The Department of Agriculture’s Forest Service manages about 192 million acres of land—nearly 9 percent of the nation’s total surface area and 30 percent of all federal lands. Laws guiding the management of the 155 forests, 20 national grasslands, and 17 national recreation areas within the National Forest System require the agency to manage its lands to provide high levels of six renewable surface uses—outdoor recreation, rangeland, timber, watersheds and waterflows, wilderness, and wildlife and fish—to current users while sustaining undiminished the lands’ ability to produce these uses for future generations. In addition, the Forest Service’s guidance and regulations require the agency to consider the production of nonrenewable subsurface resources, such as oil, gas, and hardrock minerals, in its planning. To carry out the Forest Service’s mission, each year the President’s budget proposes and the Congress appropriates funds to, among other things, (1) manage the National Forest System, (2) conduct or sponsor forest and rangeland research, and (3) enhance the health and sustainable management of the nation’s state and private forests. In committee reports, the House and Senate Committees on Appropriations allocate funds to one or more line items within each of these appropriations. The agency then allocates these funds to its headquarters (Washington Office) and field offices. In the mid-1990s, the Forest Service asked the House and Senate Appropriations Committees to restructure its budget to increase the agency’s flexibility to carry out its mission and to improve its ability to use funds where they are most needed. The Committees incorporated many of these requested budget reforms in approving the Forest Service’s fiscal year 1995 appropriations. The Forest Service, created in 1905, is a hierarchical organization whose management is highly decentralized and whose managers have considerable autonomy and discretion for interpreting and applying the agency’s policies and directions. The Chief of the Forest Service heads the agency and, through Agriculture’s Under Secretary for Natural Resources and Environment, reports to the Secretary of Agriculture. In April 1998, the Chief of the Forest Service restructured the agency’s management team to facilitate needed efficiencies regarding the Forest Service’s accountability and business practices. As a result of the restructuring, a Chief Operating Officer is responsible for fiscal and business management and an Associate Chief for Natural Resources has direct oversight for natural resources programs. Both report directly to the Chief of the Forest Service. Among other things, the Forest Service’s Washington Office establishes policy and provides technical direction to the National Forest System’s three levels of field management: 9 regional offices, 123 forest offices, and about 600 district offices. At the Washington Office, the National Forest System has separate program directors for nine programs: Engineering; Lands; Recreation, Heritage, and Wilderness Resources; Minerals and Geology; Range Management; Forest Management; Watershed and Air Management; Wildlife, Fish, and Rare Plants; and Ecosystem Management. Similar lines of program management exist at the regional, forest, and district office levels. However, because of budgetary constraints, the management of some of these programs may be combined. The Forest Service starts to develop a budget for a given fiscal year about 2 years before the fiscal year begins. The agency constructs a budget for the National Forest System and other appropriations—including forest and rangeland research and state and private forestry—that indicates how funds will be allocated among line items. The agency submits its proposed budget to the Department of Agriculture for review and any changes about 15 months before the fiscal year begins. Agriculture, in turn, submits the Forest Service’s budget to the Office of Management and Budget for review and any changes about a year before the beginning of the fiscal year in which the funds will be spent. The President’s budget is submitted to the Congress no later than the first Monday in February for the fiscal year beginning the coming October 1st. Shortly afterwards, the Forest Service submits its explanatory notes to the House and Senate Committees on Appropriations. Once the Committees review, amend, and approve the agency’s budget, the Congress appropriates funds for the National Forest System and for other Forest Service appropriations as part of the appropriations act for the Department of the Interior and related agencies. The Committees’ reports or the appropriations act may also specify restrictions on certain types of spending and may earmark funds for special activities or projects. Once funds are received by the Forest Service, the agency removes funds needed to operate the Washington Office and specifies funding that will be used for national commitments and for special projects. The Washington Office then allocates the remaining funds by line item to its regional offices. The appropriation for the National Forest System includes 21 budget and extended budget line items that are generally used to fund the system’s nine programs. A National Forest System program may be funded from one or more line items under the appropriation for the National Forest System. When a program, such as Minerals and Geology, is funded from only one line item—in this instance, Minerals and Geology Management—the line item is referred to as a “budget line item.” Other programs are funded from two or more line items. For example, the Forest Management program is funded from the Timber Sales Management and the Forestland Vegetation Management line items. These line items are referred to as “extended budget line items” and are aggregated into a budget line item for Forestland Management. (See table 1.1.) Funds are usually allocated to the agency’s nine regional offices on the basis of budget allocation criteria developed by the Forest Service. For example, the criteria for allocating funds from the Wildlife Habitat Management extended budget line item to each region include, among other things, the number of acres, the opportunities for habitat restoration and enhancement, and the number of big game species. Regions then distribute the funds by line item to the 155 national forests on the basis of regional budget allocation criteria or on a program-by-program assessment of needs. Finally, each national forest office allocates funds to its districts by line item and by the type of activity that will be performed. For example, a national forest office might allocate some funds within the Grazing Management extended budget line item to a district to be used specifically to construct improvements for livestock grazing. District personnel not only receive funding slated for specific activities within each line item, they also track and charge their work accordingly. In fiscal year 1992, the Forest Service was cited by the National Performance Review—a White House-led study of ways to improve the efficiency of federal programs—as an example of an agency whose budget structure impeded the productive management and the efficient use of taxpayer dollars. As the Forest Service moved from managing individual resources, such as wildlife, recreation, timber, rangeland, and water, to a more broad-scale, more comprehensive approach to land management (ecosystem management), the agency proposed significant changes in its budget structure for fiscal year 1995 to help implement this management approach and improve efficiency. In acting on the Forest Service appropriations for fiscal year 1995, the House and Senate Appropriations Committees (1) consolidated line items in the agency’s budget for which specific amounts of funds are allocated, (2) expanded the agency’s authority to reprogram funds without requesting the Committees’ approval, and (3) restructured the agency’s budget so that all funding to carry out a project—including the funding for services provided by others—is consolidated in the program that will benefit most from the project. In return for this increased budget flexibility, the Appropriations Committees expected the Forest Service to improve its performance measures and accountability for expenditures and results. The Chairman and Ranking Minority Member of the Subcommittee on Interior and Related Agencies, House Committee on Appropriations, asked us to review the Forest Service’s implementation of the fiscal year 1995 budget reforms. As agreed with their offices, this report discusses (1) the Forest Service’s implementation of the fiscal year 1995 reforms and (2) the progress that the agency has made toward becoming more accountable for its results. Our review was limited primarily to funds appropriated to manage the National Forest System. The appropriation for the National Forest System represented about $1.3 billion or about 47 percent of the Forest Service’s discretionary appropriations and about 37 percent of its total appropriations for fiscal year 1997. We conducted our work at the Forest Service’s Washington Office; three of the agency’s nine regional offices—the Pacific Northwest (Region 6), the Southern (Region 8), and the Eastern (Region 9); and five national forests—the Deschutes and Willamette (in Oregon and Region 6), the Daniel Boone (in Kentucky and Region 8), and the Superior and Chippewa (in Minnesota and Region 9). To obtain information on both objectives, we interviewed Forest Service budget officials, field managers, and officials responsible for managing various programs within the National Forest System at all of the agency’s locations that we visited. We also obtained and reviewed relevant reports, records, correspondence, budget data, budget allocation criteria, and data on performance indicators at these offices. In addition, to obtain information on the Forest Service’s implementation of the budget reforms, we reviewed applicable laws and legislative histories relating to the reforms, the agency’s directives and guidance in implementing the reforms, and the agency’s budget justification explanatory notes. To obtain information on the Forest Service’s progress toward becoming more accountable for its results, we reviewed relevant reports by the Department of Agriculture’s Office of Inspector General, relevant studies by a consulting firm and an environmental group, and prior GAO reports and testimonies. We performed our work from September 1997 through September 1998 in accordance with generally accepted government auditing standards.