The Forest Service, an agency of the U.S. Department of Agriculture (USDA), is responsible for managing and maintaining the National Forest System. This vast system covers 155 national forests and 20 national grasslands on more than 191 million acres. The Forest Service manages this system through a program of sustained multiple use for forage, fish and wildlife, water, wilderness, outdoor recreation, and the production of minerals, range, and timber. To support these diverse activities, the agency contracts for a wide variety of goods and services, including road and building construction, tree planting and other reforestation activities, research studies, and aircraft and helicopters for suppressing fires. In fiscal year 1996, the Forest Service obligated about $443 million on contracts and contract modifications. The agency has by far the largest contracting activity at USDA, accounting for about 43 percent of the Department’s contracting dollars (excluding commodity purchases) in fiscal years 1994 through 1996. (See fig. 1.1.) The Forest Service’s program and contracting operations are conducted through a decentralized organizational structure. This structure includes headquarters offices located in the Washington, D.C., metropolitan area, as well as nine geographic regions. Each region contains a regional office, national forest offices, and ranger districts. (See fig. 1.2.) The national headquarters office for contracting by the Forest Service, known as the Acquisition Management Staff, establishes and interprets procurement policy for the Forest Service, reviews field contracting activities, and awards and administers some contracts. The regional offices provide policy guidance, review national forest office activities, and award and administer contracts. The contracting staff’s responsibility in the national forest offices is to award and administer contracts. Contracting is conducted by about 250 contracting officers located in 149 offices dispersed throughout the United States. In addition to being widely dispersed geographically, the Forest Service’s local contracting staff are not organizationally aligned with the agency’s regional and headquarters contracting staff in a single organizational unit with hierarchical reporting relationships and lines of authority. Although organizational arrangements vary, contracting supervisors in the national forests generally report to local administrative or program managers, not to the regional head of contracting. Regional heads of contracting report to the official in charge of regional operations, not to the head of contracting at headquarters. Contracting authority within USDA is delegated from the Secretary of Agriculture through several organizational levels to the Director of the Acquisition Management Staff at the Forest Service. The Director delegates contracting authority to employees known as contracting officers in the regional offices, national forests, and ranger districts. Authority is delegated to each contracting officer through an official document known as a warrant. Contracting officers are required, under the USDA warrant system, to meet certain training and experience requirements before obtaining their contracting authority. Warrant holders are authorized to obligate the government for contract payments on the basis of the maximum amount stated on the warrant. The Forest Service’s contracting staff are required to comply with federal regulations and policies on contracting. The Federal Acquisition Regulation (FAR) contains the fundamental contracting procedures for all federal executive agencies. At the Forest Service, these regulations are supplemented by the Agriculture Acquisition Regulation and the Forest Service Acquisition Regulations. These regulations must conform to the FAR but can include agency-specific requirements as well. In addition, the Office of Federal Procurement Policy (OFPP), in the Office of Management and Budget (OMB), establishes governmentwide procurement policies and guidance to promote economy, efficiency, and effectiveness in federal procurement. In addition to the regulations governing specific contracting procedures, the Forest Service must comply with the Federal Managers’ Financial Integrity Act (FMFIA) of 1982. This act requires executive agencies, among other things, to (1) establish and maintain systems of internal control, (2) periodically evaluate those systems, and (3) report annually on their status. Internal control is intended to provide reasonable assurance that a program’s goals and objectives are met; resources are adequately safeguarded and efficiently utilized; reliable data are obtained, maintained, and fairly disclosed in reports; and laws and regulations are complied with. To help program managers implement FMFIA’s provisions, we issued Standards for Internal Controls in the Federal Government in 1983. These standards define the minimum level of quality acceptable for internal control and establish the criteria for evaluating internal control. Executive agencies are required to report annually to the President and the Congress on whether their systems of internal control comply with FMFIA and GAO standards. Our standards for internal control consist of five general standards, six specific standards, and one audit resolution standard. The general internal control standards require, among other things, the establishment of control objectives and techniques. Internal control objectives are the goals or targets for control that an agency wants to achieve. Control techniques are the mechanisms that an agency uses to achieve its control objectives. The specific internal control standards require, among other things, (1) the complete and accurate documentation of significant actions, (2) the proper classification of actions in summary records, and (3) qualified and continuous supervision. The audit resolution standard requires managers to promptly resolve audit findings. “support the effectiveness and the integrity of every step of the process and provide continual feedback to management . . . . For instance, good management controls can assure that performance measures are complete and accurate.” Contracting related management initiatives have been introduced by OFPP and the Congress has enacted laws that are consistent with GPRA’s principles of establishing performance goals and measuring results. In Policy Letter 91-2, effective May 9, 1991, OFPP established the policy of using performance-based contracting methods to the maximum extent possible when acquiring services. This approach emphasizes objective, measurable performance requirements and quality standards to help improve contractors’ performance and achieve cost savings. Also consistent with GPRA’s principles, the Federal Acquisition Streamlining Act of 1994 established that a contractor’s past performance should be considered in evaluating whether that contractor should receive future work. The FAR requires contracting officials to collect and maintain information on contractors’ performance for evaluating contractors for future negotiated contract awards. Finally, in implementing GPRA, USDA established five Department-wide performance measures for the procurement system. These included OFPP’s initiative to increase the use of performance-based service contracting and the Acquisition Streamlining Act’s requirement to use past performance evaluations as factors in future contract awards. At the request of the Chairman, House Committee on Agriculture, we evaluated the Forest Service’s internal control and management practices aimed at minimizing fraud, waste, and abuse and maximizing effectiveness in contracting activities. Specifically, we determined whether the Forest Service (1) maintains an appropriate system of internal control over contracting activities to minimize the agency’s vulnerability to fraud, waste, and abuse and (2) manages contracting effectively by preparing adequate acquisition plans and by incorporating performance factors into the contracting process. In addition, we identified obstacles to improving the contracting system. We focused our review on contracting for goods and services within the Forest Service’s National Forest System. Our work was conducted at the headquarters office for contracting in Rosslyn, Virginia; three regional offices; and two national forest offices. We reviewed contracts at the Northern Regional Office in Missoula, Montana; the Pacific Southwest Regional Office in San Francisco, California; and the Pacific Northwest Regional Office in Portland, Oregon. We also reviewed contracts at the Lolo National Forest Office in Missoula, Montana, and the Sierra National Forest Office in Clovis, California. The three regions we visited accounted for 47 percent of the contracting dollars awarded in fiscal year 1996. In total, we reviewed 52 contracts, whose contract actions exceeded $20 million in fiscal year 1996. We judgmentally selected the offices we visited and the contract files we reviewed at each location. We selected contracts from the Forest Service’s records of actions reported during fiscal year 1996. This approach provided us with a cross section of contracts at different stages of the contracting cycle (e.g., recently awarded contracts, multiyear contracts with numerous contract actions, and completed contracts). We generally selected contracts with larger dollar values and multiple actions to review. Our sample included contracts for a variety of goods and services, including equipment related to suppressing fires, construction, tree planting, and environmental studies. To determine whether the Forest Service maintained an appropriate system of internal control for contracting, we interviewed OFPP’s, USDA’s, and the Forest Service’s procurement officials. We contacted the Forest Service’s contracting managers at each of the offices we visited to discuss their policies and procedures for internal control. We also reviewed contract files to assess the adequacy of file documentation, the accuracy of management information being summarized and reported, the level of supervisory review of contracting officers, and the monitoring of contractors’ performance. To supplement our file review, at each office, we also interviewed contracting officers, contracting officers’ representatives, procurement analysts, and others involved in the contracting process to discuss internal control plans, supervision and contract monitoring. To assess whether the Forest Service manages contracting effectively, we determined if offices prepared advance acquisition plans and incorporated performance factors into the contracting process. We also reviewed relevant regulations, reports, policy circulars, and initiatives issued by OFPP, USDA, and the Forest Service. During our field visits, we reviewed advance acquisition plans prepared for fiscal year 1996 and interviewed contracting officials to determine how the plans were prepared and used. With headquarters procurement officials from USDA and the Forest Service, we discussed plans for implementing performance-based contracting and gathering data on contractor performance. We also reviewed completed contracts to determine if contractors’ performance evaluations had been completed. To identify obstacles to improving the contracting system, we reviewed information on the Forest Service’s organizational structure and the reporting relationships for the agency’s contracting. We also discussed organizational culture with headquarters and regional Forest Service officials. For identified contracting problems, we discussed efforts to make improvements and the potential obstacles to doing so with headquarters procurement officials from USDA and the Forest Service. The Department of Agriculture provided us with written comments on a draft of this report.