaluation, conducted at all levels throughout the agency, indicated that agency 

controls are achieving intended objectives. During FY 2008, internal controls provide reasonable assurance that 

the above-mentioned objectives have been met.

Our success has been a joint effort of Forest Service managers, employees, and partners as we strive for 

excellence in financial accountability. Highlights of major accomplishments in FY 2008 included:

	 An unqualified opinion on the principal financial statements for a seventh consecutive year

	 No material weaknesses

	 Complied with OMB Circular A-123, Management’s Responsibility for Internal Control for the third 

consecutive year

Although the Forest Service did not resolve all information security weaknesses as planned for FY 2008, 

the agency made significant progress in implementing the necessary corrective actions to resolve remaining 

deficiencies. 

Highlights were in the areas of:

Vulnerability Assessment: Forest Service revamped the patch management process by formalizing 

procedures to identify and categorize vulnerabilities by severity. Once categorized, a risk-based 

approach to remediation occurs.

Change Control: The agency maintained documentation of policies and procedures, testing, approval, 

and logs.

Entity Wide Security: The agency made progress in completing Certification and Accreditation packages 

as required.

B-2
The Forest Service will continue with plans to complete the correction of deficiencies in information security 

controls in FY 2009. The Forest Service has and will continue to see improvements in its control systems. This 

is evidenced by the external auditor determination of improvements in controls, less substantive testing, and 

improved operating effectiveness of internal controls over financial reporting. In addition, the Forest Service’s 

A-123 assessments support this conclusion.

JESSE L. KING

Chief Financial Officer

B-3
B-4
B-5
Independent Auditors’ Report

B-6
Independent Auditors’ Report

Chief, U.S. Forest Service and

Inspector General, United States Department of Agriculture:

We have audited the accompanying consolidated balance sheets of the United States (U.S.) Forest Service

(an agency of the United States Department of Agriculture) as of September 30, 2008 and 2007 and the

related consolidated statements of net cost, and changes in net position, and the combined statements of

budgetary resources (hereinafter referred to as the “financial statements”) for the years then ended. The

objective of our audits was to express an opinion on the fair presentation of these financial statements. In

connection with our fiscal year 2008 audit, we also considered the U.S. Forest Service’s internal controls

over financial reporting and tested the U.S. 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 U.S. Forest Service’s financial

statements as of and for the years ended September 30, 2008 and 2007, are presented fairly, in all material

respects, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the financial statements, in the year ended September 30, 2008, the U.S. Forest

Service reclassified National Forest System (NFS) road assets (road prisms) from General Property Plant

and Equipment (PP&E) to Stewardship PP&E.

As stated in our opinion on the financial statements, we concluded that the U.S. Forest Service’s Required

Supplementary Information related to deferred maintenance is lacking internal controls to ensure the

accuracy, completeness, timeliness and consistency of the reported information.

Our consideration of internal controls over financial reporting resulted in the following conditions being

identified as significant deficiencies. However, none of the significant deficiencies are believed to be

material weaknesses.

• The U.S. Forest Service Needs to Continue to Improve its General Controls Environment

• The U.S. Forest Service Needs to Develop Comprehensive Policy and Procedures for Financial

Management and Reporting of Wildland Fire Activity

• Management Review of Credit Card Transactions and Controls Over the Programs Need Continued

Improvement

• Physical Inventory Policies and Procedures of Pooled Real Property Need to be Developed

• Accountability for Unliquidated Obligations (ULOs) Needs Continued Improvement

B-7
• The U.S. Forest Service Needs to Improve Internal Controls and Management Oversight for

Environmental and Disposal Liabilities (EDL)

• The U.S. Forest Service Needs to Improve Internal Controls over Revenue Related Transactions

• The U.S. Forest Service Needs to Refine its Period-end Accrual Processes

The results of our tests of compliance with certain provisions of laws, regulations, contracts, and grant

agreements, exclusive of those referred to in the Federal Financial Management Improvement Act of 1996

(FFMIA), 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. 07-04, Audit Requirements for Federal

Financial Statements.

• The U.S. Forest Service Continues to Not Obligate all Transactions Required by Appropriations Law

• The Government Accountability Office Made a Final Determination as to the U.S. Forest Service’s

Fiscal Year 2006 Non-Compliance with 31 USC 1517

The results of our tests of FFMIA disclosed instances where the U.S. Forest Service’s financial

management systems did not substantially comply with Federal Financial Management System

Requirements and the U.S. Standard General Ledger.

The results of our tests of FFMIA disclosed no instances in which the U.S. Forest Service’s financial

management systems did not substantially comply with applicable Federal Accounting Standards.

The following sections discuss our opinion on the U.S. Forest Service’s financial statements, our

consideration of the U.S. Forest Service’s internal controls over financial reporting; our tests of the U.S.

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 U.S. Forest Service as of

September 30, 2008 and 2007 and the related consolidated statements of net costs, and changes in net

position, and the combined statements of budgetary resources (hereinafter referred to as the “financial

statements”) 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 U.S. Forest Service as of September 30, 2008 and 2007, and its net costs, changes

in net position, and budgetary resources for the years then ended, in conformity with U.S. generally

accepted accounting principles.

As discussed in Note 1 to the financial statements, in the year ended September 30, 2008, the U.S. Forest

Service reclassified National Forest System (NFS) road assets (road prisms) from General PP&E to

Stewardship PP&E.

The information in the Management’s Discussion and Analysis, Required Supplementary Information, and

Required Supplementary Stewardship Information sections is not a required part of the financial

statements, but is supplementary information required by U.S. generally accepted accounting principles.

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

B-8
believe that the Required Supplementary Information related to deferred maintenance is lacking internal

controls to ensure the accuracy, completeness, timeliness and consistency of the reported information.

The information in the Other Accompanying Information section is presented for purposes of additional

analysis and is not required as part of the financial statements. This information has not been subjected to

auditing procedures and, accordingly, we express no opinion on it.

Internal Control Over Financial Reporting

Our consideration of the internal control over financial reporting was for the limited purpose described in

the Responsibilities section of this report and would not necessarily identify all deficiencies in the internal

control over financial reporting that might be significant deficiencies or material weaknesses.

A control deficiency exists when the design or operation of a control does not allow management or

employees, in the normal course of performing their assigned functions, to prevent or detect misstatements

on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies,

that adversely affects the U.S. Forest Service’s ability to initiate, authorize, record, process, or report

financial data reliably in accordance with U.S. generally accepted accounting principles such that there is

more than a remote likelihood that a misstatement of the U.S. Forest Service’s financial statements that is

more than inconsequential will not be prevented or detected by the U.S. Forest Service’s internal control. A

material weakness is a significant deficiency, or combination of significant deficiencies, that results in

more than a remote likelihood that a material misstatement of the financial statements will not be prevented

or detected by the U.S. Forest Service’s internal control.

In our fiscal year 2008 audit, we consider the deficiencies described in Exhibit I to be significant

deficiencies in internal control over financial reporting. However, we believe that none of the significant

deficiencies described in Exhibit I are material weaknesses. Exhibit II presents the status of prior year

significant deficiencies, including those open conditions on which we are making no further

recommendations in this report.

We noted certain additional matters that we have reported to management of the U.S. Forest Service in a

separate letter dated November 10, 2008.

Compliance and Other Matters

The results of certain of our tests of compliance as described in the Responsibilities section of this report,

exclusive of those referred to in the Federal Financial Management Improvement Act of 1996 (FFMIA),

disclosed noncompliance with appropriation law, and a resolved 2006 violation of 31 U.S.C. 1517 as

described in Exhibit III that are required to be reported herein under Government Auditing Standards or

OMB Bulletin No. 07-04.

The majority of the deficiencies for noncompliance with appropriation law result from the U.S. Forest

Service’s travel system limitations. The U.S. Forest Service’s current system does not allow it to obligate

funds for temporary duty travel.

The results of our other tests of compliance as described in the Responsibilities section of this report,

exclusive of those referred to in FFMIA, disclosed no other instances of noncompliance or other matters

that are required to be reported under Government Auditing Standards or OMB Bulletin No. 07-04.

The results of our tests of FFMIA disclosed instances, described in Exhibit III, where the U.S. Forest

Service’s financial management systems did not substantially comply with Federal financial management

system requirements and the U.S. Standard General Ledger at the transaction level. Exhibit IV provides the

status of prior year’s non-compliance findings and other matters, including those open conditions on which

we are making no further recommendations in this report.

B-9
The results of our tests of FFMIA disclosed no instances in which the U.S. Forest Service’s financial

management systems did not substantially comply with applicable Federal Accounting Standards.

We noted certain additional matters that we have reported to management of the U.S. Forest Service in a

separate letter dated November 10, 2008.

* * * * * * *

Responsibilities

Management’s Responsibilities. Management is responsible for the financial statements; establishing and

maintaining effective internal control; and complying with laws, regulations, contracts, and grant

agreements applicable to the U.S. Forest Service.

Auditors’ Responsibilities. Our responsibility is to express an opinion on the fiscal year 2008 and 2007

financial statements of the U.S. 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. 07-04. Those standards and OMB Bulletin No. 07-04 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 control 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 U.S. 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 2008 audit, we considered the U.S. Forest Service’s internal

control over financial reporting by obtaining an understanding of the U.S. Forest Service’s internal control,

determining whether internal controls had been placed in operation, assessing control risk, and performing

tests of controls as a basis for designing our audit procedures for the purpose of expressing our opinion on

the financial statements. 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

express an opinion on the effectiveness of the U.S. Forest Service’s internal controls over financial

reporting. Accordingly, we do not express an opinion on the effectiveness of the U.S. Forest Service’s

internal control over financial reporting.

As part of obtaining reasonable assurance about whether the U.S. Forest Service’s fiscal year 2008

financial statements are free of material misstatement, we performed tests of the U.S. 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. 07-04, 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

B-10
agreements applicable to the U.S. 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.

______________________________

The U.S. Forest Service’s response to the findings identified in our audit is presented in Exhibit V. We did

not audit the U.S. Forest Service’s response and, accordingly, we express no opinion on it.

This report is intended for the information and use of the U.S. Forest Service’s management, the United

States Department of Agriculture (USDA) Office of the Inspector General (OIG), OMB, the U.S.

Government Accountability Office (GAO) 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, 2008

B-11
INTRODUCTION TO EXHIBITS

The U.S. Forest Service continues to make progress in closing out its prior year audit recommendations and

minimizing new audit recommendations. During the fiscal year (FY) 2007 audit, a material weakness was

reported in the U.S. Forest Service’s information technology (IT) area. However during the FY 2008 audit,

significant improvement was noticed in the IT area. Given the level of remediation that occurred prior to and

during FY 2008, we have determined that the prior year material weakness will be downgraded to a

significant deficiency. While the U.S. Forest Service has taken significant strides in its efforts to centralize

and improve its IT functions, more actions are necessary to fully address the deficiencies identified as well as

to ensure an appropriate level of confidentiality, integrity, and availability of critical information systems and

resources.

We continue to recognize that certain recommended IT control enhancements pertaining to the U.S. Forest

Service’s operations cannot be implemented solely by the U.S. Forest Service, because the U.S. Forest

Service’s applications are in many cases hosted on United States Department of Agriculture (USDA)

managed systems. As a result, several IT control deficiencies identified in this report will continue to require

the combined effort of USDA and the U.S. Forest Service management.

Exhibit I presents the significant deficiencies as of and for the year ended September 30, 2008. Exhibit II of

this report summarizes the current year status of prior year recommendations. Exhibit III provides an update

of those instances of noncompliance with laws and regulations and other matters and applicable new instances

of noncompliance. Exhibit IV summarizes the status of prior year recommendations for noncompliance with

laws and regulations and other matters. The U.S. Forest Service management’s response is presented in

Exhibit V.

B-12
Exhibit I

(Continued)

SIGNIFICANT DEFICIENCIES

Number 1: The U.S. Forest Service Needs to Continue to Improve its General Controls Environment

(Downgraded - Repeat Condition)

During FY 2008, the U.S. Forest Service took positive steps to implement management, operational, and technical

controls to help establish sound information security practices and address prior year findings. The agency has

embarked on the final phase of a three-phased corrective action plan for addressing known weaknesses. In FY

2007, a number of control weaknesses were identified in the U.S. Forest Service’s general control environment

and were categorized as an overall material weakness because of the critical nature of the findings. However in

FY 2008, a number of improvements in each of the four areas that comprised the prior year material weakness

were noted.

- Vulnerability Assessment

The U.S. Forest Service has revamped its patch management process by formalizing procedures to identify and

categorize vulnerabilities by severity. Once categorized, a risk-based approach to remediation occurs. The

vulnerabilities identified this year were more recent in nature as compared to years past when a significant

number of outdated patches were missing. Additionally, the total number of vulnerabilities identified decreased

by 66% from FY 2007 to FY 2008.

The U.S. Forest Service’s internet-facing external presence is very secure and 99% of the identified vulnerabilities

would require an individual to be present on the internal network, which reduces the risk of exploitation. Finally,

the U.S. Forest Service provided corrective action evidence for roughly half of the patch and configuration

management issues identified this year.

- Change Control

All prior year issues were noted as being closed prior to the beginning of FY 2008. Additionally, no new issues

were identified during audit testwork this year.

- Entity-wide Security

Most of the components of the certification and accreditation (C&A) packages were completed early during FY

2008. The U.S. Forest Service has had difficulties in obtaining the C&A packages for authorization by USDA

because of missing components that are required by the department. The formalization process will be more

efficient once the U.S. Forest Service has a firm grasp of the required components of the C&A packages. Finally,

all prior-year issues that were initially noted as being open this FY have since been corrected during fieldwork.

- Segregation of Duties

The number of individuals with excessive access to the Oracle Password Database has decreased from 27 to 12.

U.S. Forest Service management has stated that access to the operating system level password is a requirement for

their database administrators to perform their job functions. U.S. Forest Service management is in the process of

implementing Net Forensics, which is a tool that will track actions of users with privileged access. Once fully

implemented, this tool will provide a compensating control to the segregation of duties issues identified.

B-13
Exhibit I

(Continued)

U.S. Forest Service Systems are Vulnerable to Unauthorized Access

During the vulnerability assessment phase of our audit, we noted the following high-level categories of findings:

Patch Management:

• 45 various buffer overflow, remote code execution, Denial of Service (DoS), and cross-site scripting

vulnerabilities related to outdated and/or unpatched versions of software were identified on 85 hosts. During

the audit, the U.S. Forest Service provided evidence of remediation indicating the correction of 34

vulnerabilities on 60 hosts.

• Four various DoS vulnerabilities related to outdated and/or unpatched versions of software were identified on

four hosts. During the audit, the U.S. Forest Service provided evidence of remediation, indicating the

correction of two DoS vulnerabilities on two hosts.

• Three various session hijacking or information leakage vulnerabilities related to outdated and/or unpatched

versions of software were identified on 48 hosts. During the audit, the U.S. Forest Service provided evidence

of remediation, indicating the correction of various session hijacking or information leakage vulnerabilities on

35 hosts.

• Five various cross-site scripting vulnerabilities related to outdated and/or unpatched versions of software were

identified on 11 hosts. During the audit, the U.S. Forest Service provided evidence of remediation, indicating

the correction of various cross-site scripting vulnerabilities on 2 hosts.

Configuration Management:

• Five instances of allowing anonymous access to information File Transfer Protocol (FTP), Trivial File

Transfer Protocol (TFTP), X11, and Virtual Network Computing (VNC) servers were identified on 25 hosts.

During the audit, the U.S. Forest Service provided evidence of remediation, indicating the correction of one

instance of allowing anonymous access on 19 hosts.

• Five cross-site scripting vulnerabilities related to improper configuration of software were identified on 64

hosts (two identified through external review). During the audit, the U.S. Forest Service provided evidence of

remediation, indicating the correction of two cross-site scripting vulnerabilities on 44 hosts.

• One man-in-the-middle vulnerability related to improper configuration of software was identified on 46 hosts.

During the audit, the U.S. Forest Service provided evidence of remediation, indicating the correction of manin-the-middle vulnerabilities on 14 hosts.

• One session hijacking or information leakage vulnerability related to improper configuration of software was

identified on one host.

• Two buffer overflow, remote code execution, DoS, and cross-site scripting vulnerabilities related to improper

configuration of software were identified on three hosts. During the audit, the U.S. Forest Service provided

evidence of remediation for one vulnerability, indicating the correction of one buffer overflow, remote code

execution, denial of service, and cross-site scripting vulnerability on two hosts.

• We identified FTP and/or telnet login screens that did not have government warning banners on 75 hosts.

During the audit, the U.S. Forest Service provided evidence of remediation, indicating the correction of

warning banners on 58 hosts.

• One vulnerability in which password policy was not configured in accordance with U.S. Forest Service policy

on 75 hosts was identified. During the audit, the U.S. Forest Service provided evidence of remediation,

indicating the correction of password compliance on four hosts.

• One vulnerability in which default passwords were configured on four hosts; and one vulnerability in which

five hosts contained services with null passwords was identified. During the audit, the U.S. Forest Service

B-14
Exhibit I

(Continued)

provided evidence of remediation, indicating the correction of default passwords on four hosts, and the

correction of null password on four hosts.

Although the U.S. Forest Service is currently conducting quarterly scans to identify vulnerabilities, we noted that

systems are not being patched for all the significant identified vulnerabilities.

USDA Departmental Manual (DM) 3535-00, “C2 Controlled Access Protection,” Part I, “USDA’s C2 Level of

Trust,” Section 3a, states “A USDA mandatory minimum password length of 6-8 alphanumeric characters will be

established. To comply with USDA’s C2 Level of Trust, passwords for all general users of systems, applications

or processes shall be changed every 60 days. Passwords issued to privileged users (system administrators, system

managers, auditors and engineers) will be changed every 30 days. All passwords will be encrypted and dictionary

words shall not be used for passwords.”

The Office of Management and Budget (OMB) Circular A-130, Appendix III, “Security of Federal Automated

Information Resources” states that the agency should implement “Security commensurate with the risk and

magnitude of the harm resulting from the loss, misuse, or unauthorized access to or modification of information.

This includes assuring that systems and applications used by the agency operate effectively and provide

appropriate confidentiality, integrity, and availability, through the use of cost-effective management, personnel,

operational, and technical controls.” In addition Section 3 requires “Federal agencies to implement and maintain a

program to assure that adequate security is provided for all agency information collected, processed, transmitted,

stored, or disseminated. Where an agency's application promotes or permits public access, additional security

controls shall be added to protect the integrity of the application and the confidence the public has in the

application.”

The patch management vulnerabilities noted above result from outdated and/or unpatched versions of software

running on the servers. The configuration management issues are the result of software and passwords not being

configured securely upon implementation. All of these issues stemmed from management not having adequate

and timely (i.e., within one month of identification) patching procedures. However, the U.S. Forest Service is

currently in the process of refining their patch management procedures, but this process has not yet matured.

The patch management vulnerabilities could potentially allow an attacker to execute arbitrary code with systemlevel privileges, facilitating the complete compromise of the affected systems. In addition, an attacker could

potentially utilize the privileges granted to the affected servers in an attempt to compromise other servers and/or

network devices within the U.S. Forest Service network, including financial servers.

In addition, without proper control of user accounts and the associated passwords, the potential exists for

unauthorized users to access U.S. Forest Service systems. This risk is elevated when powerful accounts, such as

system administration accounts, are assigned easily guessable, blank, or default passwords. These accounts could

allow an unauthorized individual unlimited access to a system and cause a loss in availability or integrity of the

system.

Finally, a user may execute a man-in-the-middle attack to seamlessly insert themselves into communication

streams with the identified servers. The Cross Site Scripting vulnerabilities allow for the theft of cookies,

sessions, or execution of malicious scripts appearing to originate from the U.S. Forest Service servers.

B-15
Exhibit I

(Continued)

Recommendation Number 1:

We recommend that the U.S. Forest Service management:

A. Improve patch management practices to establish a set frequency for reviewing system patch levels for

security weaknesses.

B. Determine if vulnerability scanning procedures need to be refined in order to ensure future issues related to

unpatched systems or improper configurations are identified and issues are remedied.

We continue to recognize the need for the U.S. Forest Service to:

• Update its system configuration management baseline and improve system configuration management

practices as reported in prior year Recommendation 4 of Audit Report No. 08401-8-FM.

• Develop and implement a patch management policy and configuration management policy to strengthen

change controls and system software controls as reported in prior year Recommendation 8 of Audit Report

No. 08401-6-FM.

• Develop access controls to improve the management of network accounts as reported in prior year

Recommendation 7 of Audit Report No. 08401-6-FM.

Security Planning Controls Need Continued Improvement

Five of 22 major applications and general support systems are operating in production without an Authority to

Operate (ATO) or Interim ATO. The financial and non-financial systems without an ATO or Interim ATO follow:

• Application Hosting Environment (AHE);

• Fire Program Analysis System – Phase 2;

• Incident Business System (IBS);

• I-Suite; and

• Planning, Appeals, and Litigation System.

During the audit, the U.S. Forest Service implemented corrective actions for AHE and I-Suite during fieldwork by

issuing the ATO in August and July, respectively.

Additionally, specific C&A components were not finalized for the following financial applications:

• Risk assessments for the following systems were noted as in draft and had not been finalized:

o Financial Transaction Request System (FTRS);

o IBS;

o I-Suite; and

o AHE.

During the audit, the U.S. Forest Service finalized the risk assessments for FTRS, IBS, I-Suite, and AHE. The

risk assessment for FTRS was completed in March, I-Suite and AHE were completed in May and IBS was

completed in August.

• System security plans for the following systems were noted as draft and had not been finalized:

o FTRS;

o IBS;

o I-Suite; and

o AHE.

During the audit, the U.S. Forest Service finalized these system security plans. The system security plans for

FTRS and IBS were completed in March and August, respectively. System security plans for both I-Suite and

AHE were completed in May.

B-16
Exhibit I

(Continued)

• Security Test and Evaluations (ST&E) has not been performed for the following systems:

o IBS;

o I-Suite; and

o AHE.

During the audit, the U.S. Forest Service performed and finalized the ST&Es for the three systems noted above

during the months of August, December, and May, respectively.

The Forest Service Manual (FSM) 6600, Chapter 6680 – Security of Information, Information Systems, and

Information Technology, Section 6682.1 “Risk Management” addresses risk assessments and indicates that “For

all information systems operated on behalf of the U.S. Forest Service a risk assessment must be performed...in

accordance with direction provided in USDA DM [Department Manual] 3540-001, Risk Assessment

Methodology.”

FSM Section 6682.5 “System Security Plan” addresses system security plans and indicates that system security

plans are to be developed for all general support systems or major applications. Additionally, the guidance

indicates that the security plans are to be reviewed annually and updated as necessary in accordance with the

National Institute of Standards and Technology (NIST) Special Publication (SP) 800-18, “Guide for Developing

Security Plans for Information Technology Systems.”

In addition, FSM section 6682.4, “Certification, Accreditation, and Security Assessments Policies and

Procedures,” states that all [U.S. Forest Service] general support systems and major applications must be

certificated and accredited before the beginning of operation, before resuming operation after a major change and

at least once every three years. Additionally, the policy states that C&A must be conducted in accordance with the

current USDA C&A methodology and other current Federal, Departmental and [U.S. Forest Service] regulations.

NIST SP 800-37, “Guide for Certification and Accreditation of Federal Information Systems,” page 1 & 2 states

“The Security Certification Phase consists of two tasks: (i) security control assessment; and (ii) security

certification documentation. The purpose of this phase is to determine the extent to which the security controls in

the information system are implemented correctly, operating as intended, and producing the desired outcome with

respect to meeting the security requirements for the system. Security accreditation is the official management

decision given by a senior agency official to authorize operation of an information system and to explicitly accept

the risk to agency operations, agency assets, or individuals based on the implementation of an agreed-upon set of

security controls. Required by OMB Circular A-130, Appendix III, security accreditation provides a form of

quality control and challenges managers and technical staffs at all levels to implement the most effective security

controls possible in an information system, given mission requirements, technical constraints, operational

constraints, and cost/schedule constraints. By accrediting an information system, an agency official accepts

responsibility for the security of the system and is fully accountable for any adverse impacts to the agency if a

breach of security occurs. Thus, responsibility and accountability are core principles that characterize security

accreditation.”

Once the C&A packages have been completed from the U.S. Forest Service perspective, the packages must

undergo an USDA review. This further lengthens the time necessary to reach an accreditation decision. The U.S.

Forest Service did not initiate this process in a timely enough manner in order to have the reviews completed by

the time the applications were in the operational phase.

Without proper accreditations of major applications and general support systems, the system owners may not be

aware of, or in acceptance of, the security risks posed by the use of the system. Therefore the owners cannot

actively support and monitor the effectiveness of U.S. Forest Service security policies, which could further lead to

unauthorized access, intentional or unintentional data destruction or misuse, and/or DoS. Without complete, well

documented risk assessments, the accuracy of risk classifications and the implementation of appropriate solutions

for mitigating risks and managing critical systems will not be consistent. This places the integrity of the financial

data and information systems at risk. Without complete and documented system security plans, security controls

may be inadequate, responsibilities unclear, and controls may be inconsistently applied. Such conditions lead to

B-17
Exhibit I

(Continued)

insufficient protection of sensitive or critical resources. Therefore, the integrity of the financial data and

information systems may be at risk.

Recommendation Number 2:

We recommend that U.S. Forest Service management initiate the C&A process for all major applications in a

timely enough manner in order to avoid having systems in production that are not appropriately certified.

We continue to recognize the need for the U.S. Forest Service to document and finalize a risk assessment for IBS

and ensure a formalized ATO or interim ATO is in place for all major applications as reported in prior year

Recommendation 1A and 1D of Audit Report No. 08401-08-FM.

Lack of Segregation of Duties Controls

During our FY 2008 audit, the following segregation of duties conflicts were identified:

• Some field unit Human Capital Management (HCM) employees have access to the Entry, Processing, Inquiry,

and Correction (EPIC) system and also have access rights within Paycheck7 with the pay administrator role.

• In the Oracle Password Database, users with access to group ‘KC’, ‘ABQ-DEV’, ‘Boulder’, and ‘FIA’

combined with access to the ‘ORACLE’ group have access to both root-level operating system passwords and

database administrator (DBA) passwords. As a result, there are 12 individuals with administrative-level access

to both the databases and operating systems. This database is a central repository that contains all of the

administrative-level passwords for U.S. Forest Service managed servers and databases.

• In the Oracle Password Database, one user had access to both the Oracle and Domino groups, which would

give this user access to both root-level operating system and DBA passwords for Paycheck7.

• In Paycheck7, one employee had access to both administrative application-level access and DBA-level access.

During audit field work the last two bullet items (above) were corrected by U.S. Forest Service management by

removing the individual’s system access.

FSM 6600, Chapter 6680 – Security of Information, Information Systems, and Information Technology, section

6684.23, “Least Privilege,” states “Configure the information system to enforce the most restrictive set of

rights/privileges or accesses needed by users (or processes acting on behalf of users) for the performance of

specified tasks.” Additionally, section 6683.11, “Separation of Duties,” states “Different individuals should

perform each of the following actions for critical operational control functions: authorization/approval; system

management; and monitoring or auditing.”

NIST SP 800-53, “Recommended Security Controls for Federal Information Systems,” control SI-9, “Information

Input Restrictions,” states “Restrictions on personnel authorized to input information to the information system

may extend beyond the typical access controls employed by the system and include limitations based on specific

operational/project responsibilities.”

FS implemented the EmpowHR system, which would have addressed this segregation of duties issue by replacing

EPIC. The U.S. Forest Service rolled back the implementation due to performance issues with EmpowHR. U.S.

Forest Service management indicated that HCM resources and personnel are limited at many field site units.

However, U.S. Forest Service management has granted access to these field site individuals in the Password

Database based upon their job responsibilities until EmpowHR is re-implemented.

Additionally, U.S. Forest Service management stated that access to Oracle databases requires administrative

operating system level access as well. To mitigate this risk, U.S. Forest Service management is in the process of

implementing Net Forensics which will provide comprehensive reporting and monitoring over actions by

privileged users.

B-18
Exhibit I

(Continued)

Without proper segregation of duties controls, there is increased risk that fraudulent data could be entered into

EPIC and Paycheck7. Fraudulent personnel records and payroll payments could go undetected by the National

Finance Center (NFC). In addition, individuals with privileged access to both the operating system and database

can make unauthorized changes to application data and tamper with any audit trail that would track such an

incident.

We continue to recognize the need for the U.S. Forest Service to establish, communicate and document the

enforcement of policies and procedures which require quarterly management review of Paycheck7 access listings,

ensure that proper segregation of duties principles are adhered to, and update the level of user access for all

personnel based on the appropriate segregation of duties principles as reported in prior year Recommendations

3A, 3B, and 3D of Audit Report No 08401-8-FM.

Lack of Proper Audit Log Settings

During our FY 2008 audit, we noted the following audit log setting-related weaknesses:

• The Microsoft Windows default domain controller Group Policy Object (GPO) settings are not configured to

audit actions of users with privileged authority. U.S. Forest Service management implemented corrective

actions for this issue during fieldwork by enabling logging of privileged use in September.

• I-Web and IBS are not configured to audit system shutdowns/restarts, system maintenance, and actions of

users with privileged authority.

• All Service Receipts (ASR) and Paycheck7 are not configured to audit unsuccessful logons, unsuccessful

password change attempts, security policy changes, and system maintenance events.

• Actions of users with privileged access to both the operating system and database passwords housed in the

Oracle Password Database are not consistently monitored or reviewed.

FSM 6600, Chapter 6680 – Security of Information, Information Systems, and Information Technology, Section

6684.31, “Auditable Events,” indicates “For systems that materially affect the ability of the agency to perform its

mission, automatically generate audit records for, at a minimum, the following events: Unsuccessful logons;

Unsuccessful password change attempts; Security policy changes; System shutdowns and restarts; System

maintenance; All administrative / system actions of users with privileged authority (for example, system

operators, administrators, security personnel); and Remote access to network devices.”

The NIST Special Publication (SP) 800-12, “An Introduction to Computer Security,” chapter 18, “Audit Trails,”

states “Audit trails maintain a record of system activity both by system and application processes and by user

activity of systems and applications. In conjunction with appropriate tools and procedures, audit trails can assist in

detecting security violations, performance problems, and flaws in applications.”

U.S. Forest Service Management does not have procedures in place for monitoring the actions of individuals with

privileged user accounts. However, management is currently implementing the Net Forensics tool, which will

automate the review of audit logs.

By not maintaining all required audit logs, the risk is present that unauthorized system access or disruption of

service may go undetected.

B-19
Exhibit I

(Continued)

Recommendation Number 3:

We recommend that U.S. Forest Service management:

A. Ensure that all required audit logging capabilities are turned on as required by FSM 6684.31.

B. Establish procedures to periodically review these audit logs for unauthorized activity.

Weaknesses in the IT Plan of Action and Milestones Process

Not all known IT weaknesses were being appropriately tracked via the Plan of Action and Milestones (POA&M)

process. In addition, some POA&M issues were not corrected prior to their assigned due dates. Specifically:

• The Second Quarter FY 2008 POA&M did not list the results from the I-Suite ST&E efforts, which were

finalized on December 20, 2007. This was corrected during audit fieldwork by U.S. Forest Service

management.

• 41 of the 61 issues identified in the Third Quarter FY 2008 POA&M had their original assigned due dates

extended. These due date extensions ranged from seven to 16 months for the noted task numbers.

• 23 of the 61 issues identified in the Third Quarter FY2008 POA&M had a planned due date indicated, but

were not assigned an official due date.

• 16 of 154 POA&M tasks in the most recent POA&M documentation (August 13, 2008) were closed after their

assigned due date.

• 127 of 476 milestones1

 identified in the most recent POA&M documentation (August 13, 2008) were still in

an “open” status or were closed after their assigned due dates.

The OMB Memorandum M-07-19, “FY 2007 Reporting Instructions for the Federal Information Security

Management Act and Agency Privacy Management,” states that agency reports shall be based on the results of the

annual system and program reviews, the agency’s work in correcting weaknesses identified in their POA&M and

any other work performed throughout the reporting period.

The OMB Memorandum M-04-25, “FY 2004 Reporting Instructions for the Federal Information Security

Management Act and Agency Privacy Management, Pages 16-19” states that initial weakness and milestone

completion dates should not be altered.

U.S. Forest Service management is not effectively estimating the level of time and effort necessary to remediate

all POA&M issues. Although there is a process in place for tracking POA&Ms, management is not reviewing

each quarterly POA&M to verify that original/planned completion dates assigned are accurate. Also, U.S. Forest

Service management is not effectively analyzing all issues that are not corrected before their assigned due dates to

determine the root cause. Additionally in March 2008, the U.S. Forest Service changed from using the Automated

Security Self-Evaluation and Remediation Tracking (ASSERT) tool to track POA&M statuses, to the Cyber

Security Assessment and Management (CSAM) tool. When converted the original due dates for POA&M tasks

originally assigned using ASSERT, were not retained when the conversion to CSAM occurred.

By not effectively documenting and tracking all known weaknesses via the POA&M process, there is a risk that

thorough remediation efforts will not be planned and initiated in a timely manner. Additionally, not correcting

issues or achieving milestones prior to their assigned due dates allows for the extended presence of weaknesses

that could result in the compromise of FS IT resources and divulgence of sensitive information.

 

1

 Milestones are the sub-tasks that must be completed in order to accomplish the overall objective of each POA&M task.

B-20
Exhibit I

(Continued)

Recommendation Number 4:

We recommend that U.S. Forest Service management:

A. List and document all known weaknesses in their POA&Ms, including ST&E results. Each POA&M and

milestone documented should be checked for completeness and accuracy to verify that all issues are assigned

an official due date and task number to allow for the effective tracking of issues.

B. Document the rationale behind all assigned due date extensions so that the root causes can be easily identified

and addressed.

C. Develop POA&M-related metrics that can be updated and reviewed on a quarterly basis. These metrics would

highlight inefficiencies so that they can be addressed immediately to help prevent date slippage from

becoming a pervasive issue for numerous POA&M items.

Number 2: The U.S. Forest Service Needs to Develop Comprehensive Policy and Procedures for Financial

Management and Reporting of Wildland Fire Activity

Wildland Fire Borrowing

The U.S. Forest Service currently utilizes Chief Financial Officer (CFO) Bulletin 2005-1, “Procedures to Borrow

and Repay Funding for Wildland Fire Suppression” to account for and record Wildland Fire borrowings. As a

result of audit testwork performed over this area, we noted that the policy does not address all fire borrowing

scenarios that would allow the U.S. Forest Service to consistently record the transfer, expenditure, and repayment

of appropriated funds borrowed to support its Wildland Fire Management program.

The U.S. Forest Service Wildland Fire program [i.e., Treasury account fund symbol (TAFS) 12X1115] receives,

when necessary, expenditure and non-expenditure transfers (borrowings) from other U.S. Forest Service special,

trust and revolving TAFS to fund fire suppression activities. Authority for these transfers is provided by Public

Law (P.L.) 108-108, Appropriations for the Department of the Interior and related agencies...and for other

purposes. Title II, Related Agencies, of P.L. 108-108 states “For necessary expenses for forest fire presuppression

activities..., for emergency fire suppression..., and hazardous fuel reduction...funds, including unobligated

balances...are available for repayment of advances from other appropriations accounts previously transferred for

such purposes, Provided further, that not less than 50 percent of any unobligated balances remaining (exclusive of

amounts for hazardous fuel reduction)...shall be transferred, as repayment for past advances that have not been

fully repaid, to the fund established pursuant to section 3 of P.L. 71-319 [Knutson-Vandenberg].”

During FYs 2006, 2007 and 2008, the U.S. Forest Service used authority provided by P.L. 108-108, Department

of the Interior and Related Agencies Appropriations Act, to process expenditure and non-expenditure transfers

from other U.S. Forest Service special, deposit, and trust funds into the Wildland Fire fund. U.S. Forest Service

financial reporting personnel used the CFO Bulletin 2005-1 as guidance to record the transfer into and subsequent

repayment of borrowed funds.

However, CFO Bulletin 2005-1 does not provide comprehensive guidance to record fire borrowing transactions

from federal funds (i.e., revolving or special funds). In addition CFO Bulletin 2005-1 does not provide U.S. Forest

Service’s policies or procedures related to the expenditure of funds based upon U.S. Forest Service’s intent to

repay borrowings. As a result, U.S. Forest Service inappropriately utilized appropriations used / expended

appropriations (i.e., general ledger accounts 3107 and 5700, respectively) posting logic for federal fund

borrowings which were not intended to be repaid from future appropriations in 12X1115.

The U.S. Forest Service utilized general ledger accounts 3107 and 5700 to record expenditure of funds other than

general and thereby overstated appropriations used and expended appropriations and understated unexpended

appropriations and cumulative results of operations by $60 million in its FY 2006 financial statements. Adjusting

entries recorded to correct this error in FY 2008 reversed the appropriations used and unexpended appropriations

B-21
Exhibit I

(Continued)

posting logic (i.e., debited 5700, and credited 3107) and thereby understated FY 2008 appropriations used and

expended appropriations by $60 million in the financial statements.

In addition, expenditures associated with FY 2008 borrowings obtained via non-expenditure transfers were

reversed in FY 2008 thereby understating current year appropriations used and expended appropriations by an

additional $56 million. This entry was subsequently corrected in accounting period 14 and the associated

repayments from the Wildland Fire Fund were reclassified from appropriations transfers-out to non-expenditure

transfers-out.

Recommendation Number 5:

We recommend that U.S. Forest Service management develop and implement comprehensive accounting policy

and procedures related to:

A. Expenditure and non-expenditure transfers-in of funds to Wildland Fire fund (i.e., TAFS 12X1115) for

wildfire suppression;

B. Utilization of expended approprations posting logic of transferred funds (both expenditure and nonexpenditure) in Wildland Fire Fund (i.e., TAFS 12X1115) based upon management’s intent to obtain

appropriations to repay borrowed funds, and;

C. Record the repayment of these funds to the originating federal or non-federal funds treasury symbols.

Wildland Fire Expenditure Refund Receivables

The U.S. Forest Service does not have formal policy in place to account for “expenditure refund” receivables

related to fire suppression costs incurred by the U.S. Forest Service on behalf of other governmental entities (e.g.,

state and local jurisdictions). Prior to FY 2008, these receivables were used to credit principal appropriations and

offset costs when billed (i.e., when the receivable was established). The recognition of this receivable was

allowable under the various laws relating to Wildland Fire Suppression.

However, during FY 2008 the U.S. Forest Service changed its accounting for such receivables to offset fire

suppression costs incurred on behalf of government entities when the collection occurs from the governmental

entity, not when billed. We believe this accounting to be more conservative given the year over year increasing

costs of wildland fire and the budget constraints facing government entities. Both of these events cause the

collectability of the receivable to stretch-out over several years and also introduce more uncertainty into the

collectability of the receivable.

According to the Intergovernmental Cooperation Act of 1968 (as amended by the Intergovernmental Cooperation

Act of September 13, 1982), the U.S. Forest Service has the authority to “deposit any payments or

reimbursements of costs [incurred by the U.S. Forest Service on behalf of other government entities] to credit the

principal appropriation or the account to which the costs are to be charged or from which the costs have been

paid.”

The Intergovernmental Cooperation Act, as amended September, 13, 1982 and Forest Service Manual (FSM)

1584.15 state “Deposit [of] any payments or reimbursements received for the costs of [fire suppression] services

to the credit of the principal appropriation or the account to which the costs are to be charged or from which the

costs have been paid.”

In addition, expenditure refund receivables billed in FYs 2006 and 2007 were used to credit appropriations and

offset costs in FYs 2006 and 2007. However, approximately $13 million of these receivables was uncollected as

of September 30, 2008. As a result, prior year appropriations used and expended appropriations were understated

and unexpended appropriations were overstated in fiscal years 2006 and 2007 by approximately $13 million.

B-22
Exhibit I

(Continued)

Recommendation Number 6:

We recommend that U.S. Forest Service management develop and implement formal policies and procedures to

credit principal appropriations and offset costs incurred by the U.S. Forest Service on behalf of other

governmental entities when expenditure refund receivables are collected in compliance with the Intergovermental

Cooperation Act.

Number 3: Management Review of Credit Card Transactions and Controls Over the Programs Need

Continued Improvement (Repeat Condition)

During the FY 2008 audit, we noted control deficiencies in the purchase and fleet card programs. The U.S. Forest

Service uses purchase cards to reduce administrative costs and allow its employees to procure supplies and

services faster than through traditional government procurement regulations. In addition, the U.S. Forest Service

also uses fleet cards to purchase automotive related services without going through traditional government

procurement regulations.

Purchase Card Monitoring Needs Improvement

During our testwork over second and third quarter 2008 quarterly supervisory reviews of purchase card

transactions, we noted that 247 out of 384 quarterly reviews were not performed or were not performed timely. In

addition, 14 of 64 second and third quarter supervisory reviews that were re-performed were either not being

performed completely or correctly, not performed on a timely basis, had missing supporting documentation or

contained inconsistent documentation.

In addition, during testwork over the authorization for the use of purchase cards, the Micro-Purchase & PCMS

System Training Certification Request forms were not provided for 11 out of 140 cardholder samples.

USDA Departmental Regulation 5013-6 requires that supervisors of purchase card holders monitor the purchasing

activity of card holders in their units quarterly. 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 Washington Office (WO) sent a letter to U.S. Forest Service units

instructing them to have all U.S. Forest Service cardholders authorized in writing by December 31, 2003 [and on

a go-forward basis].

Forest Service Handbook (FSH) 6309.32, Part 4G13.301-73 requires delegation of micro-purchase authority for

use of the purchase card to be documented on form FS-6300-53.

On April 19, 2004, the U.S. Forest Service Director of Acquisition Management reminded the various U.S. Forest

Service units of the emphasis placed on the supervisor’s review of purchase card holders. A 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 U.S. Forest Service increases its risks

for inaccurate transactions, split transactions, and inappropriate purchase card transactions. In addition, without

complete and accurate cardholder information in PCMS and adequate authorization/training records for purchase

card holders, U.S. Forest Service management can not effectively monitor purchase card holders and transactions

incurred by its cardholders.

We continue to recognize the need for the U.S. 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.

B-23
Exhibit I

(Continued)

Controls over Fleet Cards Need Improvement

During a prior year review of the U.S. Forest Service fleet card program, the USDA OIG noted that U.S. Forest

Service lacks controls over fleet card transactions.

USDA OIG identified the following deficiencies:

• U.S. Forest Service did not review fleet credit card operations;

• U.S. Forest Service’s controls over fleet credit card transactions were found to be inadequate; and

• U.S. Forest Service needs to reconcile its active fleet credit cards to the vehicles it operates.

In addition to this report, during our FY 2008 testwork over fleet card transactions, we were not able to identify

and test any national level controls that the U.S. Forest Service has consistently implemented in the program. In

addition for our FY 2008 samples, the U.S. Forest Service was unable to provide supporting documentation

outside of system screen prints.

The WO issued Directive 7130/1430 on June 1, 2007, which states, “U.S. Forest Service controls over fleet card

transactions need strengthening, the review of fleet card operations is inadequate, and the U.S. Forest Service

needs to reconcile active card inventories to vehicle inventories.”

The March 2007 USDA OIG Report entitled Controls Over Forest Service Vehicle Fuel and Maintenance Costs

states “The USDA OIG reviewed U.S. Forest Service’s controls over fleet credit cards for fiscal years 2004 and

2005 to determine if controls were adequate and if charges were for allowable and appropriate expenses. The

USDA OIG found that the U.S. Forest Service could not fully support over $48 million in transactions charged to

its fleet credit cards. Of this $48 Million, $3.7 million of those charges were determined to be fully unsupported.

The U.S. Forest Service has approximately 24,000 vehicles, each of which has a fleet credit card assigned to it.

According to the USDA OIG report dated March 30, 2007, users of fleet credit cards were able to charge $3.7

million in unsupported expenses during FY 2004 and FY 2005. Of the $3.7 million, $200 thousand was for

prohibited premium and mid-grade fuel purchases. U.S. Forest Service management has no reasonable assurance

that unsupported expenses are being used to accomplish the U.S. Forest Service’s mission.”

Without national level internal controls in place and documented, the U.S. Forest Service increases its risk for

fraud, waste and abuse in the fleet card program.

We continue to recognize the need for the U.S. Forest Service management to implement the WO Directive

7130/1430 and to require receipts for purchases, where feasible, as reported in prior year Recommendation 10 of

Audit Report No. 08401-8-FM.

Number 4: Physical Inventory Policies and Procedures of Pooled Real Property Need to be Developed

(Repeat Condition)

As a result of the FY 2007 audit recommendation, during FY 2008 the U.S. Forest Service agreed to provide

documentation of its compensating and/or mitigating controls that provided them with reasonable assurance that

the September 30, 2007 pooled real property population existed, was complete and accurately recorded. The U.S.

Forest Service was not able to adequately demonstrate that these compensating and/or mitigating controls were in

place and operational.

In addition, U.S. Forest Service agreed to develop and implement in FY 2008 a plan to improve the quality of the

5-year pooled real property physical inventories. We determined that no plan has yet been developed for

inventory pooled assets during the 5-year period FY 2008-2012.

B-24
Exhibit I

(Continued)

The Agriculture Property Management Regulations, Chapter 110-84 Annual Real Property Inventories

Supplementing PART 102-84; and PART 104-51 Property Accountability and Control Section 104-51.106 (a) (2)

Real Property states that “Physical inventories of all real property, except land, shall be taken by each agency

every five years.”

Recommendation Number 7:

We recommend that U.S. Forest Service management develop and implement in FY 2009 a plan to improve the

quality of the 5-year pooled real property physical inventories.

Number 5: Accountability for Unliquidated Obligations (ULOs) Needs Continued Improvement (Repeat

Condition)

U.S. Forest Service is not in compliance with FS Directive 6500-218 which requires the certification of ULOs as

valid as of 7/31/08. During test of design procedures, we identified two of three ULOs that were certified by field

management as valid using “Option #4-Other” but did not provide sufficient information to determine if the ULO

was truly valid or invalid. Subsequently, U.S. Forest Service management certified all ULOs to the USDA on

9/2/08 as valid, but this certification included the above mentioned obligations that were not definitively

determined to be valid ULOs.

In addition, during our substantive testwork over the ULO balance as of August 31, 2008 and over activity during

the period of September 1 to 30, 2008, we noted 17 routine samples in which the ULO balance did not appear to

be valid, or accurate, and should have been identified as such during the certification review as of 7/31/08. We

further noted 5 samples that would have been determined invalid or inaccurate if a review had been performed for

the time period subsequent to the certification period and the end of the fiscal year, which did not appear to be

valid and no evidence of management review was noted.

The Review of Unliquidated Obligations (Form FS-6500-218) contains an option #4, which can be completed

with any language by the preparer. At the WO option 4 was selected for two of three ULOs and the description

stated that the agreement could not be found, and the state point of contact had not responded to the request for

certification by the due date. Although the WO approved the outstanding ULOs contained on Form FS-6500-218

as of July 31, 2008, the ULOs were not valid and should not have been certified as such; therefore, the U.S. Forest

Service is not in compliance with the review policy (Directive 6509.11k).

U.S. Forest Service Directive 6509.11k requires the certification of ULOs as valid in the following sections:

56.03: “Annually, no later than August 31, the Forest Service is required to submit to the Department Associate

Chief Financial Officer – Financial Operations (ACFO-FO), a certification that shows annual reviews were

performed and unliquidated obligations, existing as of July 31, are valid based on the review.”

56.04d: “Each deputy chief, regional forester, station, Area, International Institute of Tropical Forestry (IITF), and

Job Corps director is responsible for the unliquidated obligation review and must:

1. Ensure that the obligations for respective units have been reviewed monthly and that obligated balances are

valid, and

2. Comply with the policy and documentation requirements for the annual certification, quarterly and monthly

review of unliquidated obligations”

56.04g: “As the obligating official for all procurement requests, the procurement official is responsible to provide

validity of all obligations they manage to the budget officer or DABC. This should be coordinated with the

Contracting Officer’s Representative (COR) or program personnel.”

B-25
Exhibit I

(Continued)

56.06: “The Forest Service is required to certify an annual review of unliquidated obligation balances, for the

period ending July 31. Quarterly reviews and annual certification are necessary to certify the validity of obligated

balances.”

The following procedures apply to the obligating official who must conduct the review of each selected

unliquidated obligation to determine:

1. Whether delivery or performance of goods or services has occurred or is expected to occur; and

2. If accounting corrections are necessary to the data in the accounting system.

The validity of unliquidated obligations is not only a legal requirement but critical to budget execution and good

funds management. Amounts inappropriately recorded as unliquidated obligations represent missed opportunities

to pursue other funding needs.

• The obligating official or their designees should consider, if applicable:

• The period of fund availability;

• The timeliness of delivery or performance;

• The completeness and accuracy of information provided by grant or contract parties;

• Whether funds have been expended in a manner which is consistent with the percentage of completion;

• Whether remaining funds are sufficient to complete the order in accordance with specifications;

• Justifications for amendments to funding levels;

• Reasons for lack of activity, such as litigation or delay in contract closeout;

• Any provisions of the agreement or contract that may permit or prohibit deobligation or reprogramming; and

• Supporting documentation exists for recorded unliquidated obligations, and any other relevant factors, when

making a determination.”

Although the U.S. Forest Service certified the reviews of all administrative units as of July 31, 2008, reviews of

ULOs were performed for each administrative unit and were certified containing invalid and inaccurate ULOs;

and therefore, is not in compliance with the certification policy (Directive 6509.11k). There is not a review policy

in place to review ULOs for the period 8/1/08 through 9/30/08; therefore, the balance of ULOs may be misstated

during the last two months of the fiscal year. In addition, non-routine ULOs were not effectively reviewed to

prevent improper journal entries.

The U.S. Forest Service is not in compliance with FS Directive 6509.11k, and as a result may be overstating its

ULO balances by not performing a comprehensive review of outstanding ULOs, and Non-Routine ULO entries,

during the entire year and certifying ULOs that do not meet certification criteria.

Recommendation Number 8:

We recommend that U.S . Forest Service management:

A. Strengthen the ULO review process and monitor the validity and accuracy of outstanding ULO balances at the

local and national levels,

B. Perform additional review of ULO activity occurring between 8/1/08 and 9/30/08 for validity and accuracy;

and

C. Perform review of all Non-Routine ULOs to determine validity and accuracy as of year-end.

B-26
Exhibit I

(Continued)

We continue to recognize the need for U.S. Forest Service management to continue to train its personnel on

performing and approving ULO certifications, consider removing option #4 from the ULO certification, and

follow-up on any option 4 responses provide to the administrative units and regions as noted in prior year

Recommendation 9 of Audit Report 08401-8-FM.

In addition, we continue to recognize the need for the U.S. 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 6: The U.S. Forest Service Needs to Improve Internal Controls and Management Oversight for

Environmental and Disposal Liabilities (EDL) (Repeat Condition)

Accountability of EDL Needs Improvement

During our testwork over EDL, we identified the following control deficiencies in the U.S. Forest Service’s EDL

process:

• The U.S. Forest Service was not properly classifying its EDL transactions between the categories of

Government Related (GR) and Government Acknowledged (GA). In addition, there were amounts included as

GR or GA liabilities that did not meet the definition of an accrual, as specified in Statement of Federal

Financial Accounting Standard (SFFAS) Number (No.) 5 – Accounting for Liabilities of the Federal

Government.

• The U.S. Forest Service does not have adequate documentation requirements when supporting its EDL

estimates. As a result, we received substandard documentation for all 11 GR samples tested.

• Although there was communication and collaboration between all related parties involved in the

determination of the EDL balance, the managerial reviews as required by the FSH 6509.11m were not

performed in full compliance with such policy and were not effectively executed.

SFFAS No. 5 “Accounting for Liabilities of the Federal Government” establishes the criteria necessary for the

classification of GR and GA in the paragraphs below:

a. “Government-related events are non transaction based events that involve interaction between federal entities

and their environment. The event may be beyond the control of the entity. A liability is recognized for a future

outflow of resources that results from a government-related event when the event occurs if the future outflow

of resources is probable and measurable (see paragraphs 33 and 34 for the definitions of probable and

measurable, respectively) or as soon thereafter as it becomes probable and measurable...

- 33 "Probable" refers to that which can reasonably be expected or is believed to be more likely than not on

the basis of available evidence or logic. The probability of a future outflow or other sacrifice of resources

is assessed on the basis of current facts and circumstances. These current facts and circumstances include

the law that provides general authority for federal entity operations and specific budget authority to fund

programs. If budget authority has not yet been provided, a future outflow or other sacrifice of resources

might still meet the probability test if (1) it directly relates to ongoing entity operations and (2) it is the

type for which budget authority is routinely provided. Therefore, the definition applies both to liabilities

covered by budgetary resources and to liabilities not covered by budgetary resources. [FN 24: See

Statement of Federal Financial Accounting Standards Number 1, "Accounting for Selected Assets and

Liabilities", (March 30, 1993), app. A, p. 25.]

- 34 "Measurability" means that an item has a relevant attribute that can be quantified in monetary units

with sufficient reliability to be reasonably estimable. Liabilities reported in the financial report are

measured by different attributes specified by various accounting standards. Several different measurement

attributes are used for different items in present practice (e.g., fair market value, current cost, present

value, expected value, settlement value, and historical cost).

B-27
Exhibit I

(Continued)

b. Government-acknowledged events are events that are of financial consequence to the federal government

because it chooses to respond to the event. A liability is recognized for a future outflow of resources that

results from a government-acknowledged event when and to the extent that the federal government formally

acknowledges financial responsibility for the event and a non-exchange or exchange transaction has occurred.

The liability for a non-exchange transaction should be recognized for any unpaid amounts due as of the

reporting date and the liability for an exchange transaction should be recognized when goods or services have

been provided...”

The Federal Accounting Standards Advisory Board (FASAB), Technical Release No. 2 requires the following

factors to be considered in the estimate:

1. Completion of a Remedial Investigation/Feasibility Study (RI/FS) or Other Study. The first test in determining

whether costs are reasonably estimable is to ascertain whether there is a completed study upon which to base an

estimate.

2. Experience with Similar Site and/or Conditions. If there is a similar site or condition with experience gained

(through actual cleanup and/or a completed study to compare), the estimate for recognizing a liability for a site

could be based on the similar experience or conditions. In addition, the estimated cost of a future study (if

required) should be recognized. Future studies could result in improved estimates.

3. Availability of Remediation Technology. Assuming a study has been completed, or an agency or other entity

has experience with a similar site and/or condition as noted above, the next test is whether there is technology

available to remediate a site. If no remediation technology exists, then remediation costs would not be reasonably

estimable, but the agency would be required to recognize the costs to contain the contamination and any other

relevant costs, such as costs of future studies.

FSH 6509.11m states that during the accrual of environmental cleanup liabilities the following activities occur

during the accrual process:

1. Manually, WO Engineering segregates all Abandoned Mine Land (AML) cleanup sites costs. These estimates

are not included in the EDL accrual because [U.S. Forest Service] has no financial responsibility for the

estimated cleanup. AML would be designated as GA if the Federal government acknowledged them.

2. WO Engineering submits the Center for Environmental Excellence (CEE) inventory report spreadsheet to

ASC-Budget and Finance payment staff, in addition to the known amounts of projects funded by either ECAP

appropriated NFMG or USDA Hazardous Materials Management Division (HMMD) reimbursable

agreements. WO Engineering provides the CEE inventory report spreadsheet to the ASC-B&F team by the 1st

day of the last month in each fiscal quarter. The amount accrued is the sum of unfunded and funded cleanup

work, less the amount of expenditures made on the funded projects. ASC-B&F Financial Reporting and

Reconciliation Branch (FR&R) personnel prepares the service-wide estimated accruals for environmental

clean-up costs...

3. ASC-B&F Internal Quality Assurance performs periodic analysis, at least annually, of accrual methodologies

to determine necessary adjustments for more reliable estimates of accruals.

A thorough and comprehensive review of the requirements for SFFAS 5 and FSH 6509.11m and other related

guidance is not occurring prior to the recording of EDL transactions.

The completeness and accuracy of the EDL as of September 30, 2008 may be misstated and incomplete since

estimates are unsupported. In addition, the CEE database may not contain information for which the field believes

it will not receive funding, causing the liability to be further understated in the financial statements.

B-28
Exhibit I

(Continued)

Recommendation Number 9:

We recommend that U.S. Forest Service management:

A. Implement a process whereby both the environmental engineers and ASC – B&F review the EDL transactions

recorded in CEE for compliance with SFFAS No. 5 on a quarterly basis. This review would be to determine

the validity of recorded balances as well as the proper classification of such liability.

B . Develop a standard for documentation for all EDL estimates to ensure compliance with documentary

evidence requirements.

C. Revise and implement the FSH policy to comply with applicable technical accounting literature cited above to

ensure accurate reporting.

D. Revise, implement, and assess the efficiency of the control environment for developing the EDL accrual.

E. Require regional engineers to fully document and support all EDL accrual estimates and to provide this

supporting documentation to both WO Engineering and ASC-B&F for review of reasonableness and

compliance with technical accounting literature. The review by both WO Engineering and ASC-B&F should

take place on at least a quarterly basis and evidence of such review should be documented and maintained.

Improvements are Needed in Financial Disclosure of EDLs

The June 30, 2008 U.S. Forest Service financial statements did not include all information required by OMB A136 “Financial Reporting Requirements”. As of June 30, 2008, financial statement Note 8, Environmental and

Disposal Liabilities, did not include the following information.

• Sources of cleanup requirements (i.e., applicable laws and regulations governing the cleanup and accrual of

an Environmental and Disposal Liability - RCRA, CERCLA, SFFAS 5 and 6, SFFAS Technical Release No.

2, etc.)

In addition, financial statement Note 6, Liabilities Not Covered by Budgetary Resources, contained the entire

accrued amount reported in Note 8. Based on SFFAS No. 5, GA environmental cleanup liabilities must be funded

by appropriations for inclusion in the EDL accrual. The funded portion of the GR balance was also included

within Note 6. The amount of GA liabilities and the funded portion of GR liabilities should not have been

included within Note 6.

In accordance with OMB A-136, “Financial Reporting Requirements-Revised 06/03/08” requires the disclosure of

environmental hazards resulting from ongoing operations. The following information must be disclosed in a note

to the financial statements:

a. sources (i.e., applicable laws and regulations) of clean-up requirements;

b. method for assigning estimated total cleanup costs to current operating periods (e.g., physical capacity versus

passage of time);

c. unrecognized portion of estimated total cleanup cost associated with general property, plant and equipment

(PP&E);

d. material changes in total estimated cleanup costs due to changes in laws, technology, or plans, and the portion

of the change in estimate that relates to the prior period operations; and

e. the nature of estimates, and the disclosure of information regarding possible changes due to inflation,

deflation, technology, or applicable laws and regulations.

U.S. Forest Service was not in compliance with OMB A-136, “Financial Reporting Requirements –Revised

06/03/08” for the completion of the notes to the financial statements (6 and 8) as of June 30, 2008.

B-29
Exhibit I

(Continued)

Information in the Environmental and Disposal Liabilities Note 8 and the Liabilities Not Covered by Budgetary

Resources Note 6 at June 30, 2008 are not disclosed in accordance with OMB A-136, “Financial Reporting

Requirements - Revised 06/03/08”.

Recommendation Number 10:

We recommend that U.S. Forest Service management:

A. Ensure that future note disclosures relating to EDL comply with OMB Circular A-136.

B. Identify an individual within the FR&R Branch that would be responsible for completing the following tasks

in a timely manner:

• Identifying and researching new and existing financial reporting standards, and OMB policies;

• Determining if existing accounting policies and procedures are in compliance with promulgated standards.

Number 7: The U.S. Forest Service Needs to Improve Internal Controls for Revenue Related Transactions

(Partial Repeat Condition)

Residual Deposits in the Liability for Deposit Funds, Clearing Accounts, and Undeposited Collections Need

to be Identified and Properly Posted (Repeat Condition)

During our FY 2008 audit we noted prior year deposit transactions that resided in general ledger (GL) account

2400, Liability for Deposit Funds, Clearing Accounts, and Undeposited Collections. These deposits reside in GL

2400 because the final destination of the transaction has not been determined.

The United States Standard Government Ledger (USSGL) Definition of GL 2400, Liability for Deposit Funds,

Clearing Accounts and Undeposited Collections is “Amounts offsetting undeposited collections and collections

deposited in deposit funds and clearing accounts, including suspense accounts, awaiting disposition or

reclassification.”

As part of our audit work we selected 90 samples for testing. Of these 90 samples, 13 deposits were noted as

errors. Specifically:

• Four samples were not supported with documentation;

• One sample did not have sufficient documentation;

• One sample was understated in the general ledger;

• Three samples were overstated in the general ledger;

• Three samples did not belong in GL 2400; and

• One sample was incorrectly recorded.

In addition to the above samples, a timber revenue transaction was improperly recorded as current year revenue

but related to a prior year economic event. This error occurred due to lawsuit settlements where the money was

received by U.S. Forest Service in FY 2004 but was not transferred out of GL 2400 and into the proper revenue

account until FY 2008.

The primary cause for the prior year deposits relates to the U.S. Forest Service’s prior year issues with reconciling

Fund Balance with Treasury. As a result of these exceptions, an overstatement of approximately $19.7 million in

the Liability for Deposit Funds, Clearing Accounts and Undeposited Collections account exists. This amount was

not corrected in the current year financial statements.

B-30
Exhibit I

(Continued)

We continue to recognize the need for the U.S. Forest Service management to devote the necessary resources to

identify, research, and resolve prior year residual deposits in GL 2400 as noted in prior year Recommendation 5

of Audit Report No. 08401-8-FM.

Classification of Revenue Transactions between Federal and Non-Federal Needs Improvement

During our FY 2008 substantive testwork over other revenue transactions (GL 5900), we identified approximately

$96 million in GL 5900 which was improperly coded as Federal related revenue. This amount was corrected in

the current year financial statements. A majority of this amount relates to non-Federal mineral royalties that were

coded as Federal because they were obtained from Mineral Management Service (MMS).

In addition, GL 2400 has approximately $1.8 million misclassified as federal deposit transactions and

approximately $5.9 million misclassified as non-federal deposit transactions. These amounts were not corrected in

the current year financial statements.

The United States Treasury accounts that are used for these transactions are the National Forest Fund Receipts

and the National Grassland Receipts, Unavailable. Both of these accounts state that revenues are only derived

from non-Federal sources. In addition, GL 2400 had transactions coded as federal that resided in non-federal

accounts and vice-versa.

Recommendation Number 11:

We recommend that U.S. Forest Service management record mineral royalty revenues obtained from MMS as

non-Federal and ensure that deposits held in GL 2400 are properly classified between federal and non-federal.

Internal Controls over the Reimbursable Agreement Close-out Process Need Improvement

During our substantive testing over balances as of June 30, 2008 and activity covering the period July 1, 2008

through September 30, 2008 for unfilled customer orders without advance (GL 4221), we noted 15 exceptions out

of 106 sample items during our testwork. For all 15 exceptions the period of performance had expired but unfilled

customer orders without advance remain recorded in the GL.

In addition, during our substantive testing over balances as of June 30, 2008 and activity for the period of July 1,

2008 through September 30, 2008 for advances from others (GL 2310) we noted 18 exceptions out of 86 sample

items during our testwork. For all 18 exceptions, an advance remained on the U.S. Forest Service’s books

although the period of performance had expired.

FSH, Section 6509.11k, Chapter 50, paragraph 56.82i, Reimbursable Agreements states that “The Reimbursable

and Advance Collection Agreements (RACA) Branch, ASC, is responsible for: Closing out agreements within 90

days of last activity.”

The U.S. Forest Service is not closing out its agreements within 90 days of the last activity/expiration date of the

agreement. Untimely closeouts of agreements can cause an overstatement in advances from others and unfilled

customer orders without advance.

Recommendation Number 12:

We recommend that U.S. Forest Service management:

A. Comply with the FSH Section 6509.11k, and

B. Periodically monitor the age and activity of agreements within FFIS.

B-31
Exhibit I

(Continued)

Number 8: The U.S. Forest Service Needs to Refine its Period-end Accrual Processes (Partial Repeat

Finding)

Statistical Expense Accrual Model Needs Refinement (Repeat Finding)

During FY 2008, the U.S. Forest Service used 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 to

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

variables of interest. The dependent variable can be estimated by one or more of the others (independent

variable(s)). The U.S. Forest Service regression uses aggregated unliquidated obligation balances as of the single

independent variable and subsequent month payments as the dependent variable. 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 the current U.S. Forest Service model, with

one independent and one dependent variable that would mean a minimum of 52 data points. For a more complex

curvilinear model more data points would be appropriate. The U.S. Forest Service universe currently contains a

population of 60 monthly data points.

The current U.S. Forest Service model contains three discreet data universes for three mutually exclusive category

estimates. Each category uses a unique curvilinear calculation based on its own universe of data points. While it

may be appropriate to have different geometric patterns for accrual estimating equations for the various broad

ranges 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.

While these newly developed regression models appear to produce slightly better results overall than past

methods for the various accrual estimates we have not been able to validate some of the U.S. Forest Service’s key

assumptions used in the estimation model.

• Correlation of ULO Balances and Payments – The statistical models developed by the U.S. Forest Service

uses different independent variable forms but consistent geometric models for the separate category

calculation (i.e., the relationship between using 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 U.S. 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 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 U.S. Forest Service analysis has produced three different

variations of a single geometric model form, one each for grants ang agreements, construction and operations

related expenditures. 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. The U.S. Forest Service management must plan to verify

B-32
Exhibit I

(Continued)

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.

• Adequacy of Tail – The model is used to estimate payments in each category for approximately 30 days after

period end. A review is performed for each category to evaluate the adequacy of the 30-day period. Other

work on accruals associated with procurement expenses observed by auditors at other Federal agencies

indicates that it usually takes up to 90 days to receive billings, process invoices and make payments for about

90% of the work performed by vendors. The 30-day period being used by U.S. Forest Service may be too

truncated for reliable results. This should be further researched by U.S. Forest Service.

• Seasonality in the Model – We recognize that the U.S. Forest Service model contains a seasonality adjustment

after the raw calculation of the estimate is completed. However it would make sense to incorporate seasonality

as dummy variables directly in the model.

• 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 ULOs above

$500,000. The use of single regression might be responsible for some of the unexplained variation that is

observed.

The book entitled Regression Diagnostic written by M.S. Younger and published by John Wiley & Sons, New

York, NY 1977 suggests that the 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 U.S. Forest Service has implemented the regression procedure to estimate amounts to accrue for the three

types of obligations. For the reasons cited above, the U.S. Forest Service may not be able to calculate its accrual

estimates with adequate statistical confidence and precision to ensure reasonable and repeatable estimates.

We noted ULOs greater than $500 thousand are included in the model; however, these transactions maybe

reacting differently from the remaining ULO data causing more variability. The variability (i.e., the large standard

deviation) 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 the U.S. Forest Service management verifies and

validates the above assumptions and set of models that are finally arrived at for use in the accrual process.

However, at this time with the available information, and because some improvements appear to have been made

and explained by the U.S. Forest Service, we do not believe the variability observed would cause a material

misstatement in the U.S. Forest Service’s financial statements.

Recommendation Number 13:

We recommend that the U.S. Forest Service management:

A. 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;

B-33
Exhibit I

(Continued)

B . Test models with specific additional independent variables in some of the models which may help

substantiate and better expose the true nature of the relationships between ULOs and payments in the various

types of obligations;

C. Test the adequacy of a 30 day tail and attempt a 90 day tail;

D. Use Box – Jenkins technique to reduce out (and further explain) some of the model variability that may be

due to temporal effects [see text by G&P, Box and Gulliam Jenkins]; and

E. Stratify plot data – ULOs greater than $500,000 vs. ULOs less than or equal to $500,000.

Accrual of Real and Personal Property Needs Improvement

During substantive testing of FY 2008 we noted that personal and real property was not being accrued for

properly at year-end. Specifically:

• 18 out of 151 personal property samples should have been recorded (i.e., accrued) in the prior FY. These

errors amounted to $15.8 million.

• 35 out of 226 real property samples should have been recorded (i.e., accrued) in the prior FY. These errors

amounted to $5.3 million. Further analysis was performed on the entire population and the amount in error

was determined to be $7.4 million. This amount was proposed and passed as an audit adjustment.

The U.S. Forest Service does not have a formal policy to accrue for property transactions at period-end. As a

result, property balances and depreciation expense are understated at period-end.

Recommendation Number 14:

We recommend that U.S. Forest Service management establish formal policies and procedures to accrue for property

at period-end and train personnel on those policies and procedures.

Period-end Analytical Procedures Need Development

During the U.S. Forest Service’s implementation of a change in accounting principle that reclassified capitalized

roadbeds to non-capitalized stewardship land, we noted the following:

• In August 2007, the U.S. Forest Service reclassified roadbeds from general PP&E to stewardship PP&E. In

doing this the U.S. Forest Service wrote off the historical cost, accumulated depreciation and some other FY

2007 related costs for roadbeds in the general ledger.

• During FY 2007 accounting period 14 (October 2007), the U.S. Forest Service decided to postpone its

decision to reclassify roadbeds due to implement justification for the reclassification. As a result, the Forest

Service reversed all the previous entries and additionally capitalized the roadbed activity for August and

September 2007 in the general ledger.

• In July 2008, the U.S. Forest Service completed its justification for the reclassification and proceeded to

implement its earlier decision to reclassify roadbeds.

In summary, the U.S. Forest Service should not have reversed the entries relating to operating expenses and

depreciation, amortization, and depletion expense because at year end they are closed into cumulative results of

operations.

If U.S. Forest Service had a comprehensive analytical procedure to review the reasonableness of period-end

financial amounts, the variance in depreciation expense would have been identified, researched and resolved.

B-34
OMB Circular No. A-123, Management’s Responsibility for Internal Control states “Reliability of financial

reporting means that management can reasonably make the following assertions:

1...All assets and liabilities exit as of the reporting date.

2...All assets, liabilities, and transactions that should be reported have been included and no unauthorized

transactions or balances are included ....”

The reversal of entries in operating expense (GL 6100) and depreciation, amortization, and depletion (GL

6710) expenses amounts caused an understatement of GL 6710 of $84,989,294 and overstatement of GL 6100

of $22,562,169.

Recommendation Number 15:

We recommend that U.S. Forest Service management develop and perform a robust analytical whereby

depreciation expense would be analytically reviewed for reasonableness and consistency with management

expectations on at least a quarterly basis. We believe this review would help identify unusual or unexpected

variances such that any necessary correcting adjustments could be processed in a timely manner.

B-35
Exhibit II

(Continued)

STATUS OF PRIOR YEAR’S SIGNIFICANT DEFICIENCIES/MATERIAL WEAKNESSES

As required by Government Auditing Standards and OMB Bulletin No. 07-04, Audit Requirements for Federal

Financial Statements, we have reviewed the status of the prior year’s significant deficiencies. The following

table summarizes these issues and provides our assessment of the progress U.S. Forest Service made in

correcting these significant deficiencies. 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

USDA OIG Audit Report No. 08401-8-FM November 2007

Material Weakness/

Significant Deficiency

Recommendation Status

The U.S. Forest Service Needs

to Continue to Improve its

General Controls Environment

[2008 Significant Deficiency;

2007 Material Weakness]

1. We recommend that U.S. Forest Service management:

A. Document and finalize a risk assessment in accordance

with the FSM 6682.1 and NIST SP 800-30 for IBS [ISuite and FTRS – Components Closed].

B. Finalize a system security plan in accordance with

FSM 6682.5 and NIST SP 800-18 for IBS/I-Suite and

FTRS.

C. Perform and document a ST&E in accordance with

FSM 6682.07b and NIST SP 800-37 for IBS/I-Suite.

D. Ensure that a formalized ATO [or an interim ATO] is

in place for all major applications prior to

implementation in accordance with FSM 6682.4.

2. We recommend that U.S. Forest Service management:

A. Communicate and enforce an agency-wide change

control process for all change management personnel to

follow.

B. Create and maintain formal testing documentation and

approvals for all major applications.

3. We recommend that U.S. Forest Service management:

A. Establish, communicate, and document the

enforcement of policies and procedures which require

quarterly management review of Paycheck7 access

listings and EPIC access listings to verify that access is

appropriate and in compliance with policy.

B. Ensure that proper segregation of duties principles are

adhered to when assigning roles in EmpowHR (the new

HCM personnel system), since this system will

ultimately replace EPIC.

C. Update the “Identifying and Establishing a Separation

of Duties and Maintaining Least Privilege for Users”

document to include specific segregation of duties

guidelines for system administrators and DBAs.

D. Update the level of user access for all personnel based

on the appropriate segregation of duties principles. If

this current level of access is warranted, then mitigating

controls must be implemented to appropriately track

user actions.

Open

Closed

Closed

Open

Closed

Closed

Open

Open

Open

B-36
Exhibit II

(Continued)

Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-8-FM November 2007

Material Weakness/

Significant Deficiency

Recommendation Status

controls must be implemented to appropriately track

user actions.

4. We recommend that U.S. Forest Service management:

A. Update its system configuration management baselines,

as necessary, to reflect the most recent software

versions and patch levels to ensure consistency within

the environment, when implementing new systems.

B . Improve system configuration management practices

by raising system administrator awareness of the

requirements for maintaining secure system

configurations, including software versions, patches,

and changing vendor default settings as necessary.

Open

Open

Open

The U.S. Forest Service Needs

to Continue to Improve its

Financial Management and

Reporting Process

[2008 Significant Deficiency;

2007 Significant Deficiency]

5. We recommend that the U.S. Forest Service

management devote the necessary resources to

identify, research, and resolve prior year residual

deposits in GL 2400.

6. We recommend that U.S. Forest Service management

ensure that existing review and approval procedures

are adequate, communicate the policy to its

management, and ensure its management is

adequately trained on the policy as well as on other

technical areas that they are responsible for at the

ASC.

Open

Closed

The U.S. Forest Service Needs

to Refine and Monitor its

Expense Accrual

[2008 Significant Deficiency;

2007 Significant Deficiency]

7. We recommend that U.S. Forest Service management:

A. Expand the number of variables to form multiple

regression models and/or the types of analysis to

include the use of the obligation paid, duration,

percentage of time remaining in the obligation and

percentage of time passed indexes in order to account

for the various changes in the payment patterns by

fiscal quarter.

B. Consider implementing more robust statistical software

which will increase the accuracy of the U.S. Forest

Service’s statistical accrual.

8. We recommend that U.S. Forest Service management:

A. Discontinue use of the statistical model to estimate

U.S. Forest Service’s Federal Government liability.

B . Materially comply with TFM Bulletin 2007-03 and

maintain adequate supporting documentation of

reconciliation and confirmation with each material

Federal entity that conducts business with the U.S.

Forest Service.

Open

Closed

Closed

Closed

B-37
Exhibit II

(Continued)

Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-8-FM November 2007

Material Weakness/

Significant Deficiency

Recommendation Status

Accountability for

Unliquidated Obligations

(ULOs) Needs Continued

Improvement

[2008 Significant Deficiency;

2007 Significant Deficiency]

9. We recommend that U.S. Forest Service management:

A. Continue to train its personnel on performing and

approving ULO certifications, and

B. Consider removing option #4 from Part II of the ULO

certification, or

C. Follow up on any option #4 responses provided by the

administrative units and regions.

D. Work with the USDA to refine the Green Book process

for USDA agreements to ensure that the ULO balances

are valid and should remain obligated or be

deobligated.

Open

Open

Open

Closed

Review of Credit Card

Transactions and Controls

Over the Programs Need

Continued Improvement

[2008 Significant Deficiency;

2007 Significant Deficiency]

10. We recommend that U.S. Forest Service management:

A. Implement the WO Directive 7130/1430 by providing

detailed policies and procedures, adequate training on

those policies and procedures, and monitor compliance

to ensure appropriate use of the U.S. Forest Service

funds.

B. Require receipts for all purchases, where feasible, and

ensure that they are maintained and reviewed by the

Local Fleet Program Coordinator or Area Fleet

Program Coordinator.

Open

Open

The U.S. Forest Service Needs

to Improve Internal Controls

over its Environmental and

Disposal Liabilities Process

[2008 Significant Deficiency;

2007 Significant Deficiency]

11. We recommend that U.S. Forest Service management:

A. Implement a system that requires engineers to

designate sites as government related or government

acknowledged and generates the necessary information

for financial reporting purposes; and

B. Implement controls to review EDL estimates to ensure

that adequate supporting documentation exists to

support the balances reported in the financial

statements.

12. We recommend that U.S. Forest Service management:

A. Comply with the disclosure requirements in the GAO

disclosure checklist for interim and final financial

statements, and

B . Ensure that the financial statements are updated to

include the required information for environmental and

disposal liabilities.

Reissued;

Closed

Reissued;

Closed

Reissued;

Closed

Reissued;

Closed

Controls Related to Physical

Inventories of Pooled Real

Property Need Continued

Improvement

[2008 Significant Deficiency;

2007 Significant Deficiency]

13. We recommend that U.S. Forest Service management:

A. Resolve the FY 2007 issues by December 31, 2007, by

conducting a review of the pooled assets annotated in the

FY 2003-2007 inventory cycle and providing evidence of

line officer certification, satisfactory PMO review

(signatures), segregation of duties, and recording and

reconciliation of corrections in the sub-ledger and the

general ledger.

Reissued;

Closed

B-38
Exhibit II

(Continued)

Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-8-FM November 2007

Material Weakness/

Significant Deficiency

Recommendation Status

reconciliation of corrections in the sub-ledger and the

general ledger.

B. Ensure that the FY 2008-2012 inventories are

conducted correctly, by assembling a multi-discipline

team of all affected parties to design and put in

operation a more effective and efficient process for the

next 5-year physical inventory cycle, by no later than

March 31, 2008 for fiscal year 2008 implementation.

Reissued;

Closed

The U.S. Forest Service Needs

to Improve Its Business

Process for Revenue

Transactions

[2007 Significant Deficiency]

14. We recommend U.S. Forest Service management:

A. Utilize posting logic which complies with Treasury

guidance and SFFAS 7.

B. Implement policies and procedures to ensure funds are

timely returned to the Treasury in accordance with P.L.

106-393.

Closed

Closed

Process Improvements are

Needed over Personal Property

Transactions

[2007 Significant Deficiency]

15. We recommend that U.S. Forest Service management

establish policies and procedures for recording,

monitoring and accounting for internal use software

and internal use software work in processes; train

personnel on such polices and procedures, and monitor

compliance with the policies and procedures.

Closed

The Compilation of

Performance Measures Needs

Continued Improvement

[2007 Significant Deficiency]

16. We recommend that U.S. Forest Service management:

A. Continue to refine its policies and procedures for

gathering, verifying and reporting performance

measure data.

B . Continue to refine its definitions of measures and

accomplishments, and adequately communicate and

train personnel to improve their understanding of

performance reporting.

C. Ensure that an interim and year-end reporting process

is in place to completely and accurately report its

performance measures.

Closed

Closed

Closed

Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-7-FM November 2006

Material Weakness/

Significant Deficiency

Recommendation Status

The U.S. Forest Service Needs

to Continue to Improve its

Financial Management and

Reporting Process

(2007 Significant Deficiency;

2. We recommend that the U.S. Forest Service

management develop a plan to improve the operating

effectiveness of its review and approval of all periodend accrual adjustments.

Closed

B-39
Exhibit II

(Continued)

Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-7-FM November 2006

Material Weakness/

Significant Deficiency

Recommendation Status

2006 Material Weakness)

U.S. Forest Service Needs to

Refine and Monitor Its

Expense Accrual

(2008 Significant Deficiency;

2007 Significant Deficiency;

2006 Significant Deficiency)

4. We recommend that U.S. Forest Service management:

• Expand the number of data points in the various

regression models to at least 52;

• 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.

Closed

Open

The Compilation of

Performance Measures Needs

Improvement

(2007 Significant Deficiency;

2006 Significant Deficiency)

5. We recommend that the U.S. 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 [Performance Accountability

System] 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.

Closed

Closed

Closed

Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-6-FM December 2005

(Replaced prior Audit Report: USDA OIG Audit Report No. 08401-5-FM)

Material Weakness/

Significant Deficiency

Recommendation Status

Accountability for

Unliquidated Orders (ULOs) is

Lacking

(2007 Significant Deficiency;

2006 Significant Deficiency;

2005 Material Weakness)

2. In addition to the prior year Recommendation 1 of

Audit Report No. 08401-4-FM, we recommend that

the U.S. Forest Service develop a plan to improve the

operating effectiveness of its review and approval of

all period-end accrual adjustments.

Closed

The U.S. Forest Service Needs

to Improve its General

Controls Environment

(2008 Significant Deficiency;

2007 Material Weakness;

5. We recommend that U.S. Forest Service network audit

functions be configured to maintain a history of successful

and unsuccessful login attempts and user activity for the

U.S. Forest Service network as required by U.S. Forest

Service Interim Directive 6680-2005-3, “Technical

Controls.”

Open

B-40
Exhibit II

(Continued)

Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-6-FM December 2005

(Replaced prior Audit Report: USDA OIG Audit Report No. 08401-5-FM)

Material Weakness/

Significant Deficiency

Recommendation Status

2006 Material Weakness;

2005 Material Weakness)

Controls.”

7. We recommend that U.S. Forest Service management

establish controls to facilitate entity-wide adherence to

the U.S. 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

8. We recommend that U.S. Forest Service system owners,

in cooperation with the USDA OCIO [Office of the

Chief Information Officer] and in compliance with

USDA and U.S. Forest Service information security

requirements:

• Install the latest software versions, service packs,

and security patches (and remove out-dated

versions)

Open

Open

Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-4-FM November 2004

Material Weakness/

Significant Deficiency

Recommendation Status

Accountability for

Undelivered Orders is Lacking

(2008 Significant Deficiency;

2007 Significant Deficiency;

2006 Reportable Condition;

2005 Material Weakness;

2004 Material Weakness)

1. We recommend that U.S. Forest Service management:

• Require all locations to fully comply with review

and certification requirements and follow up to

resolve questionable items.

Open

The Review of Purchase Card

Transactions Needs

Improvement

(2008 Significant Deficiency;

2007 Significant Deficiency;

2006 Reportable Condition;

2005 Reportable Condition;

2004 Reportable Condition)

4. We recommend that U.S. 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

B-41
Open Conditions In this Table are Referenced In Exhibit I

USDA OIG Audit Report No. 08401-3-FM January 2004

Material Weakness/

Significant Deficiency

Recommendation Status

The U.S. Forest Service Needs

to Improve Its General

Controls Environment

(2008 Significant Deficiency;

2007 Material Weakness;

2006 Material Weakness;

2005 Material Weakness;

2004 Material Weakness;

2003 Material Weakness)

19. [Additionally,] U.S. 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

The Design and/or

Implementation of Controls

Related to the Accurate

Recording of Personal

Property Transactions Need

Improvement

(2008 Control Deficiency;

2007 Significant Deficiency;

2006 Reportable Condition;

2005 Reportable Condition;

2004 Reportable Condition;

2003 Reportable Condition)

30. We recommend that the U.S. Forest Service WO

improve its monitoring of reporting units for

compliance with the U.S. Forest Service property

transaction recording policies.

Open

B-42
Exhibit III

(Continued)

COMPLIANCE AND OTHER MATTERS

The U.S. Forest Service Continues to Not Obligate all Transactions Required by Appropriations Law

(Repeat Condition)

Obligation testwork performed on 172 transactions disclosed that 80 transactions were not obligated as required

by appropriation law prior to payment. The transactions that were not obligated consisted of TDY and recurring

utility type transactions.

Due to the U.S. Forest Service’s current system limitations, the U.S. Forest Service can not obligate TDY travel

without a considerable effort that would exceed expected benefits. The U.S. Forest Service is in the process of

migrating to a new travel system that will allow for the obligation of TDY travel transactions. For other

transactions not obligated, several U.S. Forest Service offices did not obligate these transactions because of the

variability in determining the estimated cost for these types of transactions. During FY 2008 testwork, U.S.

Forest Service management informed us that they do obligate utility type transactions, however as of the end of

the FY 2008 audit, such evidence has not been provided.

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 nine criteria for recording obligations. When one criterion is

met, the agency not only may, but also must record that transaction as an obligation. Criterion seven 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 U.S. Forest Service to obligate all transactions as reported in prior

year Recommendation 8 of Audit Report No. 08401-4-FM.

The U.S. Forest Service’s Systems Do Not Comply with FFMIA of 1996 (Repeat Condition)

Financial Management Systems

During our engagement we noted instances described in more detail in Exhibit I, Significant Deficiency 1,

where the U.S. Forest Service’s financial management systems did not comply with federal financial

management systems requirements of the Federal Information Systems Management Act of 2002. Specifically,

we identified control deficiencies related to risk assessments, security plans and security testing and evaluation.

In addition, numerous vulnerabilities existed with regards to weak access controls and system patches not being

updated in the IT general controls environment that support the U.S. Forest Service’s financial management

systems.

We continue to recognize the need for the U.S. Forest Service to address the significant deficiency

recommendations noted in this report.

B-43
Exhibit III

Compliance with the US Standard General Ledger (SGL)

During our FY 2008 audit, we noted the following deficiencies in the U.S. Forest Service’s SGL ledger posting:

• Equipment Management Information System is used to manage working capital fund equipment which

consists of aircraft 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 U.S. Forest Service

general ledger.

• U.S. Forest Service capitalized lease transactions and internal use software work in process are not recorded

in the general ledger at the transaction level. Instead, they are maintained in off-line spreadsheets and then

recorded in the general ledger quarterly.

• The U.S. Forest Service does not use proper posting logic to record losses on the disposition of real property

assets. Losses are not appropriately recorded in account 7210, Losses on Disposition of Assets – Other.

Instead they are recorded as negative gains in account 7110, Gains on Disposition of Assets - Other.

• During testwork over the first three quarters of FY 2008, it was noted that for stewardship land acquisitions, the

U.S. Forest Service improperly debited 6100, Operating Expenses/Program Expenses instead of debiting 6908,

Stewardship Land Acquisition (Nonproduction Cost). At the end of the year U.S. Forest Service transferred the

total stewardship land activity (for which title has transferred) from general ledger account 6100 to 6908. The

USDA did not have a posting model at the transactional level to accommodate this business process. U.S.

Forest Service obtained posting logic during the fourth quarter of FY 2008 to appropriately record stewardship

land acquisitions. However, because the prior business process required manual involvement and did not

reclassify these expenses until the title had transferred there was an increased chance for human error. As a

result, the U.S. Forest Service overstated general ledger account 6908 by approximately $2.5 million.

We continue to recognize the need for the U.S. Forest Service to develop SGL compliant posting logic for

stewardship land acquisitions as noted in Recommendation 6 of Audit Report No. 08401-7-FM.

The Government Accountability Office Made a Final Determination as to the U.S. Forest Service’s Fiscal

Year 2006 Non-Compliance with 31 USC 1517

In the FY 2007 audit report, number 08401-8-FM dated November 2007, it was reported that the U.S. Forest

Service exceeded by $17 million an OMB footnote limitation of $100 million on the Schedule of

Apportionment and Reapportionment (SF-132) for TAFS 12X1115. In July 2007, this footnote limitation was

considered by the USDA Office of General Counsel to be a violation of the Anti-Deficiency Act (i.e., 31 USC

1517). However, U.S. Forest Service management believed that it had emergency authority to exceed the

limitation on this TAFS when protecting “life and land” and requested an opinion from the GAO. As of the

issuance of the FY 2007 audit report the GAO opinion had not yet been received.

In February 2008, the U.S. Forest Service received an opinion from the GAO stating that the U.S. Forest

Service was in violation of the Anti-Deficiency Act. USDA (and the U.S. Forest Service) reported this violation

in 2008 in accordance with OMB A-11 and determined not to impose any administrative discipline for this

violation. During 2008 the U.S. Forest Service improved its controls over the apportionment monitoring

process.

B-44
Exhibit IV

(Continued)

STATUS OF PRIOR YEAR’S NONCOMPLIANCE FINDINGS AND OTHER MATTERS

Open Conditions In this Table are Referenced In Exhibit III

USDA OIG Audit Report No. 08401-8-FM November 2007

Reported Condition Recommendation Status

The U.S. Forest

Service Continues to

Not Obligate all

Transactions

Required by

Appropriations Law

(2007 Non-compliance)

17. We recommend that U.S. Forest Service management:

A. Develop guidance and provide training to grant and agreement

specialists informing them that obligations are timely recorded

in FFIS.

B. Develop and implement procedures to query the I-WEB system

to determine the aging of grants which are in the award process,

but have not yet been obligated (i.e., identify grants for which

award letters have been issued, but not processed into FFIS).

Closed

Closed

The U.S. Forest

Service May Not

Have Been in

Compliance with 31

USC 1517 during

Fiscal Year 2006

(2007 Non-compliance)

18. We recommend that U.S. Forest Service management:

A. Refine its method to monitor and ensure compliance with SF132 footnote limitations.

B. Ensure reasonable timeframes for U.S. Forest Service Budget

and Program Analysis Staff and USDA Office of Budget and

Program Analysis are established to timely submit requests for

apportionments.

C. Continue to pursue GAO’s opinion.

Closed

Closed

Closed

The U.S. Forest

Service’s Systems Do

Not Comply with

FFMIA of 1996

(2007 Non-compliance)

19. We recommend that the U.S. Forest Service develop SGL

compliant posting models to appropriately record the recognition

of exchange revenue once and then treat subsequent movements of

the revenue as transfers of funds.

Closed

Open Conditions In this Table are Referenced In Exhibit III

USDA OIG Audit Report No. 08401-7-FM November 2006

Reported Condition Recommendation Status

The USDA Forest

Service’s Systems Do

Not Comply with the

Federal Financial

Management

Improvement Act

(FFMIA)

(2007 Non-compliance;

2006 Non-compliance)

6. We recommend that the U.S. Forest Service develop posting

models to appropriately record non-expenditure financing sourcestransfers-in and stewardship land acquisitions.

Closed

B-45
Open Conditions In this Table are Referenced In Exhibit III

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 U.S. Forest

Service’s Systems Do

Not Comply with the

Federal Financial

Management

Improvement Act

(FFMIA)

(2007 Non-compliance;

2006 Non-compliance)

12. We recommend that the U.S. 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

Open Conditions In this Table are Referenced In Exhibit III

USDA OIG Audit Report No. 08401-4-FM November 2004

Reported Condition Recommendation Status

The U.S. Forest

Service Does not

Obligate All

Transactions as

Required by

Appropriation Law

(2007 non-compliance;

2006 non-compliance;

2005 non-compliance;

2004 non-compliance)

8. We recommend that the U.S. Forest Service management

develop policies and procedures to obligate funds for

transactions as required by Appropriations Law.

Open

B-46
Exhibit V
2008 2007

Assets:

Intragovernmental:

Fund Balance with Treasury (Note 2) $ 4,066 $ 3,641

Investments 9 6

Accounts Receivable, Net (Note 3) 59 43

Total Intragovernmental 4,134 3,690

Cash and Other Monetary Assets 1 1

Accounts Receivable, Net (Note 3) 244 177

General Property, Plant, and Equipment (PP&E), Net (Note 4) 1,375 3,458

Other 21 13

Total Assets $ 5,775 $ 7,339

 Stewardship PP&E (Note 5)

 Federal Employee Benefits (Notes 6 & 7) $ 67 $ 66

Other (Note 9) 85 132

Total Intragovernmental 152 198

Accounts Payable 52 64

Federal Employee Benefits (Notes 6 & 7) 339 317

Environmental and Disposal Liabilities (Note 6 & 8) 18 97

Other (Note 9) 1,522 1,385

Total Liabilities (Note 6) 2,083 2,061

Commitments and Contingencies (Note 9)

Unexpended Appropriations - earmarked funds (Note 11) 1 - 

Unexpended Appropriations - other funds 1,969 1,307

Cumulative Results of Operations - earmarked funds (Note 11) 1,179 1,125

Cumulative Results of Operations - other funds 543 2,846

Total Net Position 3,692 5,278

Total Liabilities and Net Position $ 5,775 $ 7,339

(in millions)

U.S. Department of Agriculture

Forest Service

As of September 30, 2008 and 2007

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

Liabilities:

Intragovernmental:

Net Position:

B-48
2008 2007

Total Gross Costs $ 6,711 $ 6,315

Total Earned Revenue 865 598

Net Cost of Operations $ 5,846 $ 5,717

(in millions)

Program Costs (Note 12):

U.S. Department of Agriculture

Forest Service

CONSOLIDATED STATEMENTS OF NET COST

For the years ended September 30, 2008 and 2007

The accompanying notes are an integral part of these statements.

B-49
U.S. Department of Agriculture

Forest Service

CONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION

For the years ended September 30, 2008 and 2007

(in millions)

FY 2008 FY 2007

Earmarked Earmarked

Funds All Other Consolidated Funds All Other Consolidated

(Note 11) Funds Total (Note 11) Funds Total

Cumulative Results of Operations:

Beginning Balance $ 1,125 $ 2,846 $ 3,971 $ 1,244 $ 3,055 $ 4,299

Adjustment

 Change in Accounting Principle (Note 19) (14) (2,071) (2,085) - - -

Beginning Balance, as Adjusted 1,111 775 1,886 1,244 3,055 4,299

Budgetary Financing Sources:

 Appropriations Used - 5,172 5,172 - 4,896 4,896

 Non-Exchange Revenue - - - - 7 7

 Donations and Forfeitures of Cash 1 - 1 1 - 1

 Transfers - In/Out without Reimbursement 160 (36) 124 67 85 152

Other Financing Sources (Non-Exchange):

 Transfers without Reimbursement (32) 33 1 - - -

 Imputed Financing - 331 331 - 328 328

 Other 85 (32) 53 5 - 5

Total Financing Sources 214 5,468 5,682 73 5,316 5,389

Net Cost of Operations (146) (5,700) (5,846) (192) (5,525) (5,717)

Net Change 68 (232) (164) (119) (209) (328)

Cumulative Results of Operations 1,179 543 1,722 1,125 2,846 3,971

Unexpended Appropriations:

Beginning Balance - 1,307 1,307 - 1,030 1,030

Budgetary Financing Sources:

 Appropriations Received - 5,790 5,790 - 5,180 5,180

 Appropriations Transferred - In/Out 1 (3) (2) - (2) (2)

 Other Adjustments - 47 47 - (5) (5)

 Appropriations Used - (5,172) (5,172) - (4,896) (4,896)

 Total Budgetary Financing Sources 1 662 663 - 277 277

Total Unexpended Appropriations 1 1,969 1,970 - 1,307 1,307

Net Position $ 1,180 $ 2,512 $ 3,692 $ 1,125 $ 4,153 $ 5,278

 The accompanying notes are an integral part of these statements. 

B-50
2008 2007

Budgetary Resources:

Unobligated Balance, Brought Forward, October 1 $ 1,671 $ 1,809 

Recoveries of Prior Year Unpaid Obligations 78 111 

Budget Authority:

Appropriations 6,310 5,586 

Spending Authority from Offsetting Collections:

Earned:

Collected 561 525 

Change in Receivables 38 (44)

Change in Unfilled Customer Orders:

Advance Received (7) 5 

Without Advance 3 (5)

Expenditure Transfers from Trust Funds 4 

Subtotal 6,909 6,067

Nonexpenditure Transfers, net (2) 21 

Permanently Not Available (71) - 

Total Budgetary Resources (Note 15) $ 8,585 $ 8,008

Status of Budgetary Resources:

Obligations Incurred: (Note 14)

Direct $ 6,055 $ 6,048 

Reimbursable 360 289 

Subtotal 6,415 6,337

Unobligated Balance-Apportioned (Note 2) 982 840 

Unobligated Balance Not Available (Note 2) 1,188 831 

Total Status of Budgetary Resources (Note 15) $ 8,585 $ 8,008

Change in Obligated Balance:

Obligated Balance, net

Unpaid Obligations, Brought Forward, October 1 $ 2,243 $ 2,383 

Less: Uncollected Customer Payments,

Brought Forward October 1 (384) (433)

Total Unpaid Obligated Balance, net 1,859 1,950

Obligations Incurred net 6,415 6,337

Less: Gross Outlays (6,448) (6,366)

Less: Recoveries of Prior Year Unpaid Obligations, actual (78) (111)

Change in Uncollected Customer Payments (41) 49

Obligated Balance, net, End of Period

Unpaid Obligations 2,132 2,243 

Less: Uncollected Customer Payments (425) (384)

Total, Unpaid Obligated Balance, net, End of Period (Note 2) $ 1,707 $ 1,859

Net Outlays:

Net Outlays:

Gross Outlays $ 6,448 $ 6,366

Less: Offsetting Collections (558) (531)

Less: Distributed Offsetting Receipts (514) (500)

Net Outlays $ 5,376 $ 5,335

(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, 2008 and 2007

B-51
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

A: REPORTING ENTITY

The U.S. Department of Agriculture (USDA) Forest Service (Forest Service) was established on February 1,

1905, as an agency of the United States Federal Government within the Department of Agriculture, 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. Forest Service policy is implemented through nine

regional National Forest System (NFS) offices, one State and Private Forestry (S&PF) area office, five

research (R&D) offices, the Forest Products Laboratory (FPL) and the International Institute of Tropical

Forestry (IITF), functioning in nearly all States, Puerto Rico, and the Virgin Islands. 

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

National Forests and Grasslands - Protection and management of an estimated 193 million acres

(unaudited) of NFS land that includes 34.8 million acres (unaudited) 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 worlds 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 non-Federal forests and

associated rangeland and watershed areas; and

Wildland Fire Management – Protection of life, property, and natural resources on NFS lands, extending

to an estimated additional 20 million acres (unaudited) of adjacent State and private lands.

The accompanying consolidated and combined financial statements of the Forest Service account for all

funds under the Forest Service's control. Substantially all assets are considered “entity assets” and are

available for use in the Forest Service’s operations.

B: BASIS OF PRESENTATION AND ACCOUNTING

The Consolidated Balance Sheets (BS), Statements of Net Cost (SNC), Statements of Changes in Net

Position (SCNP), and the Combined Statements of Budgetary Resources (SBR) (hereinafter referred to as the

“financial statements”) were prepared to report the financial position, net costs, changes in net position, and

budgetary resources of the Forest Service. The financial statements have been prepared from the books and

records of the 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 June 3, 2008. All material intra-agency transactions and balances have

been eliminated for presentation on a consolidated basis. However, the SBR is presented on a combined basis

in accordance with OMB Circular A-136.

B-52
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

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 t o

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 Forest Service recognizes budgetary resources as assets when cash (funds held by Treasury) is made

available through the U.S. Department of the Treasury (Treasury) General Fund warrants and other transfers.

 In addition to appropriated funds, the 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 Forest Service’s earned revenues are

monies collected from timber sales or recreation fees. 

C: FUND BALANCE WITH THE U.S. TREASURY

The Treasury processes cash receipts and disbursements on behalf of the Forest Service. Funds on deposit

with 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 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.

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 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 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. There are no restrictions on the use or convertibility of general PP&E.

See Note 5 for specific disclosures related to multi-use Heritage Assets.

B-53
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

F: STEWARDSHIP PP&E

Stewardship PP&E includes assets such as heritage assets and stewardship land and due to their unique nature

would be difficult to value. In accordance with SFFAS No. 29, Heritage Asset and Stewardship Land, all

heritage assets and stewardship land information has been reclassified as basic, except for condition

information, which is reclassified as required supplementary information (RSI). 

See Note 5 for specific disclosures related to Stewardship PP&E. 

B-54
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

G: LIABILITIES

Liabilities represent the amount of monies or other resources that are likely to be paid by the Forest Service

as a result of a transaction or event that has occurred. However, the 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. 

H: ENVIRONMENTAL AND DISPOSAL LIABILITIES

The Forest Service’s estimated government-related and government-acknowledged 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. 

See Note 8 for specific disclosures related to cleanup costs for ongoing operations.

I: COMMITMENTS AND CONTINGENCIES

The Forest Service is a party in various administrative proceedings, legal actions, environmental lawsuits, and

claims. In the opinion of the 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 Forest Service is recognized as a liability

and expense. Expected amounts related to litigation and other claims include amounts to be paid by Treasury

on behalf of the Forest Service from a permanent appropriation for judgments and from other

appropriations. 

J: 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 Forest Service’s employees under FECA are administered by the U.S. Department of

Labor (DOL). The USDA uses Forest Service funds to reimburse the DOL for FECA claims. Consequently,

the 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 Forest Service approved compensation cases to be paid

beyond the current fiscal year. 

K: 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.

B-55
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

L: PENSION AND OTHER RETIREMENT BENEFITS

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

Forest Service’s matching contribution, equal to 7.0 percent of pay, distributed to their annuity account in

the Civil Service Retirement and Disability Fund.

FERS went into effect on January 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 January 1,

1984 could elect to join FERS and Social Security, or to remain in CSRS. FERS offers a savings plan to which

the Forest Service automatically contributes 1.0 percent of pay and matches any employee contribution up

to an additional 4.0 percent of pay. For FERS participants, the Forest Service also contributes the

employer’s matching share for Social Security.

The 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 t o

the Forest Service for current period expense reporting.

M: REVENUES AND OTHER FINANCING SOURCES

The Forest Service is funded principally through Congressional appropriations and other authorizations in

the Budget of the United States. The 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 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 Forest Service is required to remit

exchange revenue receipts to the Treasury. In other instances, the 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 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 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 12 as

intragovernmental or with the public based on the related source or customer, respectively.

B-56
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

N: IMPUTED FINANCING

The Forest Service recognizes as imputed financing the amount of accrued pension and post-retirement

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 Forest Service are also recognized as imputed financing.

Imputed financing for the years ended September 30, 2008 and 2007 was $331 million and $328 million,

respectively.

O: PARENT/CHILD REPORTING REQUIREMENTS

The Forest Service is a party to allocation transfers with other federal agencies as both a transferring

(parent) entity and/or a receiving (child) entity. Allocation transfers are legal delegations by one department

of its authority to obligate budget authority and outlay funds to another department. A separate fund

account (allocation account) is created in the U.S. Treasury as a subset of the parent fund account for

tracking and reporting purposes. All allocation transfers of balances are credited to this account, and

subsequent obligations and outlays incurred by the child entity are charged to this allocation account as they

execute the delegated activity on behalf of the parent entity. Effective October 1, 2006, in accordance with

OMB Circular A-136, all financial activity related to these allocation transfers (e.g., budget authority,

obligations, outlays) is reported in the financial statements of the parent entity, from which the underlying

legislative authority, appropriations and budget apportionments are derived. The Forest Service allocates

funds, as the parent, to the Department of Transportation, Department of Interior, Department of the

Army, Department of the Navy, Department of the Air Force, and the Corp of Engineers, Civil. The Forest

Service receives allocation transfers, as the child, from the Department of Labor, Department of

Transportation, and Department of Interior.

P: 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 and federal employee benefits

liabilities.

Q: EARMARKED FUNDS

The Forest Service reports the earmarked funds for which it has program management responsibility, using

the following three criteria:

 A statute committing the Federal government to use specifically identified revenues and other financing

sources only for designated activities, benefits, or purposes;

 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

 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 Federal government’s general

revenues.

B-57
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

R: CHANGE IN ACCOUNTING PRINCIPLE

In accordance with SFFAS 21, Reporting Correction of Errors and Changes in Accounting Principles, the

Forest Service has implemented a voluntary change in accounting principle to reclassify National Forest

System (NFS) Road (road prism) assets from General PP&E to Stewardship PP&E. This change removes

capitalized road prism values from the Balance Sheet and expenses the related costs, as reflected in an

adjustment to the beginning balance of Cumulative Results of Operations (CRO) in the Statement of Changes

in Net Position.

See Note 19 for additional information.

B-58
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 2: FUND BALANCE WITH TREASURY

Funds with 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 suspense accounts. It is the Forest

Service’s policy to ensure the Fund Balance with Treasury (FBWT) reported on the Balance Sheets is

consistent with the records of the Treasury.

The Forest Service has known discrepancies with Treasury in FBWT, suspense accounts 12F3875 and

12F3885, as of September 30, 2008. “F” accounts have been discontinued effective July 31, 2008. The

USDA and the Forest Service have elected not to obtain an “F” waiver, which would permit the entity t o

continue using suspense accounts. Treasury has stopped accepting new activity in “F” accounts from entities

without an “F” waiver, but certain Intragovernmental activity is still mapped to 12F3875 and 12F3885,

resulting in balances recorded to the general ledger, but not reported to Treasury, per Treasury guidance. The

difference in the FBWT balance as of September 30, 2008, is $3.8 million.

Fund Balance with Treasury as of September 30, 2008 and 2007 consisted of the following:

2008 2007

(1) Trust Funds $313 $354

(2) Special Funds 908 767

(3) Revolving Funds 146 136

(4) General Funds 2,628 2,305

(5) Other Fund Types 71 79

$4,066 $3,641

(1) Unobligated Balance

(a) Available $982 $840

(b) Unavailable 1,188 831

(2) Obligated Balance not yet Disbursed 1,707 1,859

(3) Other Balances 189 111

$4,066 $3,641

B. Status of Funds:

Total

(in millions)

A. Fund Balances:

Total

B-59
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 3: ACCOUNTS RECEIVABLE, NET

Intragovernmental accounts receivable represent amounts due under reimbursable and cooperative

agreements with Federal entities for services provided by the 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, 2008 and 2007, the intragovernmental accounts receivable

balances were $59 million and $43 million, respectively.

Non-intragovernmental accounts receivable are comprised primarily of timber harvest and reimbursements

and refunds owed to the Forest Service for fire prevention and suppression activities. An allowance for

receivables deemed uncollectible is established against outstanding non-Federal accounts receivable, based on

historical experience. The historical percentage is calculated by comparing open accounts receivable against

the total accounts receivable. The historical percentage is then applied to total receivables. This approach is

used to estimate the allowance for uncollectible accounts and recording receivables at net realizable value.

Non-intragovernmental accounts receivable as of September 30, 2008 and 2007 consisted of the following:

2008 2007 

Accounts Receivable $254 $187 

Allowance for Doubtful Accounts (10) (10)

Accounts Receivable, Net $244 $177 

(in millions)

B-60
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 4: GENERAL PROPERTY, PLANT, AND EQUIPMENT, NET

Depreciation of General PP&E for the 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. Additional

information on the reduction in real property book value due to a voluntary change in accounting principle

is provided in Note 19.

As of September 30, 2008 and 2007 the Forest Service’s PP&E consisted of the following:

Property Class

Estimated Useful Life 

(Years) Cost

Accumulated 

Depreciation Book Value

Personal Property 

Equipment 5 - 20 $ 710 $ (524) $ 186

Internal Use Software 5 186 (142) 44

Internal Use Software in Development n/a 11 - 11

Total Personal Property 907 (666) 241

Real Property

Land and Land Rights n/a 51 51

Improvements to Land 10 690 (582) 108

Construction in Progress n/a 170 170

Buildings, 

Improvements, 

and Renovations 30 890 (547) 343

Other Structures and Facilities 15 - 50 1,632 (1,211) 421

Assets Under Capital Lease 5 - 30 63 (32) 31

Leasehold Improvements 10 14 (4) 10

Total Real Property 3,510 (2,376) 1,134

Total $ 4,417 $ (3,042) $ 1,375

September 30, 2008

(in millions)

B-61
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

Property Class

Estimated Useful Life 

(Years) Cost

Accumulated 

Depreciation Book Value

Personal Property 

Equipment 5 - 20 $ 739 $ (550) $ 189

Internal Use Software 5 130 (121) 9

Internal Use Software in Development n/a 7 - 7

Total Personal Property 876 (671) 205

Real Property

Land and Land Rights n/a 52 52

Improvements to Land 10 - 50 5,021 (2,817) 2,204

Construction in Progress n/a 184 - 184

Buildings, 

Improvements, 

and Renovations 30 874 (529) 345

Other Structures and Facilities 15 - 50 1,589 (1,165) 424

Assets Under Capital Lease 5 - 30 70 (34) 36

Leasehold Improvements 10 11 (3) 8

Total Real Property 7,801 (4,548) 3,253

Total $ 8,677 $ (5,219) $ 3,458

September 30, 2008

(in millions)

B-62
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 5: STEWARDSHIP PP&E

This note provides information on certain resources entrusted to and stewardship responsibilities assumed by

the Forest Service. These resources and responsibilities are referenced in accordance with SFFAS No. 29,

Heritage Assets and Stewardship Land on the Forest Service’s Balance Sheet.

Stewardship Property, Plant, and Equipment (PP&E)

Stewardship PP&E are assets whose physical properties resemble those of the General PP&E that are

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 Forest Service reports its physical units of Stewardship

PP&E by site. Sites include National Forests, National Grasslands, other Forest Service-managed sites, and

non Forest Service- managed sites such as museums and university laboratories. The protection of these lands

and resources is a fundamental Forest Service responsibility.

The mission of the 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 Forest Service strives to achieve

quality land management under the sustainable multiple-use management concept to deliver the necessary

products and services that are essential for enhancing natural resource stewardship and to meet the diverse

needs of people.

Heritage Assets

Heritage assets, as defined in SFFAS 29, are PP&E that are unique for one or more of the following reasons:

 Historical or natural significance

 Cultural, educational, or artistic (e.g. aesthetic) importance

 Significant architectural characteristics

Heritage assets can include non-collection type assets, such as historic or prehistoric sites, monuments, and

buildings, or collection type assets, such as objects gathered and maintained for exhibition.

Some heritage assets may also be classified as multi-use heritage assets if they serve two purposes—a heritage

function and a general government operations function, such as a forest guard station building. The building

may be listed on the National Register of Historic Places, but it serves primarily as an administrative site;

hence, it is considered a “multi-use” heritage asset. Multi-use heritage assets are capitalized as General PP&E.

Physical units of multi-use heritage assets are included in Stewardship PP&E.

FY 2008

(as of 09/30/2008)

HERITAGE ASSET SITES

National Forests 155

National Grasslands 20

Other 22

TOTAL SITES 197

B-63
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

Stewardship Land

Stewardship land consists primarily of the national forests and grasslands owned by the 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. 

National Forests

The national forests are formally established and permanently set aside and reserved for national forest

purposes.

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.

Research and Experimental Areas

Research and experimental areas are reserved and dedicated by the Secretary of Agriculture for forest and

range research experimentation. Areas reported are located outside the exterior boundaries of a National

Forest or National Grassland.

National Preserves and Other Areas

National preserves are units established to protect and preserve scientific, scenic, geologic, watershed, fish,

wildlife, historic, cultural, and recreational values; and provide for multiple use and sustained yield of its

renewable resources. Other areas include areas administered by the Forest Service that are not included in one

of the above groups. 

The NFS sites reported by major category as of September 30, 2008, are as follows:

FY 2008

(as of 09/30/2008)

STEWARDSHIP LAND ASSET SITES

 National Forests 155

 National Grasslands 20

 Research and Experiment Areas 3

 National Preserves and Other Areas 3

TOTAL SITES 181

B-64
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 6: LIABILITIES NOT COVERED BY BUDGETARY RESOURCES

Liabilities not covered by budgetary resources as of September 30, 2008 and 2007 consisted of the following:

2008 2007

Intragovernmental:

Treasury Judgment Fund $17 $15

Federal Employee Benefits (Note 7) 67 66

Total Intragovernmental 84 81

Federal Employee Benefits (Note 7) 339 317

Annual Leave Liability 199 193

Contingent Liabilities 14 11

Accrued Liability for Payments to States 531 394

Environmental and Disposal Liabilities 10 97

Total Liabilities Not Covered by Budgetary Resources 1,177 1,093

Total Liabilities Covered by Budgetary Resources 906 968

Total Liabilities $2,083 $2,061

(in millions)

B-65
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 7: FEDERAL EMPLOYEE BENEFITS

Liabilities under the Federal Employees’ Compensation Act (FECA) are incurred as a result of accrued

workers' compensation benefits not yet paid by the 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 USDA as a whole, including the Forest Service. The 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. The amounts of unpaid FECA billings constitute the accrued FECA

payable.

The total components of accrued FECA payable as of September 30, 2008 and 2007 consisted of the

following:

2008 2007

Intragovernmental Federal Employee 

Benefits (Note 6) $67 $66

Federal Employee Benefits (Note 6) 339 317

Total $406 $383

(in millions)

B-66
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 8: ENVIRONMENTAL AND DISPOSAL LIABILITIES 

 

Forest Service discloses the following information related to cleanup costs for environmental hazards, in

accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government, and SFFAS No. 6,

Accounting for Property, Plant and Equipment.

The Forest Service recognizes two categories of environmental hazards. Government-related events are

damages caused by such factors as ongoing operations or natural forces. The resulting liability is recognized in

the period the event occurs or as soon thereafter as it becomes probable and measurable.

Government-acknowledged events are non-transaction events that are of financial consequence to the Forest

Service because it chooses to respond to the event, and a primary responsible party cannot be located. Clean

up costs associated with events such as toxic waste damage caused by nonfederal entities or natural disasters,

may ultimately become the responsibility of the Forest Service. However these costs do not meet the

definition of a “liability” until, and to the extent that financial responsibility is acknowledged by the Forest

Service, Congress has appropriated resources, and an exchange or non-exchange transaction has occurred.

Forest Service project managers confer with the appropriate States, the Office of General Counsel (OGC),

and occasionally, EPA and local governments. The agency follows cleanup requirements from the legislative

sources in Appendix I of Federal Financial Accounting and Auditing, Technical Release No. 2, including the

Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), the Resource

Conservation and Recovery Act (RCRA), other Federal or State regulations and USDA or Forest Service

policy, as necessary.

Cleanup cost estimates—usually immaterial to the total project cost for the majority of demolitions,

deconstructions, or renovations—are included in PP&E operations and maintenance costs (O&M). When

contamination occurs that is not addressed under regular O&M, the agency develops a cost estimate for the

total cleanup and, to the extent it is probable and reasonable to estimate, records the cost to cleanup any

contaminated PP&E. Professional judgment and prior experience is often the basis for cost estimates. If the

agency has no previous similar experience, the staff performs other comparable technical reviews or derives

estimates using standard cost estimating guides.

Exceptions occur when a previous activity results in release or potential release of a hazardous substance, and

if contamination migrates offsite from a current operation. In these instances, the total reasonably estimable

costs are recognized when the exception is discovered.

Forest Service cleanup cost estimates are based on the current total cost for a contaminated site according t o

laws, technology and inflation/deflation. Forest Service updates cost estimates, including changes relating t o

prior period operations, for government-related liabilities at least annually, to reflect changes in laws or

regulations, technology, and inflation or deflation. 

Environmental and disposal liabilities for the year ended September 30, 2008, for government-related and

government-acknowledged events were $11 million and $7 million respectively. This amount reflects a

decrease of $79 million as compared to FY 2007. An OGC Memorandum on Potential Forest Service

Liabilities, indicates that abandoned mine land (AML) sites should not be considered as government-related

liabilities. The reduced liability reflects this finding. 

B-67
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 9: OTHER LIABILITIES

2008 2007

Non-Current Current Total Non-Current Current Total

Intragovernmental 

Employer Contributions & Payroll Tax $ - $ 24 $ 24 $ - $ 14 $ 14

Accrued Liabilities 17 27 44 15 43 58

Advances from Others - 19 19 - 24 24

Deposit Liabilities - (11) (11) - 27 27

Custodial Liabilities - 9 9 - 9 9

Total Intragovernmental $ 17 $ 68 $ 85 $ 15 $ 117 $ 132

Other 

Accrued Liabilities $ - $ 567 $ 567 $ - $ 654 $ 654

Grant Liabilities - 5 5 - - -

Advances from Others - 47 47 - 49 49

Deposit Liabilities - 124 124 - 46 46

Purchaser Road Credits - 1 1 - 2 2

Accrued Liability for Payments to States & Counties - 531 531 - 394 394

Annual Leave Liability 199 199 - 193 193

Contingent Liabilities 14 - 14 11 - 11

Custodial Liabilities - 3 3 - - -

Capital Leases (Note 10) 28 3 31 32 4 36

Total Other $ 42 $ 1,480 $ 1,522 $ 43 $ 1,342 $ 1,385

Total Other and Intragovernmental Liabilities $ 59 $ 1,548 $ 1,607 $ 58 $ 1,459 $ 1,517

(in millions)

As of September 30, 2008 and 2007, the Forest Service’s major components of other liabilities are as

follows:

Accrued Liabilities: Accrued liabilities consist primarily of accruals for payroll and for receipt of goods

and services. Accrued liabilities for occupancy agreements between U.S. General Services Administration

(GSA) and the Forest Service are also included. Approximately 30.0 percent of the accrued liabilities total is

calculated by a mathematical model based on a regression between open obligation balances and subsequent

payments. 

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. 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. The Secure Rural School and

Community Self Determination Act of 2000, (P.L. 106-393) as amended by §601 of The Emergency

Economic Stabilization Act of 2008, (H.R. 1424) (P.L. 110-343) also provides for roads and schools, Forest

Service projects and emergency services. In addition, the Payments to Counties, Bankhead-Jones Farm

Tenant Act of 1937 requires 25.0 percent of the net revenues from each national grassland or land

utilization project to be paid to the counties in which such lands are located.

B-68
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

Annual Leave Liability: 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. 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.

Contingent Liabilities and Commitments: As of September 30, 2008, the Forest Service had several

legal actions pending. Based on information provided by legal counsel, management believes some adverse

decisions are probable and approximately $14 million related to such actions has been accrued. The Forest

Service has a potential liability for approximately $206 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.

B-69
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 10: LEASE LIABILITIES 

The Forest Service enters into leasing agreements 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 Forest

Service’s assets under capital leases as of September 30, 2008 and 2007 and future capital and operating lease

agreement payments as of September 30, 2008 consisted of the following:

2008 2007

Land, Buildings, Machinery, & 

Equipment $63 $70

Accumulated Amortization (32) (34)

Total $31 $36

Year 1 (2009) 10

Year 2 (2010) 10

Year 3 (2011) 10

Year 4 (2012) 9

Year 5 (2013) 9

After 5 Years 50

$98

48

19

31

Lease Liabilities covered by Budgetary Resources $31

 -

(in millions)

Fiscal Year

Year 1 (2009) $42

Year 2 (2010) 40

Year 3 (2011) 38

Year 4 (2012) 35

Year 5 (2013) 33

After 5 Years 272

Total Future Lease Payments $460

Lease Liabilities not covered by Budgetary Resources

Operating Leases:

Future Payments Due:

Land & Buildings, 

Machinery & Equipment

Land & Buildings, 

Machinery & Equipment

Capital Leases: 

(in millions)

Summary of Assets Under Capital Leases

Future Payments Due:

Total Future Lease Payments

Less: Imputed Interest

Less: Executory Costs 

 Subtotal

B-70
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 11: EARMARKED FUNDS

In accordance with SFFAS 27, Identifying and Reporting Earmarked Funds, the 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 NFS 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 the Forest Service has program management responsibility. Those with an asterisk are authorized by

specific legislative acts as permanent indefinite appropriations.

Treasury Account Symbols and Titles

5004 Land Acquisition 

5008 National Forest Fund Receipts 

5010 Recreation Fees for Collection Costs 

5072 Fees, Operation and Maintenance of Recreation Facilities 

5201 Payments to States, National Forest Fund 

*5202 Timber Roads Purchaser Election 

*5203 Roads and Trails for States, National Forest Funds 

*5204 Timber Salvage Sales

*5206 Expenses, Brush Disposal 

5207 Range Betterment Fund 

5208 Acquisition of Lands for National Forests, Special Acts 

5212 Construction of Facilities or Land Acquisition 

*5213 Payments to Minnesota (Cook, Lake and St. Louis Counties), National Forest Funds 

*5214 Licensee Program 

*5215 Restoration of Forest Lands and Improvements 

5216 Acquisition of Lands to Complete Land Exchanges (Funds EXSL and EXSC) 

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 

*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

5367 State, Private and International Forestry Land and Water Conservation Fund

*5462 Hardwood Technology Transfer and Applied Research Fund

*5540 Stewardship Contracting Product Sales, Funds Retained

*5896 Payments to Counties, National Grasslands 

*8028 Cooperative Work, Forest Service

8029 Mount Saint Helens Highway 

8034 Gifts, Donations, and Bequests for Forest and Rangeland Research

8039 Land Between the Lakes Trust Fund 

8046 Reforestation Trust Fund 

*8203 Gifts and Bequests, Department of Agriculture

B-71
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

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, 2008

(in millions)

 Cooperative 

Work 

 Restoration of 

Forest Lands 

and 

Improvements 

 Recreation Fee 

Demonstration 

Program 

 State, Private, 

& International 

Forestry Land 

& Water 

Conservation 

Fund 

 Other 

Funds Total 

ASSETS

Fund Balance with Treasury $ 296 $ 113 $ 147 $ 107 $ 557 $ 1,220

Investments - - - - 9 9

Accounts Receivable, Net 3 41 1 - 17 62

Advances To Others - - - 4 1 5

General Property, Plant & Equipment, Net 17 - 3 - 88 108

TOTAL ASSETS $ 316 $ 154 $ 151 $ 111 $ 672 $ 1,404

LIABILITIES

Accounts Payable $ 3 $ - $ 1 $ - $ 2 $ 6

Other Liabilities 50 - 3 5 160 218

TOTAL LIABILITIES 53 - 4 5 162 224

Total Net Position 263 154 147 106 510 1,180

TOTAL LIABILITIES AND NET POSITION $ 316 $ 154 $ 151 $ 111 $ 672 $ 1,404

CHANGE IN NET POSITION

Beginning Balances, as adjusted $ 301 $ 51 $ 151 $ 100 $ 508 $ 1,111

Budgetary Financing Sources:

 Appropriations Transfer - in/out - - - 1 - 1

 Donations and Forfeitures of Cash - - - - 1 1

 Transfers -in/out without Reimbursement (4) - - 52 112 160

Other Financing Sources:

 Transfers-in/out without Reimbursement - - - - (32) (32)

 Other - - - - 85 85

Total Financing Sources (4) - - 53 166 215

Revenue 105 108 61 - 210 484

Expenses (139) (5) (65) (47) (374) (630)

Net Cost of Operations (34) 103 (4) (47) (164) (146)

ENDING BALANCES $ 263 $ 154 $ 147 $ 106 $ 510 $ 1,180

B-72
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

Earmarked Funds

As of and for the year ended September 30, 2007

(in millions)

 Cooperative 

Work 

 Recreation 

Fee 

Demonstration 

Program 

 Payments to 

States, 

National 

Forest Fund 

 State, Private, 

& International 

Forestry Land 

& Water 

Conservation 

Fund 

 Other 

Funds Total 

ASSETS

Fund Balance with Treasury $ 338 $ 150 $ 146 $ 101 $ 387 $ 1,122

Investments - - - - 6 6

Accounts Receivable, Net 4 1 - - 38 43

Advances To Others - - 1 2 - 3

General Property, Plant & Equipment, Net 20 3 4 - 89 116

TOTAL ASSETS $ 362 $ 154 $ 151 $ 103 $ 520 $ 1,290

LIABILITIES

Accounts Payable $ 3 $ 1 $ 2 $ - $ 3 $ 9

Other Liabilities 55 2 73 3 23 156

TOTAL LIABILITIES 58 3 75 3 26 165

Total Net Position 304 151 76 100 494 1,125

TOTAL LIABILITIES AND NET POSITION $ 362 $ 154 $ 151 $ 103 $ 520 $ 1,290

CHANGE IN NET POSITION

Beginning Balances, as adjusted $ 377 $ 135 $ 128 $ 84 $ 520 $ 1,244

Budgetary Financing Sources:

 Donations and Forfeitures of Cash - - - - 1 1

 Transfers -in/out without Reimbursement - 13 - 57 (3) 67

 Other - - - - 5 5

Total Financing Sources - 13 - 57 3 73

Revenue 97 60 (21) - 192 328

Expenses (170) (57) (31) (41) (221) (520)

Net Cost of Operations (73) 3 (52) (41) (29) (192)

ENDING BALANCES $ 304 $ 151 $ 76 $ 100 $ 494 $ 1,125

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 Forest Service. Cooperators

include timber purchasers, not-for-profit organizations, and local hunting and fishing clubs. The governing

authorities are the Cooperative Funds Act of June 30, 1914 (16 U.S.C. 498), and the Knutson-Vandenberg

Act.

B-73
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

Restoration of Forest Lands and Improvements

The Restoration of Forest Lands and Improvements Acts (16 U.S.C. 579c) states, any moneys received by

the United States with respect to lands under the administration of the Forest Service (a) as a result of the

forfeiture of a bond or deposit by a permittee or timber purchaser for failure to complete performance of

improvement, protection, or rehabilitation work required under the permit or timber sale contract or (b) as a

result of a judgment, compromise, or settlement of any claim, involving present or potential damage to lands

or improvements, shall be deposited into the Restoration of Forest Lands and Improvements Account –

12X5215 and made available until expended to cover the cost of any improvement, protection, or

rehabilitation work on lands under the administration of the Forest Service rendered necessary by the action

which led to the forfeiture, judgment, compromise, or settlement, provided that any portion of the moneys

so received in excess of the amount expended in performing the work necessitated by the action which led t o

their receipt shall be transferred to miscellaneous receipts.

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 §315 of Title III General Provisions of Public Law

104-134: Recreation Fee Demonstration Program 16 U.S.C. 4601-6a.

State, Private, and International Forestry, Land and Water Conservation Fund

The Fiscal Year 2004 Department of Interior and Related Agencies Appropriation Act (Public Law 108-

108) authorizes the Forest Service to receive a transfer of receipts from Department of Interior’s Land and

Water Conservation Fund to finance the existing Forest Legacy Program, funded previously by State and

Private Forestry general appropriation, 12X1105. To accommodate the new financing arrangement and at

OMB’s request, the Department of Treasury established a new special fund, 12X5367, “State, Private and

International Forestry Land and Water Conservation Fund”. The program expenditures include grants and

an occasional land purchase but no real property will be procured or constructed.

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 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.

B-74
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 12: SUBORGANIZATION PROGRAM COSTS/PROGRAM COSTS BY SEGMENT

The 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, 2008 and 2007.

Program Costs by Segment

For the year ended September 30, 2008

(in millions)

National 

Forests and 

Grasslands

Forest and 

Rangeland 

Research

State and 

Private 

Forestry

Wildland Fire 

Management Total

 Intragovernmental Gross Costs: 

Benefit Program Costs $ 534 $ 1 $ - $ 12 $ 547

Imputed Costs 331 - - - 331

Reimbursable Costs 138 21 12 175 346

Total Intragovernmental Gross Costs 1,003 22 12 187 1,224

 Less: Intragovernmental Earned Revenue 50 26 23 150 249

 Intragovernmental Net Costs 953 (4) (11) 37 975

Gross Costs With the Public:

Grants and Indemnities 550 8 275 22 855

Stewardship Land Acquisition (Note 13) 42 - - - 42

Other:

Operating Costs 1,499 276 100 2,206 4,081

Depreciation Expense 132 2 - 34 168

Reimbursable Costs 83 26 20 212 341

 Total Other 1,714 304 120 2,452 4,590

Total Gross Costs with the Public 2,306 312 395 2,474 5,487

Less: Earned Revenues from the Public 531 3 1 81 616

Net Costs with the Public 1,775 309 394 2,393 4,871

Net Cost of Operations $ 2,728 $ 305 $ 383 $ 2,430 $ 5,846

B-75
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

Program Costs by Segment

For the year ended September 30, 2007

(in millions)

National 

Forests and 

Grasslands

Forest and 

Rangeland 

Research

State and 

Private 

Forestry

Wildland Fire 

Management Total

 Intragovernmental Gross Costs: 

Benefit Program Costs $ 361 $ 1 $ 1 $ 9 $ 372

Imputed Costs 328 - - - 328

Reimbursable Costs 186 18 18 277 499

Total Intragovernmental Gross Costs 875 19 19 286 1,199

 Less: Intragovernmental Earned Revenue 69 37 17 12 135

 Intragovernmental Net Costs 806 (18) 2 274 1,064

Gross Costs With the Public:

Grants and Indemnities 444 8 229 19 700

Stewardship Land Acquisition (Note 13) 73 - - - 73

Other:

Operating Costs 1,595 247 114 1,924 3,880

Depreciation Expense 223 2 - 21 246

Reimbursable Costs 67 26 16 108 217

 Total Other 1,885 275 130 2,053 4,343

Total Gross Costs with the Public 2,402 283 359 2,072 5,116

Less: Earned Revenues from the Public 362 3 - 98 463

Net Costs with the Public 2,040 280 359 1,974 4,653

Net Cost of Operations $ 2,846 $ 262 $ 361 $ 2,248 $ 5,717

B-76
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 13: COST OF STEWARDSHIP PP&E

Stewardship PP&E acquired through purchase in FYs 2008 and 2007 amounted to $42 and $73 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 PP&E. 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.

B-77
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 14: APPORTIONMENT CATEGORIES OF OBLIGATIONS INCURRED

The OMB 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 FY 2008 and 2007. 

Apportionment 

Category A

Apportionment 

Category B Total

Obligations Incurred - Direct $3,900 $2,155 $6,055

Obligations Incurred - Reimbursable 285 75 360

Total Obligations Incurred $4,185 $2,230 $6,415

Apportionment 

Category A

Apportionment 

Category B Total

Obligations Incurred - Direct $3,785 $2,263 $6,048

Obligations Incurred - Reimbursable 218 71 289

Total Obligations Incurred $4,003 $2,334 $6,337

For the year ended September 30, 2008

(in millions)

For the year ended September 30, 2007

(in millions)

B-78
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 15: EXPLANATION OF DIFFERENCES BETWEEN THE STATEMENT OF 

BUDGETARY RESOURCES AND THE BUDGET OF THE UNITED STATES 

GOVERNMENT

The differences between the fiscal 2007 Statement of Budgetary Resources (SBR) and the fiscal 2007 actual

numbers presented in the fiscal 2009 Budget of the United States Government (Budget) are summarized in

the table below.

The President’s Budget with the actual numbers for the current fiscal year is not yet available and should be

published in February 2009. The publication can be located at http://www.whitehouse.gov/omb.

SBR Budget Dollar Percentage

SBR Line Description Amount Amount Variance Variance

Total Budgetary Resources/Status of Resources 8,008$ $ -$ 0% 8,008

Total Status of Resources 8,008 8,008 - 0%

Unobligated Balance-Beginning of Year 1,809 1,693 116 7% (a)

Recoveries of Prior Year Obligations 111 112 (1) -1%

New Budget Authority 5,586 5,699 (113) -2% (a)

Spending Authority from Offsetting Collections 481 482 (1) 0%

Non Expenditure Transfers 21 22 (1) -5%

Total New Obligations 6,337 6,335 2 0%

Unobligated Balance & Unobligated Balance not Available 1,671 1,673 (2) 0%

Obligated Balance - Beginning of Year 1,950 1,948 2 0%

Obligated Balance - End of Year 1,859 1,857 2 0%

Net Outlays 5,335 5,332 3 0%

Offsetting Receipts 500 500 - 0%

(in millions)

Note (a): Receipts returned to Treasury were reclassified in FACTS II to reflect the amount of new budget authority received.

B-79
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 16: UNDELIVERED ORDERS AT THE END OF THE PERIOD

The undelivered orders included in unpaid obligations as of September 30, 2008 and 2007 are $1,458 and

$1,481 million, respectively. 

B-80
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 17: 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 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 Non-Valued

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.

The 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 Forest Service. As of

September 30, 2008 and 2007, the amount of marijuana on hand was 32,627 (kg) and 34,021(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.

B-81
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 18: RECONCILIATION OF NET COST OF OPERATIONS (PROPRIETARY) TO 

 BUDGET (FORMERLY THE STATEMENT OF FINANCING)

2008 2007

Resources Used to Finance Activities:

Budgetary Resources Obligated:

Obligations Incurred $ 6,415 $ 6,337

Less: Spending Authority from Offsetting Collections and Recoveries 677 592

Obligations Net of Offsetting Collections and Recoveries 5,738 5,745

Less: Offsetting Receipts 514 500

Net Obligations 5,224 5,245

Other Resources:

Transfers in/out Without Reimbursement 1 -

Imputed Financing from Costs Absorbed by Others 331 328

Other 53 5

Net Other Resources Used to Finance Activities 385 333

Total resources used to finance activities 5,609 5,578

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 16 (159)

Resources that Fund Expenses Recognized in Prior Periods (84) (80)

Budgetary Offsetting Collections and Receipts that do not Affect 

Net Cost of Operations

Change in Unfilled Orders 26 26

Decrease in Exchange Revenue Receivable from the Public - 1

Other (30) (23)

Resources that Finance the Acquisition of Assets (101) (128)

Other Resources or Adjustments to Net Obligated Resources that do not 

Affect the Net Cost of Operations 29 196

Total Resources Used to Finance Items not Part of the Net Cost of Operations (144) (167)

Total Resources Used to Finance the Net Cost of Operations 5,465 5,411

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 

Increase in Annual Leave Liability 6 -

Increase in Environmental and Disposal Liability - 44

Increase in Exchange Revenue Receivable from the Public (18) -

Increase in Accrued Liability for Payments to States 137 -

Other 76 1

Total Components of Net Cost of Operations that will Require or Generate 201 45

Resources in Future Periods

Components not Requiring or Generating Resources:

Depreciation and Amortization 168 246

Revaluation of Assets or Liabilities 5 3

Other Components not Requiring or Generating Resources

Bad Debt Expense 6 -

Other 1 12

Total Components of Net Cost of Operations that will not Require or

Generate Resources 180 261

Total Components of Net Cost of Operations that will not Require or 

Generate Resources in the Current Period 381 306

Net Cost of Operations $ 5,846 $ 5,717

(in millions)

B-82
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

This note is intended to be a bridge between the entity’s budgetary and financial (proprietary) accounting.

This reconciliation first identifies total resources used by an entity during the period (budgetary and other)

and then makes adjustments to the resources based upon how they were used to finance net obligations or

cost. The budgetary information used to calculate net obligations (the first four lines) must be presented on a

combined basis to enable a direct tie to the Statement of Budgetary Resources. The reconciliation then

explains the difference between the budgetary net obligations and the proprietary net cost of operations by

setting forth the items that reconcile the two amounts. The budgetary net obligations and the proprietary

net cost of operations are different in that (1) the net cost of operations may be financed by non-budgetary

resources; (2) the budgetary and non-budgetary resources used by an agency may finance activities which are

not components of the net cost of operations; and (3) the net cost of operations may contain components

which do not use or generate resources in the period.

B-83
U. S. Department of Agriculture

Forest Service

Notes to the Consolidated and Combined Financial Statements

For the years ended September 30, 2008 and 2007

NOTE 19: CHANGE IN ACCOUNTING PRINCIPLE

Effective October 1, 2007, the Forest Service implemented a voluntary change in accounting principle to

reclassify its road prism assets from General PP&E to Stewardship PP&E. This change removes the

capitalized road prism assets, with a net book value of $2,085 million as of September 30, 2007, from the

Balance Sheet as reflected in the adjustment to the fiscal year 2008 beginning balance of Cumulative Results

of Operations in the Statement of Changes in Net Position.

This change was adopted to more accurately reflect the stewardship nature of these assets, consistent with

other federal land management agencies.

B-84
Part C

REQUIRED SUPPLEMENTARY

INFORMATION

Unaudited

C-1
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2008 and 2007

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 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. Estimates of deferred

maintenance for all assets are based on condition surveys. The agency’s deferred maintenance for roads is

determined from surveys of an annual random sample of a sufficient number of roads to achieve estimates of 95-

percent accuracy and 95-percent confidence. Five hundred roads were included in the FY 2008 sample.

Deferred maintenance needs for all other asset groups are determined from surveys of all individual assets on a

revolving schedule where the interval between visits does not exceed 5 years.

The overall agency indirect cost for managing the program is 8 percent, which is not included in the figures in

Exhibit 1.

C-2
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2008 and 2007

Exhibit 1. Deferred Maintenance Totals by Asset Class as of September 30, 2008 (in millions)

Asset Class Overall

Condition

Critical

 Maintenance

Noncritical

Maintenance

Cost To Return To

Acceptable Condition

Bridge Varies $28 $105 $133

Building Varies 117 595 712

Dam Varies 8 16 24

Fence Varies 301 -- 301

Handling Facility Varies 23 -- 23

Heritage Varies 5 10 15

Minor Constructed Features1 Varies -- 102 102

Trail Varies 8 272 280

Roads Varies 782 2,618 3,4002

Trail Bridge Varies 3 7 10

Wastewater System Varies 20 15 35

Water System Varies 60 43 103

Wildlife, Fish, and TES3 Varies 5 2 7

Grand Total $1,360 $3,785 $5,145

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 for the nonpoint source provisions of the Clean Water Act from the

Environmental Protection Agency and States;

3. Road management objectives developed through the National Forest Management Act forest planning

process; and

4. Forest Service directives—Forest Service Manual (FSM) 7730, Operation and Maintenance (August 25,

2005, amendment was superseded with October 1, 2008, 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. 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 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

 

1

 In prior years, Minor Constructed Features were mislabeled as “Recreation Sites.”

2

 The roads’ deferred maintenance amount is for passenger-car roads (Levels 3 through 5). The total deferred maintenance amount, including the highclearance roads (Levels 1 and 2), is $5.1 billion. A portion of the Levels 1 and 2 roads were classified as stewardship assets.

3

 In prior years, wildlife, fish, and threatened and endangered species (TES) were incorrectly identified as “Wilderness.”

C-3
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2008 and 2007

facilities ranges from poor to good, with approximately 36 percent needing major repairs or renovations;

approximately 11 percent in fair condition; and 53 percent of the facilities 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 (Code of Federal 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.

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 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

In accordance with the Statement of Federal Financial Accounting Standards (SFFAS)—29 Heritage Assets and

Stewardship Lands, all heritage asset and stewardship land information was reclassified as basic, except for

condition information, which was reclassified as required supplementary information (RSI). This information is

referenced in Note 5 Stewardship PP&E and in Note 13 Cost of Stewardship PP&E. For FY 2008, the

acquisitions and withdrawals of both asset types will remain in the RSI.

Heritage Assets

Acquisition and Withdrawal of Heritage Assets

The Forest Service generally does not construct heritage assets, although in some circumstances important sitestructural components may be rehabilitated or reconstructed into viable historic properties to provide forest

visitors with use and interpretation. Heritage assets may 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.” For FY 2008, there were no additions or withdrawals of heritage asset sites.

C-4
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2008 and 2007

The condition of heritage assets depends on the type of asset and varies from poor to fair.

Stewardship Land

Acquisition and Withdrawal of Stewardship Lands

The Land and Water Conservation Fund (L&WCF) Land Acquisition Program acquires land for the Forest

Service NFS. The program coordinates with a variety of partners, including State, local, and tribal governments,

and private landowners through statewide planning for development of a land-adjustment strategy.

The Land Acquisition Program preserves, develops, and maintains access to NFS lands and waters for the public

and provides permanent access to public lands for recreation, commodity production, resource management,

public safety, and community economic viability.

The L&WCF statutory authority specifically defines the purpose to also include protecting the quality of

scientific, scenic, historical, ecological, environmental, air and atmospheric, water resource, archeological values,

as well as food and habitat for fish and wildlife, and managing the public lands for minerals, food, timber and

fiber.

From these several allowable uses of program funding, the program concentrates on protecting habitat for priority

species identified in the national forest and grassland’s Land Management Plans (LMPs) and enhancing

recreational opportunities for areas with high demand for recreation. The program focuses acquisitions on

inholdings and areas adjacent to existing NFS lands.

For FY 2008 there were no additions or withdrawals of stewardship land sites.

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 47 States, including 39 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 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. There are 25 million acres of NFS forest lands at risk to future mortality from insects and

diseases, based on the 2007 Insect and Disease Risk Map. Invasive species of insects, diseases, and plants

continue to affect our native ecosystems by causing mortality to, or displacement of, native vegetation. The Forest

Service completed insect and disease prevention and suppression treatments on over 53,000 acres of NFS lands in

FY 2008.

By 2009, a map of fire fuels conditions across the United States will be provided by LANDFIRE4

.

 

4

 LANDFIRE is a set of over 20 digital layers of vegetation, fuels and departure from historic conditions covering all ownerships at a 30-meter pixel

resolution. LANDFIRE creates standardized comprehensive products across the United States as it integrates relational databases, remote sensing, systems

ecology, gradient modeling, and landscape simulation. Products will be delivered incrementally through 2009, although layers are currently available for the

11 Western States, Florida, North Carolina, Alabama, Mississippi, and parts of Texas. The project is on schedule and within budget for completion of the

continental United States in FY 2008, with Alaska and Hawaii completed in FY 2009.

C-5
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2008 and 2007

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: $ 220 $ 25 $ 52 $ 103 $ 90 $ 1,084 $ 97 $ 1,671

Recoveries of Prior Year Unpaid Obligations 6 3 19 5 38 5 2 78

Budget Authority:

Appropriations 1,567 291 267 487 3,300 398 - 6,310

Spending Authority from Offsetting Collections:

Earned:

Collected 66 32 24 17 173 28 221 561

Change in Receivables (4) (3) (1) (1) 47 - - 38

Change in Unfilled Customer Orders:

Advance Received - (7) 2 - - (2) - (7)

Without Advance (9) 9 3 8 (8) - - 3

Expenditure Transfers from Trust Funds 4 4

Subtotal 1,620 322 295 511 3,516 424 221 6,909

Nonexpenditure Transfers, Net, Actual 49 28 81 49 (237) 28 - (2)

Permanently Not Available (25) (4) (4) (7) (31) (71)

Total Budgetary Resources (Note 15) $ 1,870 $ 374 $ 443 $ 661 $ 3,376 $ 1,541 $ 320 $ 8,585

Status of Budgetry Resources:

Obligations Incurred: (Note 14)

Direct $ 1,512 $ 294 $ 344 $ 457 $ 2,465 $ 770 $ 213 $ 6,055

Reimbursable 64 30 24 21 221 - - 360

Subtotal 1,576 324 368 478 2,686 770 213 6,415

Unobligated Balance-Apportioned (Note 2) 136 31 37 89 77 531 81 982

Unobligated Balance Not Available (Note 2) 158 19 38 94 613 240 26 1,188

Total Status of Budgetary Resources (Note 15) $ 1,870 $ 374 $ 443 $ 661 $ 3,376 $ 1,541 $ 320 $ 8,585

Change in Obligated Balances:

Obligated Balance, Net

Unpaid Obligations, Brought Forward, October 1 $ 413 $ 137 $ 533 $ 228 $ 746 $ 147 $ 39 $ 2,243

Less: Uncollected Customer Payments, 

Brought Forward October 1 (165) (33) (16) (38) (132) - - (384)

Total Unpaid Obligated Balance, Net 248 104 517 190 614 147 39 1,859

Obligations Incurred Net 1,576 324 368 478 2,686 770 213 6,415

Less: Gross Outlays (1,591) (338) (402) (472) (2,654) (781) (210) (6,448)

Less: Recoveries of Prior Year Unpaid Obligations, Actual (6) (3) (19) (5) (38) (5) (2) (78)

Change in Uncollected Customer Payments 13 (6) (2) (7) (39) - - (41)

Obligated Balance, Net, End of Period

Unpaid Obligations 391 120 480 230 740 131 40 2,132

Less: Uncollected Customer Payments (151) (39) (18) (46) (171) - - (425)

Total, Unpaid Obligated Balance, Net, End of Period (Note 2) $ 240 $ 81 $ 462 $ 184 $ 569 $ 131 $ 40 $ 1,707

Net Outlays:

Gross Outlays: $ 1,591 $ 338 $ 402 $ 472 $ 2,654 $ 781 $ 210 $ 6,448

Less: Offsetting Collections (66) (25) (26) (17) (177) (27) (220) (558)

Less: Distributed Offsetting Receipts (99) - - - - (415) - (514)

Net Outlays $ 1,426 $ 313 $ 376 $ 455 $ 2,477 $ 339 $ (10) $ 5,376

For the year ended September 30, 2008 

(in millions)

Combined Statement of Budgetary Resources by Major Budget Account

C-6
Required Supplementary Information—Unaudited

For the Years Ended September 30, 2008 and 2007

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: $ 212 $ 36 $ 61 $ 101 $ 211 $ 1,094 $ 94 $ 1,809

Recoveries of Prior Year Unpaid Obligations 10 1 13 6 71 5 5 111

Budget Authority:

Appropriations 1,544 281 280 436 2,194 851 - 5,586

Spending Authority from Offsetting Collections:

Earned:

Collected 72 38 23 18 138 29 207 525

Change in Receivables (3) 2 (6) - (36) - (1) (44)

Change in Unfilled Customer Orders:

Advance Received 1 1 (2) 1 - 4 - 5

Without Advance 3 (4) - (2) (2) - - (5)

Subtotal 1,617 318 295 453 2,294 884 206 6,067

Nonexpenditure Transfers, Net, Actual (11) 23 76 4 (19) (52) - 21

Total Budgetary Resources (Note 14) $ 1,828 $ 378 $ 445 $ 564 $ 2,557 $ 1,931 $ 305 $ 8,008

Status of Budgetry Resources:

Obligations Incurred: (Note 13)

Direct $ 1,506 $ 320 $ 372 $ 444 $ 2,351 $ 847 $ 208 $ 6,048

Reimbursable 102 33 21 17 116 - - 289

Subtotal 1,608 353 393 461 2,467 847 208 6,337

Unobligated Balance-Apportioned 99 24 31 83 65 525 13 840

Unobligated Balance Not Available 121 1 21 20 25 559 84 831

Total Status of Budgetary Resources (Note 14) $ 1,828 $ 378 $ 445 $ 564 $ 2,557 $ 1,931 $ 305 $ 8,008

Change in Obligated Balances:

Obligated Balance, Net

Unpaid Obligations, Brought Forward, October 1 $ 368 $ 118 $ 578 $ 235 $ 927 $ 127 $ 30 $ 2,383

Less: Uncollected Customer Payments, 

Brought Forward October 1 (165) (34) (22) (41) (170) - (1) (433)

Total Unpaid Obligated Balance, Net 203 84 556 194 757 127 29 1,950

Obligations Incurred Net 1,608 353 393 461 2,467 847 208 6,337

Less: Gross Outlays (1,553) (334) (425) (461) (2,577) (822) (194) (6,366)

Less: Recoveries of Prior Year Unpaid Obligations, Actual (10) (1) (13) (6) (71) (5) (5) (111)

Change in Uncollected Customer Payments - 2 6 2 38 - 1 49

Obligated Balance, Net, End of Period

Unpaid Obligations (Note 15) 413 137 533 228 746 147 39 2,243

Less: Uncollected Customer Payments (165) (33) (16) (38) (132) - - (384)

Total, Unpaid Obligated Balance, Net, End of Period $ 248 $ 104 $ 517 $ 190 $ 614 $ 147 $ 39 $ 1,859

Net Outlays:

Gross Outlays: $ 1,553 $ 334 $ 425 $ 461 $ 2,577 $ 822 $ 194 $ 6,366

Less: Offsetting Collections (73) (40) (21) (19) (139) (32) (207) (531)

Less: Distributed Offsetting Receipts (256) - - - - (244) - (500)

Net Outlays $ 1,224 $ 294 $ 404 $ 442 $ 2,438 $ 546 $ (13) $ 5,335

For the year ended September 30, 2007 

(in millions)

Combined Statement of Budgetary Resources by Major Budget Account

C-7
Part D

REQUIRED SUPPLEMENTARY

STEWARDSHIP INFORMATION

Unaudited

D-1
Required Supplementary Stewardship Information—Unaudited

For the Years Ended September 30, 2008 and 2007

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.

Research and Development—Forest and Rangeland Research

FY 2008 Net Cost of Operations: $304 Million

Of the $304 million—

$282 million was an investment of Research and Development (R&D) funding;

$22 million was an investment of National Fire Plan funding and Joint Fire Science Program funding.

Forest Service R&D 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. Within the R&D Program are the following

major research strategic program areas:

 Fire

 Invasives

 Recreation

 Research Management and Use

 Water and Air

 Fish and Wildlife

 Research Data and Analysis

Research staff is 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 2008 accomplishments using Forest Service appropriated funds includes the

following:

R&D Stewardship Investments 2008 2007 2006 2005 2004

Net Cost of Operations (in millions) $304 $262 $318 $296 $313

New interagency agreements and contracts 40 41 54 63 250

Interagency agreements and contracts continued 12 17 15 93 445

Articles published in journals 1,903 1,336 1,691 1,320 1,539

Articles published in all other publications 1,487 1,846 1,817 1,779 2,419

Patent(s) granted 6 3 7 7 8

Patent licenses executed 1 0 1 16 27

The Forest Service renamed the measure “Right(s) to inventions established” from previous years to “Patent

licenses executed” to be more clear and consistent with the Technology Transfer Report, however, the

definition remains the same.

D-2
Part E

OTHER ACCOMPANYING INFORMATION

Unaudited

E-1
Other Accompanying Information—Unaudited 

OTHER ACCOMPANYING INFORMATION 

MAJOR MANAGEMENT CHALLENGES

The Reports Consolidation Act of 2000 requires the USDA Office of the Inspector General (OIG) to identify 

and annually report the most serious management challenges facing USDA and its agencies. 

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 OIG’s report, the 

Forest Service prepared a corrective action plan to address the challenges in the coming fiscal year. 

In August 2008, OIG identified corrective actions the Forest Service did not complete as planned for FY 

2008. For some management challenges, the corrective actions were taken, but the management challenge 

may be ongoing and will be tracked for FY 2009, as well. The following exhibits report FY 2008 

accomplishments and planned FY 2009 corrective actions, if necessary. 

Implementation of Strong, Integrated Management Control 

(Internal Control) Systems Still Needed 

 Improve Forest Service internal controls and management accountability to manage its resources, measure its 

progress towards goals and objectives, and accurately report its accomplishments 

FY 2008 Accomplishments 

Completed corrective actions to successfully implement the Government Performance and Results Act—GPRA 

(August 2008) 

Performed an annual systems assessment of all Forest Service financial/mixed financial systems (August 2008) 

Conducted oversight reviews on performance accountability within various regions (July 2008) 

FY 2009 Planned Actions 

Obtain closure on remaining OIG audit recommendations on performance reporting 

[OIG 08401-8-FM / # 16] 

Provide better oversight of national firefighting contract crews by implementing controls to monitor and ensure 

adequate training and ensure preseason language assessments and certifications 

[OIG 08601-42-SF] 

Conduct annual systems self-assessment for all financial and mixed financial systems 

Conduct Washington Office oversight reviews on performance accountability in regions and issue report 

Implement 65 percent of corrective actions identified through the A-123, Appendix A for financial processes 

Close 70 percent of open OIG audits and audit recommendations in FY 2009 

Close 70 percent of open GAO audits and audit recommendations in FY 2009 

E-2
Other Accompanying Information—Unaudited 

Continuing Improvements Needed in IT Security 

 Emphasize security program planning and management oversight and monitoring 

 Establish an internal control program throughout the systems’ lifecycle 

 Identify, test, and mitigate IT security vulnerabilities (risk assessments) 

 Improve access controls 

 Implement appropriate application and system software change control 

 Develop disaster contingency (service continuity) plans 

 Address computing problems and mitigate the impact to users 

FY 2008 Accomplishments 

Closed 70 percent of the actions necessary to obtain official closure on the two outstanding OIG IT audits—OIG 

Audit # 08099-6-SF and OIG Audit # 08401-2-FM 

Continued with the implementation of the Secure CAP program by implementing NIST 800-53 controls 

The IT Material Weakness was downgraded in FY 2008. 

Better Forest Service Management and Community Action Needed To 

Improve the Health of the National Forests and 

Reduce the Cost of Fighting Fires 

 Develop methods to improve forest health 

 Establish criteria to reduce the threat of wildland fires 

FY 2008 Accomplishments 

Developed national guidance for the regions to use in assessing the risks1 from wildfires (March 2008) 

Assessed the effectiveness of hazardous fuels treatments and restoration projects (September 2008) 

Accomplished, but a recurring process performed annually. Conducted large fire cost reviews and implement 

corrective actions, as applicable (September 2008) 

FY 2009 Planned Actions 

Assess effectiveness of hazardous fuels treatments and restoration projects [OIG 08601-6-AT / # 1] 

Obtain clarification on both the Forest Service and the States’ protection responsibilities in the WUI and on other 

private properties that are threatened by wildfires 

If a State is responsible, provide direction and begin renegotiation of WUI protection responsibilities in large fire 

suppression responsibilities [OIG 08601-44-SF] 

Conduct large fire cost reviews and implement corrective actions, as applicable 

Develop partnerships with States and counties to facilitate development of fire prevention ordinances for use in 

planning and zoning in WUI areas 

 

1

 In FY 2007, the Forest Service began using the Hazardous Fuels Priority Allocation System, a decision support system that analyzes risk and fire 

potential. The agency directed regions to use this system or a similar system to allocate to the national forests. 

E-3
Other Accompanying Information—Unaudited 

Implementation of Improper Payment Act Requirements Needs Improvement 

 Agencies that have identified programs that are susceptible to improper payments need to develop and 

implement action plans to reduce the amount of these payments 

FY 2008 Accomplishments 

Attained FY 2008 improper payment target rate of 2.56 percent and/or improper payment recovery target of $340,000 

(May 2008) 

OIG IPIA Audit (08601-47-SF) was closed in FY 2008 

IMPROPER PAYMENTS INFORMATION ACT (IPIA) 

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

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

corrective measures, as necessary. Throughout FY 2008, Forest Service recovered prior-year improper 

payments through an independent contractor with oversight by a designated Forest Service point of contact. 

For FY 2007 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 agency selected a sample from the FY 2007 WFSU outlays for 

evaluation, using an estimated 2.5 percent +/- margin of error rate with a 90-percent confidence level, 

resulting in 362 samples. For the FY 2007 disbursements, the error rate, when extrapolated, resulted in the 

annual estimated improper payments amounts for the WFSU program of $232,000 (see following chart). 

Exhibit 1. Summary of IPIA Evaluation 

Population Insufficient 

Documentation 

Population Improper 

Category Payment Error Population 

Outlays 

Tested 

Outlay 

Amount Dollars Rate Dollars Rate 

Contract Payments $845,242,603 $26,019,441 $0.00 0.00% $0.00 0.00% 

PCMS 59,087,166 1,694,356 0.00 0.00 107,597 0.18 

Employee Payroll and 

Travel; and 

Casual Pay 

465,698,916 18,153,189 0.00 0.00 124,759 0.03 

TOTALS $1,370,028,685 $45,866,986 $0.00 0.00% $232,356 0.02% 

The review of disbursements for the Mandatory Working Funds and Mandatory Payment Funds indicated an 

error rate of 0 percent (0%). 

E-4
Other Accompanying Information—Unaudited 

The consolidation of accounting and fire payment functions has significantly reduced both improper 

payments and interest on late payments. 

Exhibit 2. Reduction of Interest on Late Payments 

Reduction of Interest on Late Payments 2006 2007 2008 

Interest Amount $1,572,633 $1,187,933 $810,256 

Percent Interest Reduction from 2006 24.46% 48.48% 

Improper Payments to Outlays 

Limited to Wildland Fire Suppression 2006 2007 2008 

Outlays $1,411,907,115 $1,370,028,685 -- 

Improper Payments $13,352,901 $232,356 -- 

Percent Improper Payment to Outlays 0.95% 0.02% -- 

Forest Service also began implementing a paperless system and processes to reduce the risk of making future 

improper payments. Implementation commenced in FY 2007; the Forest Service has seen significant 

reduction in interest payments. When fully implemented in FY 2009, the agency should realize continued 

reduction in interest payments. 

The 2008 improper payments will be tested in FY 2009. 

SUMMARY OF FINANCIAL AUDIT AND MANAGEMENT ASSURANCES

Exhibit 3. Summary of Financial Statement Audit 

Audit Opinion Unqualified 

Restatement No 

Material Weakness Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance 

The Forest Needs To 

Continue To Improve Its 

General Controls 

Environment 

(Downgraded to a Significant 

Deficiency in FY 2008) 

1 1 0 

Total Material Weaknesses 1 -- -- -- 1 0 

The following exhibit provides a listing of Forest Service material weaknesses and the financial system 

nonconformance, as related to the management’s assurance for FMFIA and the certification for FFMIA. 

E-5
Other Accompanying Information—Unaudited 

Exhibit 4. Summary of Management Assurances 

Effectiveness of Internal Control over Financial Reporting (FMFIA § 2) 

Statement of Assurance 

Material Weakness Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance 

None 0 0 

Total Material Weaknesses 0 -- -- -- -- 0 

Effectiveness of Internal Control over Operations (FMFIA § 2) 

Statement of Assurance 

Material Weakness Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance 

None 0 0 

Total Material Weaknesses 0 -- -- -- -- 0 

Conformance with Financial Management System Requirements (FMFIA § 4) 

Statement of Assurance 

Material Weakness Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance 

The Forest Needs To Continue 

To Improve Its General 

Controls Environment 

(Downgraded to a Significant 

Deficiency in FY2008) 

1 1 0 

Total Material Weaknesses 1 -- -- -- 1 0 

Compliance with Federal Financial Management Improvement Act (FFMIA) 

Agency Auditor 

Overall Substantial Compliance No No 

1. System Requirements No No 

2. Accounting Standards Yes Yes 

3. U.S. Standard General Ledger at Transaction Level No No 

4. Information security policies, procedures, and practices No No 

E-6
ACRONYMS AND ABBREVIATIONS

Acronym and

Abbreviations Explanation

ADA Anti-Deficiency Act

APR Annual Performance Report

AML abandoned mine lands

AQM Acquisition Management

ASC Albuquerque Service Center

B&F Budget and Finance

BLM Department of the Interior Bureau of Land Management

BPR business process reengineering

BS balance sheet

C&A certification and accreditation

CAP corrective action plan

CFO Chief Financial Officer

CFR Code of Federal Regulations

CG Comptroller General

CI&M Capital Improvement and Maintenance

CIO Chief Information Officer

CPAIS Corporate Property Automated Information System

CRO cumulative results of operations

CSRS Civil Service Retirement System

CWPP Community Wildfire Protection Plans

DC disallowed cost

DOI U.S. Department of the Interior

DOL U.S. Department of Labor

ECD estimated completion date

EDL environmental and disposal liabilities

EEO equal employment opportunity

EIS Environmental Impact Statement

ELT Executive Leadership Team

FACTS II Federal Agencies' Centralized Trial-Balance System II

FAM Fire and Aviation Management Program

FBWT fund balance with Treasury

FCI Facility Condition Index

FDW financial data warehouse

FECA Federal Employees’ Compensation Act

FERS Federal Employees’ Retirement System

FFIS Foundation Financial Information System

FFMIA Federal Financial Management Improvement Act

FHM Forest Health Monitoring Program

FHP Forest Health Protection Program

FIA Forest Inventory and Analysis Program

FISMA Federal Information Security Management Act

FMFIA Federal Managers’ Financial Integrity Act

FRF2 National Fire Plan funding

FRPC Federal Real Property Council

FRRE Research and Development funding

FSH Forest Service handbook

FSM Forest Service manual

FTBU funds to be put to better use

FTE full-time equivalent

FWS Fish and Wildlife Service

FY fiscal year

GAAP Generally Accepted Accounting Principles

GAO Government Accountability Office

GFA general forest areas

GPRA Government Performance and Results Act

GS General Schedule (pay plan)

GSA General Services Administration

HA heritage assets

HCM Human Capital Management Program

HCAAF human capital assessment and accounting framework

HHS PMS Health and Human Services Payment Management System

HRIS Human Resource Information System
IAS Integrated Acquisition System

ID interim directive

IDP Individual Development Plan

IF Incident Finance

IG Inspector General

IITF International Institute of Tropical Forestry

INFRA infrastructure application, one of the FSNRA corporate applications

IP International Program

IPIA Improper Payment Information Act

IQA Information Quality Act

IRM Information Resources Management Program

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

L&WCF Land and Water Conservation Fund

LEI Law Enforcement and Investigations Program

LMP Land Management Plan

LOB line(s) of business

MD&A Management’s Discussion and Analysis

MOU memorandum of understanding

MW Material Weakness

NEPA National Environmental Policy Act

NFC National Finance Center

NFP National Fire Plan

NFPORS National Fire Plan Operations and Reporting System

NFR notice of finding and recommendation

NFS National Forest System (Deputy Area)

NIPF nonindustrial private forest

NIST National Institute of Standards and Technology

NITC National Information Technology Center

NLT National Leadership Team

NRS Northern Research Station

NRCS USDA Natural Resources Conservation Service

NRE Natural Resources and Environment (USDA)

O&M operations and maintenance

OBPA Office of Budget and Program Analysis (USDA)

OCFO Office of the Chief Financial Officer

OIG Office of Inspector General (USDA)

OGC Office of General Counsel

OMB Office of Management and Budget

OPM Office of Personnel Management

OSHA Occupational Safety Health Administration

OSOH Office of Safety and Occupational Health

P&BA Program and Budget Analysis

PART Program Assessment Rating Tool

PAS Performance Accountability System

PIA Privacy Impact Assessment

PII personally identifiable information

PL Public Law

PAS Performance Accountability System

PMA President’s Management Agenda

POA&M plan of actions and milestones

PP&E Property, Plant, and Equipment

PRCH Purchase Order System

PROP Personal Property System

R&D Research and Development (Deputy Area)

RO regional office

RSA regions, stations, and area

RSI Required Supplementary Information

RSSI Required Supplementary Stewardship Information

S&PF State and Private Forestry (Deputy Area)

SBR Statement of Budgetary Resource

SCEP Student Career Experience Program

SCI Stratified Cost Index
SES Senior Executive Service

SFFAS Statement of Federal Financial Accounting Standards

SGL Standard General Ledger

SL stewardship land

SCNP Statement of Change in Net Position

SNC Statement of Net Cost

SPPA Strategic Planning and Performance Accountability

TES threatened and endangered species

TSA Timber Sale Accounting System

TSA Transportation Security Administration

TSP Thrift Savings Plan

UDO undelivered order

ULO unliquidated obligation

U.S.C. United States Code

USDA United States Department of Agriculture

UTN Universal Telecommunications Network

WCF working capital fund

WFSU Wildland Fire Suppression Program

WGI within-grade increase

WO Washington Office

WUI wildland-urban interface
The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and

activities on the basis of race, color, national origin, age, disability, and where applicable, sex,

marital status, familial status, parental status, religion, sexual orientation, genetic information,

political beliefs, reprisal, or because all or part of an individual’s income is derived from any

public assistance program. (Not all prohibited bases apply to all programs.) Persons with

disabilities who require alternative means for communication of program information (Braille,

large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice

and TDD). To file a complaint of discrimination, write USDA, Director, Office of Civil Rights,

1400 Independence Avenue, S.W., Washington, D.C. 20250-9410, or call (800) 795-3272

(voice) or (202) 720-6382 (TDD). USDA is an equal opportunity provider and employer.

B-79