Forest Service: Year-end Financial Reporting Significantly Improved, but Certain Underlying Problems Remain
Published: 2003-05-01T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 1996, we have periodically reported on Forest Service financial management problems that we, the U.S. Department of Agriculture's (USDA) Office of the Inspector General, and other independent auditors have identified. We have designated the Forest Service financial management as a high-risk area since 1999. Because of these longstanding financial management deficiencies, the House Committee on Resource's Subcommittee on Forests and Forest Health asked GAO to report on the Forest Service's progress in correcting its financial management problems and on remaining challenges and actions underway to address those challenges.
section_title: What GAO Found
paragraphs: The Forest Service has made significant progress toward achieving financial accountability, receiving its first "clean" or unqualified audit opinion on its financial statements for fiscal year 2002. This was attained because top management dedicated considerable resources to address accounting and reporting deficiencies. We consider this a positive step; however, sustaining this outcome and achieving financial accountability will require more than obtaining year-end numbers for financial statement purposes. The Forest Service continues to face several major challenges, many of which resulted in unfavorable audit opinions in the past. Specifically, the Forest Service's fiscal year 2002 financial statement audit report disclosed material internal control weaknesses related to its two major asset accounts--fund balance with the U.S. Department of the Treasury, and property, plant, and equipment--as well as for certain estimated liabilities, payroll processes, computer security controls, and software application controls related to its procurement and property systems. Further, the Forest Service has not addressed the challenges of replacing or enhancing legacy feeder systems and implementing a financial management field operation that supports efficient and effective day-to-day financial operations and routinely produces reliable and timely financial information. The Forest Service has corrective actions underway or planned that are intended to resolve these problems, including a financial management strategic plan. If this plan is to serve as a "road map" toward financial accountability, the Forest Service needs to ensure that its plan is comprehensive, integrating and prioritizing the various corrective action initiatives underway and planned.

section_title: Letter
paragraphs: Since December 1996, we have periodically reported on financial  management problems identified by the U. S. Department of Agriculture’s  (USDA) Office of the Inspector General (IG) in its annual audits of the  Forest Service’s financial statements. In prior reports and testimonies, we  discussed (1) how the lack of accountability raises concerns about the  Forest Service’s stewardship over billions of dollars of taxpayer money  appropriated to it, (2) how its autonomous field structure hampers efforts  to achieve financial accountability, and (3) its progress in correcting its  financial accounting and reporting deficiencies.  This report responds to  your request that we continue to monitor the Forest Service’s efforts to  improve its financial management and determine   whether the Forest Service has made progress in resolving previously  reported financial management problems,   challenges that the Forest Service faces in achieving financial   actions underway or planned by the Forest Service for resolving  remaining problems.
subsections: section_title: Background
paragraphs: The Forest Service, a component of the USDA is responsible for  maintaining the health, diversity, and productivity of the nation’s forests  and grasslands to meet the needs of present and future generations.  This  mission is carried out through the use of several programs, the largest  being the National Forest System.  Through the National Forest System, the  Forest Service manages about 192 million acres, comprising about 8.5  percent of the total surface area of the United States.  On these lands, the  Forest Service, among other things, supports recreation, sells timber,  provides rangeland for grazing, and maintains and protects watersheds,  wilderness, fish, and wildlife.  In addition, the Forest Service provides  financial and program support for state and private forests and undertakes  research activities.  The Forest Service, headed by a chief, conducts its  activities through 9 regional offices, 6 research offices, 1 state and private  forestry area office, the Forest Products Laboratory, and the International  Institute of Tropical Forestry.   In addition, the National Forest System has  155 national forest offices and more than 600 ranger district offices.
The Chief of the Forest Service manages from the national office,  headquartered in Washington, D.C., and provides national-level policy and  direction to the field offices.  The Forest Service has approximately 30,000  employees and a budget of over $5 billion to carry out its mission. The  Forest Service Budget and Finance Deputy Chief/CFO is responsible for the  financial accountability of funds appropriated by the Congress for Forest  Service programs and reports to the Forest Service Chief.
The Chief Financial Officers Act of 1990 calls for CFO Act agencies, such as  USDA, to have financial management systems, including internal control,  that provide complete, reliable, consistent and timely information.  The  Government Management Reform Act of 1994 (GMRA) requires the CFO  Act agencies to prepare and have audits of annual financial statements.   FFMIA builds on the foundation laid by these acts by emphasizing the need  for agencies to have systems that routinely generate timely, accurate, and  useful information.  Specifically, FFMIA requires that the auditor report on  whether the agencies’ financial management systems substantially comply  with (1) federal financial management systems requirements,   (2) applicable federal accounting standards, and (3) the U. S. Government  Standard General Ledger (SGL) at the transaction level requirements. As  authorized by GMRA, the Office of Management and Budget is responsible  for identifying components of the designated CFO Act agencies that are  required to have audited financial statements.  OMB requires that the  Forest Service, a major component of USDA, have audited financial  statements.
Since its first financial statement audit for the fiscal year ended September  30, 1991, the Forest Service has faced numerous serious accounting and  financial reporting weaknesses that have prevented it from receiving a  positive audit opinion.  These are shown in table 1.
In the past, we have reported and testified that the Forest Service’s   (1) unreliable financial data hampers the agency’s and the Congress’  decision-making ability, (2) lack of accountability exposes the agency to  mismanagement and misuse of its assets, and (3) autonomous field  structure hampers efforts to achieve financial accountability.  In January  1999, due to the longstanding serious accounting and financial reporting  problems, we designated Forest Service financial management as a high- risk area.  We continued to designate financial management at Forest  Service as high-risk in our 2003 report.  Since 1997, the IG and independent  auditors have continued to report instances of noncompliance with certain  federal financial accounting and information system requirements and  internal control weaknesses related to Forest Service financial computer  systems.
The Forest Service, a component of USDA, uses and depends on many  financial management systems and services provided by USDA, including  the USDA National Finance Center (NFC).  Therefore, efforts to improve  controls over certain financial management computer systems and internal  controls over accounting processes must be made in cooperation with  USDA and NFC.  For example, the Forest Service uses the USDA  Foundation Financial Information System as its standard accounting  system.  In addition, NFC maintains and controls entry of many Forest  Service transactions into FFIS.  NFC also reports expenditures and  collections it processes on the Forest Service’s behalf to Treasury.  FFIS  also depends on and receives data from feeder systems used by the Forest  Service to record its transactions. Many of the Forest Service’s  longstanding problems with regard to its accounting and information  systems are a result of outdated technology of the financial feeder systems  that transfer accounting data to FFIS.
section_title: Scope and Methodology
paragraphs: To address each of our objectives, we analyzed prior IG, consultant, and  independent auditor reports including the audit report on the Forest  Service’s fiscal year 2002 financial statements that described several  financial management weaknesses and their effect on the Forest Service’s  ability to properly account for assets worth billions of dollars entrusted to  its care.  Further, we examined the Forest Service’s financial management  policies, procedures, and processes, including completed, ongoing and  planned activities and related implementation schedules to determine the  Forest Service’s progress, plans, and milestones for addressing financial  management problems.  We attended a Forest Service Budget and Finance  planning conference and a financial statement training session conducted  by the USDA CFO to gain a further understanding of Forest Service efforts  to improve its financial statement compilation processes and overcome  other financial management challenges.  We analyzed reported financial  management problems against the corrective actions taken to determine  the remaining challenges.  Further, we discussed the remaining challenges  and the status of improvement efforts with officials from USDA and the  Forest Service Office of the Chief Financial Officer, the USDA IG, and  independent contractors working for the Forest Service.
We also visited and interviewed financial management staff at five Forest  Service field locations. We visited the Intermountain Regional Office, the  largest of the National Forest regions, because it processes a wide variety  of financial accounting transactions.  We also visited the Southern Regional  Office, National Forest of North Carolina Supervisor’s Office, Mt. Pisgah  District Ranger Office, and North Carolina Research Station, each  representing a different level of the financial management field  organization.  At each location, we interviewed staff and performed walk- throughs to obtain an understanding of accounting processes and  procedures for certain accounts material to the financial statements, such  as accounts receivable; property, plant, and equipment; other liabilities; and  certain collections/revenues, such as timber sales.
We performed our fieldwork from July 2002 through March 2003 in  accordance with generally accepted government auditing standards.  We  requested written comments on a draft of this report from the Chief of the  Forest Service or his designee.  The Chief of the Forest Service provided us  with written comments, which are discussed in the “Agency Comments and  Our Evaluation” section and reprinted in appendix I.
section_title: The Forest Service Has Made Significant Progress toward Achieving Financial Accountability
paragraphs: The Forest Service has made significant progress toward achieving  financial accountability.  For the first time since its initial financial  statement audit that covered fiscal year 1991, the Forest Service received  an unqualified or “clean” opinion on its fiscal year 2002 financial  statements.  To achieve this milestone, the Forest Service’s top  management dedicated considerable resources and focused staff efforts to  address accounting and reporting deficiencies that had prevented a  favorable opinion in the past.
Historically the Forest Service’s financial management systems have not  generated timely and accurate financial statements for its annual audit.  In  addition, the Forest Service has had long-standing material weaknesses  with regard to its two major assets--fund balance with Treasury and  property, plant, and equipment.  In the past, such weaknesses prevented  the IG from validating these two line items on both the Forest Service and  the USDA departmentwide financial statements.  In fiscal year 2002, the  Forest Service reorganized the Budget and Finance Deputy Chief/CFO area  and focused staff efforts to address reporting and accounting deficiencies  identified in the fiscal year 2001 financial statement audit with the goal that  the fiscal year 2002 financial statements would pass audit tests. To assist in  these efforts, the Forest Service hired senior financial management  officials, consultants and contractors and formed a financial reports team  and several reconciliation “strike” teams to improve (1) the financial  statement compilation process and (2) reconciliations of its major  accounts, including fund balance with Treasury and property, plant, and  equipment.
During fiscal year 2002, the financial reports team completed a number of  efforts to improve the compilation process.  For example, the team held a  series of financial statement workshops for national office and field staff,  updated the methodology for preparing the fiscal year 2002 financial  statements, and provided the necessary information to complete the audit,  such as account analyses and supporting documentation for sample  transactions selected for testing.
Six reconciliation strike teams, consisting of contractors with expertise in  reconciliation procedures and experienced Forest Service staff, performed  financial statement account reconciliations and reviews to help ensure the  accuracy and timeliness of recorded accounting data and that subsidiary  ledgers were reconciled to general ledger accounts.  The strike teams  analyzed account data, identifying accounting errors and documenting  adjustments to key asset, liability, and budgetary accounts in order to  achieve accurate account balances.  The fund balance with Treasury team  focused on reconciling material fiscal year 2002 and prior-year cash  transactions.  The property, plant, and equipment reconciliation team  analyzed transaction data to identify inaccurate records and reconciled the  general ledger to its supporting detailed records. In addition, the property,  plant, and equipment strike team, in cooperation with the USDA Office of  the Chief Financial Officer, the USDA IG, and consultants, worked to  ensure that property documentation supported property records,  inventories were complete, and property was valued correctly.
Further, the property, plant, and equipment reconciliation team, worked  with USDA on modifications and enhancements to certain property feeder  systems.  For example, in September 2002, USDA completed an automated  interface with the Infrastructure Real Property Subsidiary System (INFRA)  and FFIS.  INFRA was revised to improve security by implementing  controls such as user access restriction and password protection.  Also,  access to key data elements in the Personal Property System (PROP) and  the Equipment Management Information System (EMIS) was restricted by  September 2002 in order to address security weaknesses.  At the same time,  certain automated error checks were added to EMIS to help ensure data  integrity.
While the primary focus of the reports and reconciliations teams was to  help attain a clean fiscal year 2002 audit opinion, the teams have been  institutionalized to work toward sustainable report compilation and  reconciliation processes.  Through these established account  reconciliations and analyses, the teams are able to identify many of the  underlying causes of inaccurate data and out of balance conditions.   Specifically, according to the Forest Service CFO management, many of the  problems are caused by improper recording of transactions, FFIS system  problems, faulty interfaced and integrated feeder systems, lack of  consistent formal policies and procedures, lack of staff training and manual  accounting processes prone to human error.  By understanding the root  causes, the Forest Service has resolved some of the problems identified.   For example, the strike teams coordinated with USDA to correct several   programming errors  in FFIS that were causing inappropriate accounting.   For instance,  the fund balance with Treasury team found that fund  transfers between Forest Service units for equipment usage, which are  noncash transactions, were incorrectly recorded and reported to Treasury  as cash collections.  As result, the Forest Service’s fund balance account at  Treasury was being overstated by these amounts.
During fiscal year 2002, the Forest Service CFO management also issued  new policies and procedures or revised existing ones to help ensure the  quality and integrity of the financial data in FFIS and the feeder systems.   To communicate these changes, the Forest Service CFO issued over 25  CFO bulletins to accounting staff as the need for accounting and reporting  controls were identified.  For example, the CFO issued several bulletins  that provided guidance on the proper recording of transactions, such as the  types of transaction codes to use when entering data into FFIS. The CFO  also issued bulletins (1) requiring analysis of delinquent bills to determine  their collectability and (2) to clarify documentation requirements for  personal and real property transactions.
Further, Forest Service management continued to emphasize the  importance of financial accountability to its line managers in the field.  In  April 2002, the Forest Service CFO implemented a set of financial  performance indicators to monitor progress of the field staff in maintaining  its accounts, including progress in clearing suspense account items,  monitoring collection of receivables, and compliance with CFO accounting  guidance.
section_title: Despite Progress Made, Accountability Challenges Remain
paragraphs: Achieving financial accountability involves more than obtaining a clean  audit opinion by producing reliable onetime year-end numbers for financial  statement purposes.  The Forest Service still must overcome many  challenges to sustain this outcome and to reach the end goal of routinely  having timely, accurate, and useful financial information.  In its December  2002 report on the Forest Service’s fiscal year 2002 financial statements,  the auditor, KPMG Peat Marwick LLP (KPMG), continued to identify  serious material internal control weaknesses and FFMIA noncompliance  issues primarily related to weaknesses in controls over financial  management computer systems that could adversely affect the Forest  Service’s ability to record, process, summarize, and report financial data in  a timely manner.
The auditor attributed many of the deficiencies identified to lack of  adequately trained staff; lack of manual internal control procedures, such  as supervisory reviews; and poor automated controls, such as user access,  system edits and system interfaces, within the FFIS and certain feeder  systems that transfer the data to FFIS.  As discussed in table 2, the auditor  made several recommendations to address these conditions.  We support  these recommendations and are not making any new recommendations in  these areas.
In addition, the IG, Forest Service contractors, and we have reported long- standing problems regarding the Forest Service’s financial management  systems and its financial management organization. Many of the legacy  feeder systems that transfer data to FFIS are antiquated technology and  must be enhanced or replaced.  The agency also faces the challenge of  implementing a financial management field organization that supports  effective and efficient day-to-day financial operations.  Unless the Forest  Service addresses these issues and moves to sustainable financial  management processes, it will have to continue to undertake extraordinary,  costly efforts, outside of its normal business processes, to sustain clean  audit opinions.  Further, management’s ability to routinely obtain reliable  financial information to effectively manage operations, monitor revenue  and spending levels, and make informed decisions about future funding  needs will continue to be hampered.
subsections: section_title: Remaining Internal Control and FFMIA Compliance Deficiencies Need to Be Resolved
paragraphs: Our Standards for Internal Control in the Federal Government requires  that agencies implement a strong internal control system that provides the  framework for the accomplishment of management objectives, accurate  financial reporting, and compliance with laws and regulations.  It contains  the specific internal control standards to be followed.  These standards  define internal controls as the policies, procedures, techniques, and  mechanisms that enforce management’s directives.  They help ensure that  actions are taken to address risks and are an integral part of an entity’s  accountability for stewardship of government resources.  The lack of good  internal controls puts an agency at risk of mismanagement, waste, fraud,  and abuse.  Further, without strong internal controls, an agency is unable to  generate the consistent, reliable financial information needed to maintain  ongoing accountability over its assets.
In its fiscal year 2002 audit report on the Forest Service’s financial  statements, the auditor continued to report serious internal control  weaknesses with regard to the Forest Service’s two major asset accounts-- fund balance with Treasury and property, plant, and equipment.  Also,  KPMG reported material deficiencies related to certain estimated  liabilities, payroll processes, general controls and certain application  software computer controls.  The following table provides a brief  description of each of the reported deficiencies and recommendations for  improvement.
Further the auditor reported that the Forest Service’s systems did not  substantially comply with the three requirements of the FFMIA--federal  financial management systems requirements, applicable federal accounting  standards, and the U.S. Government Standard General Ledger at the  transaction level.  One example of noncompliance with federal financial  management systems requirements was that the Forest Service did not  have required certification and accreditations of security controls  performed timely on its procurement and property systems.  Further, the  Forest Service did not record revenue for certain collections, such as map  sales and camp site reservation fees, when they were collected, as required  by federal accounting standards. Instead, collections and fees were  recorded in a suspense account and revenue was recognized when the  money was used for other operational needs instead of when the revenue  was actually earned. This practice could result in revenues and related  costs being  misstated on the Forest Service’s financial reports.
section_title: Financial Management Systems Remain an Obstacle to Achieving Sustainable Accountability
paragraphs: Weaknesses in the Forest Service’s financial management systems continue  to hamper its ability to achieve sustainable financial transaction processing  and reporting.  In the past, the IG and we have reported long-standing  problems with the feeder systems that process and transfer financial  information into FFIS.  Several of the  feeder systems that generate data  used to support the financial statements predate FFIS and have antiquated  technology. Because significant differences existed between the data in the  FFIS general ledger and its supporting detail in the feeder systems,  financial statements produced by FFIS could not be relied upon. For  example, the Forest Service uses several feeder systems to support its  multibillion dollar property, plant, and equipment line item in its financial  statements, including (1) Infrastructure Real Property Subsidiary System  (INFRA), (2) Personal Property System (PROP), and (3) Equipment  Management Information Systems (EMIS).  These feeder systems also rely,  in some cases, on data transferred from other lower level (subsidiary)  feeder systems.  In prior years, material internal control weaknesses in the  compilation of the property, plant, and equipment balance contributed  to a  disclaimer of an opinion on the Forest Service’s financial statements.
In preparation for the fiscal year 2002 audit, the Forest Service engaged a  consultant to perform extensive procedures to arrive at an opening  (October 1, 2001) property, plant, and equipment balance using statistical  sampling of property records.  The existing data was examined for  erroneous and duplicate records through a variety of means, including  checks for mathematical accuracy and comparisons with physical records  and inventories.  During this process, the consultant discovered that the  lack of and/or faulty interfaces between these feeder systems and FFIS  resulted in erroneous postings to the property, plant, and equipment  account.  Although the Forest Service has made certain improvements to  its property feeder systems during fiscal year 2002, more needs to be done  to improve the quality and integrity of financial data in FFIS and the feeder  systems.
In its fiscal year 2002 report on Forest Service’s Information Technology,  the auditor reported certain weaknesses in internal controls related to the  feeder systems.  For example, the auditor found duplicate and dropped  records after data was transferred between PROP, the Purchase Order  Normal Tracking and Inventory System, and the Purchase Order System.   The auditor also reported that system data validation and error detection  controls were ineffective in EMIS.  Further, the auditor reported  weaknesses related to the Automated Timber Sales Accounting System  (ASTA).  Specifically, there were no controls built into ASTA to prevent  duplicate transactions from being recorded. As a result, field unit staff had  to manually review the data to identify any transactions that were  erroneously entered more than once.
We visited and interviewed financial management staff at five Forest  Service field offices about the accounting processes and systems used to  obtain a “field” perspective on financial management problems and the  status of improvement efforts.  At the field offices we visited, the financial  management staff told us that system issues affect their operations.  For  example, one field office uses the Timber Information Management (TIM)  system, an upfront system used to record the initial information and  produce bills for timber sales and wood product permits.  Since the system   does not interface with FFIS, users have to manually enter the timber sale  deposits and permit sales into FFIS. Lack of an automated interface  between the systems  increases workload as well as the risk of input errors.
Problems with the financial management systems continue to hamper the  Forest Service’s ability to move to sustainable processes.  Until the Forest  Service resolves its systems problems, the financial statements produced  by FFIS cannot be relied upon without significant manual intervention to  reconcile differences between FFIS and the feeder-systems.  Resolving  these differences consumes personnel and other resources and limits the  Forest Service’s ability to have reliable financial information on an ongoing  basis for day-to-day management.
section_title: An Efficient and Effective Financial Management Organization Is Key to Achieving Financial Accountability
paragraphs: Among the other challenges that the Forest Service faces is establishing an  efficient and effective organization to accomplish financial management  activities. The highly decentralized organizational structure of the Forest  Service’s financial management presents significant challenges in achieving  financial accountability. Under the current organization, financial activities  are performed and recorded at the Forest Service national office, nine  regional forest offices, six research stations and USDA NFC as well as at  hundreds of forest and district ranger offices where many transactions  originate.  The decentralized financial management organization presents a  significant challenge because the Forest Service’s national office financial  management team is tasked with ensuring that staff at hundreds of field  locations are routinely processing accounting transactions accurately and  consistently, in accordance with management directives.
Since February 1998, we have reported that the Forest Service’s  autonomous and decentralized organizational structure could hinder  management’s ability to achieve financial accountability.  In March 1998, an  independent contractor, hired by the Forest Service to assess the agency’s  financial management and organization, also raised the issue of the  agency’s autonomous organizational structure.  The contractor reported  that the Forest Service lacked a consistent structure for financial  management practices and that each field unit was operating  independently.  In response to these concerns, the Forest Service  conducted a Financial Management Field Operation Assessment (FOA),  which was completed in March 2001.  As part of the assessment, the FOA  project team evaluated the current level of accountability for financial  management and made six recommendations to strengthen lines of  responsibility and accountability.  Specifically, the team recommended that  the Forest Service (1) ensure that appropriate delegation of authority is in  place, (2) finalize performance measures for financial management,   (3) appoint field directors as responsible financial accountability officers  for their respective units, (4) appoint deputy chiefs in the national office as  responsible financial accountability officers for their units, (5) provide  training and develop core competencies, and (6) establish policies and  guidelines addressing the development, implementation, and financing  arrangements for shared services agreements related to financial activities.
The Forest Service has taken several actions to address the FOA  recommendations related to the autonomous field structure to improve  accountability for financial management in the field and throughout the  organization.  For example, the agency restructured its national office  financial management team to create functional lines of accountability for  Budget and Finance management, under the leadership of the deputy CFO,  who reports directly to the Chief of the Forest Service.  The Forest Service   also appointed field directors (regional foresters, research station  directors, etc.) to serve as the responsible financial accountability officers  for their units.  Further, beginning in 2001, the Forest Service began to  restructure its regional offices to mirror the national office’s financial  management structure.  Currently, six of the nine regional offices have  consolidated budget and finance functions, under the direction of a  financial director who is responsible for financial management activities in  the region. Another regional office is in the process of restructuring its  financial management organization.  The two remaining regional offices  have no definite plans to change their financial management structure.  While this is a good first step in resolving the autonomy of the Forest  Service field offices, the Forest Service has not determined how best to  structure the regions and related suboffices to create an efficient and  effective organization to accomplish financial management activities.
At the five field offices we visited, the financial management field staff told  us that, although progress is being made, more needs to be done to move to  sustainable financial transaction processing and reporting in the field.  For  example, staff reported that they need more training on FFIS and updated  policy and procedure manuals.  They also stated that the national office  needs to improve communication with the field to obtain better  understanding of field business processes and to solicit more input from  the field staff in developing accounting and reporting policies and  procedures.
The Forest Service CFO management acknowledges that creating an  effective and efficient organizational structure is critical to establishing  sustainable processes and addressing many of the financial management  issues and challenges that Forest Service faces, including   improving internal controls over its accounting functions, such as  adequate supervisory review, and over other areas of weakness noted by  the auditors;   providing training programs and on the job training opportunities for  accounting field staff; and  providing adequate oversight to ensure accurate and consistent  processing of accounting transactions.
In 1999, we designated financial management at the Forest Service to be  high risk because of serious financial and accounting weaknesses that had  been identified and not corrected, in the agency’s financial statements for a  number of years. We continued to designate financial management at  Forest Service as high risk in our 2003 report.  In order to be removed from  the high-risk list, the Forest Service, at a minimum, will need to  demonstrate sustained accountability over its assets on an ongoing basis.
section_title: Corrective Actions Are Underway or Planned to Resolve Remaining Problems
paragraphs: While the conditions discussed above present a major challenge to  achieving financial accountability, the Forest Service has several efforts  underway or planned, that if implemented, should help to resolve many of  its financial management problems and to move toward sustainable  financial management business processes.  Such efforts are designed to  address internal control and noncompliance issues identified in the fiscal  year 2002 audit report as well as address feeder system and organizational  issues.  To assist in its efforts, the Forest Service CFO management is  developing a financial management strategic plan intended to provide  direction for continued improvement efforts and a mechanism to monitor  and evaluate performance. To be effective, this plan should be  comprehensive--providing a detailed road map of the steps, resources, and  time frames for achieving the end goal of sustainable financial  management.
To address the fiscal year 2002 internal control and FFMIA audit findings,  the fund balance with Treasury reconciliation team has documented its  reconciliation procedures and is working with NFC to develop a fund  balance with Treasury reconciliation process to assist in timely research  and resolution of reconciling items related to fund balance with Treasury  activities that are processed by NFC on the Forest Service’s behalf.   According to Forest Service CFO management, the reconciliation process  should be in place by August 2003.  The property, plant, and equipment  reconciliation team has started a project to update existing policies and  procedures and plans to issue revised property, plant, and equipment  manuals during fiscal year 2003.  The property, plant, and equipment team  is also continuing to analyze property data files and reconcile data in  property feeder systems to data in FFIS monthly.  In January 2003, CFO  management developed and implemented an automated system to track  and monitor the status of issues identified by the reconciliation teams to  help ensure timely resolution.  They also hired a training coordinator to  develop standardized training programs and two additional staff to update  all financial policy and procedure manuals.
The Forest Service is also continuing to work with USDA to enhance or  replace the feeder systems in an effort to resolve data transfer problems  between feeder systems and FFIS.  For example, it is currently exploring an  option for replacing the Forest Service’s three property feeder systems with  a single USDA-wide property system.  A decision on the system will be  made by December 2003. The Forest Service expects to begin  implementing the system in fiscal year 2004.  Also, the Forest Service is  scheduled to pilot the Integrated Acquisition System (IAS) by fiscal year  2004.  IAS is a procurement system that will replace the current purchase  order system and will link to FFIS.  IAS will support three major  procurement processes: requisitioning, purchasing, and contracting.
In addition to the efforts mentioned above, the Forest Service is evaluating  options for a more efficient financial management organization.  In  November 2002, it formed the Financial Management Efficiency Team to  assess financial management roles and responsibilities and evaluate  models for an efficient financial management organization.  In January  2003, the team submitted a draft proposal for financial management roles  and responsibilities throughout the organization and is scheduled to submit  its recommendation for a financial management organization in June 2003.   According to CFO management, the team is expected to make a detailed  recommendation for a consolidated accounting and fund control  organization either at each regional office or within multiregional shared  services centers located at selected regional offices.
The Forest Service has several strategic plans that include many of the  financial management improvement efforts.  For example, the Forest  Service prepares agencywide strategic plans and annual performance plans  as required by the Government Performance and Results Act.  Also, the  Forest Service’s Budget and Finance Deputy Chief units prepare annual  project plans.  However, the agencywide strategic and performance plans  are broad in scope and focus on high-level goals and objectives.  The  annual project plans are narrowly focused on specific short-term projects.   These plans are not an adequate substitute for a comprehensive financial  management implementation strategy because they do not integrate all the  improvement efforts and do not include the critical elements needed to  effectively manage an overall strategy that will succeed in achieving and  sustaining financial accountability.
Forest Service CFO management is developing a financial management  strategic plan intended to provide direction for continued improvement  efforts and a mechanism to monitor and evaluate performance.  This plan is  designed as a working tool, evolving over 3 to 5 years, which will be  reviewed and updated annually.  In January 2003, the plan was introduced  at the Forest Service’s Budget and Finance planning conference.   According to Forest Service CFO management the initial plan will be  completed by June 30, 2003.
To be effective, the Forest Service’s plan should combine all the financial  management improvement efforts into an overall comprehensive financial  management implementation strategy.  Such a strategy is a critical tool for  the Forest Service, serving as a road map to help in resolving financial  management problems.  An effective plan includes long-term and short- term plans with clearly defined goals and objectives and specific corrective  actions, target dates, and resources necessary to implement those actions.   A comprehensive plan also prioritizes projects and assigns accountability  by identifying responsible offices and staff responsible for carrying out the  corrective actions.  Without such a plan, it will be difficult to fix  accountability for its many efforts and effectively monitor progress against  its end goals.
section_title: Conclusion
paragraphs: The Forest Service has demonstrated strong leadership and commitment to  reach its goal of obtaining an unqualified opinion on its fiscal year 2002  financial statements.  At the same time, many of the financial management  improvement efforts implemented to date are outside of normal business  processes and focus mainly on obtaining reliable year-end numbers for  financial statement purposes.  The Forest Service still must overcome  several major challenges before it can move to sustainable processes that  can routinely provide accurate, relevant, and timely information to support  program management and accountability.  The Forest Service is at a critical  juncture.  If the Forest Service is to achieve and sustain financial  accountability, it must fundamentally improve its underlying internal  controls, including financial management computer system controls, and  financial management operations.  The Forest Service has various efforts  underway or planned, that if successfully carried through, will be important  steps toward addressing the financial management challenges it faces.    However, to date, several  problems identified by the IG, KPMG, and us  remain.  Some of Forest Service problems are deep-seated and therefore  will require sustained leadership and commitment of significant resources  and time to resolve.  The number and significance of the issues still facing  the Forest Service emphasizes the need for a comprehensive strategy to  manage the various initiatives underway or planned.
section_title: Recommendations for Executive Action
paragraphs: To help ensure sustained commitment and timely implementation of  financial management improvement efforts, we recommend that the Chief  of the Forest Service direct the Chief Financial Officer to develop a  comprehensive financial management strategic plan that    clearly defines long-term and short-term financial management goals   specifies corrective actions to address financial management  challenges, including internal control weaknesses, FFMIA compliance  deficiencies, system problems and organization issues;   includes target dates and resources necessary to implement corrective   identifies the responsible parties for carrying out corrective actions; and   prioritizes and links the various improvement initiatives underway and  planned, including USDA financial management systems enhancement  efforts.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, the Forest Service concurred  with our recommendations to develop a comprehensive financial  management strategic plan that defines financial management goals,  specifies corrective actions, identifies target dates and resources needed,  identifies responsible parties, prioritizes and links improvement initiatives,  and provides details on financial management systems enhancements.   Forest Service’s response (see appendix I) stated that preparation of a  financial management strategic plan is in process.
As agreed with your office, unless you publicly announce its contents  earlier, we will not distribute this report for 30 days.  At that time, copies of  this report will be sent to the congressional committees with jurisdiction  over the Forest Service and its activities; the Secretary of Agriculture; and  the Director of the Office of Management and Budget.  We will also make  copies available to others upon request.  In addition, the report will be  available at no charge on the GAO web site at http://www.gao.gov.
If you or your staff have any questions please contact me at (202) 512-6906.   Key contributors to this report were Alana Stanfield, Suzanne Murphy,  Martin Eble, and Lisa Willett.
section_title: Comments from the Forest Service
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