The Forest Service, within the U.S. Department of Agriculture, manages the 192-million-acre national forest system with its 155 national forests. The national forests generate receipts from a variety of resources, including recreation, grazing, and minerals; however, timber sale receipts have traditionally generated more than 90 percent of the total receipts. For example, in fiscal year 1996, timber sale receipts totaled about $576 million of the Forest Service’s $638 million in receipts from all resources. Receipts from all resources, except timber, are deposited directly in the National Forest Fund (NFF), which is a receipts-holding account from which the Forest Service’s obligations are distributed. For timber sale receipts, the Forest Service first distributes a portion of the receipts to two funds that are used for various timber sale activities, such as reforestation or preparing and administering future salvage sales. The remaining timber sale receipts are deposited in the NFF and combined with the receipts from other resources. Each forest has its own sub-NFF account that is accumulated at the regional level, and all regional NFF accounts are accumulated to develop the national NFF. At the end of the fiscal year, any amount not distributed from the NFF is deposited in the General Fund of the U.S. Treasury. (App. I provides additional information about the NFF and its receipts and distributions for fiscal years 1990 through 1996 and the Forest Service’s projections for fiscal year 1997.) For fiscal years 1990 through 1996, the key indicators of the timber program—harvested volumes, timber receipts, and amounts available for return to the Treasury—decreased dramatically. As can be seen in table 1, for timber sales—the largest component of the Forest Service’s receipts—harvested volumes decreased by 65 percent, receipts decreased by 55 percent, and the amounts available for return to the Treasury decreased by 86 percent. One of the reasons for the decline in the level of harvests was the listing of the northern spotted owl as a threatened species, which virtually halted all timber sales in the Pacific Northwest. The listing was followed by a decline in timber receipts and returns to the Treasury. However, the decline in the amounts available for return to the Treasury was even more severe because the Forest Service chose to make the payments for the spotted owl guarantee from the NFF during fiscal years 1994 and 1995. In fiscal year 1995, the amount available for return to the Treasury from the timber program dropped to a low of $1.5 million. In fiscal year 1996, the NFF lacked sufficient funds to meet its obligations—including the spotted owl payments—by a deficit of $77.6 million. Therefore, the Forest Service exercised its authority to use the General Fund Appropriation—Northern Spotted Owl Guarantee—provided for by P.L. 103-66, as amended. In fiscal year 1996, the Forest Service was faced with having insufficient funds available in the NFF to make its payments to the states—including the spotted owl guarantee—and to meet its other required obligations. The Forest Service took two actions to remedy this problem. First, the Forest Service transferred to the NFF a total of $56.1 million originally intended to be deposited in the Salvage Sale Fund and the Knutson-Vandenberg Fund. However, even with this additional money, a shortfall of $17.8 million still remained in the NFF. The Forest Service’s next action was to request the appropriation of about $135 million for the 1996 payments for the spotted owl guarantee authorized by the Omnibus Budget and Reconciliation Act of 1993 (P.L. 103-66, as amended). The Forest Service’s first analysis—performed in May 1996—of the estimated receipts for fiscal year 1996 showed that the NFF’s anticipated receipts were dangerously low. The analysis, generally performed to estimate the payments to the states, resulted in the Forest Service’s beginning a series of internal discussions to identify why the receipts were so low. While the Forest Service estimated that it would be able to cover the payments to the states, it also estimated that only $33.6 million would be available in the NFF to cover all other needs. Even though the Forest Service was aware as early as May 1996 that the NFF was projected to be dangerously low at the end of 1996, and informally discussed the potential shortage internally between April and August, it did not formally initiate procedures to activate the spotted owl guarantee appropriation until September 1996. Instead, on August 27, 1996, the Forest Service instructed its regions to transfer the funds to the NFF that had been originally intended for deposit in the Salvage Sale Fund and Knutson-Vandenberg Fund for the remainder of the fiscal year to make up for the shortfall. The memorandum pointed out that the problem was occurring for several reasons, including the reduction in total receipts, the requirement for the spotted owl guarantee payments to some states, the setting aside of funding for tripartite land exchanges by the national forests covered by the spotted owl guarantee, and the deposit of receipts in both the Salvage Sale Fund and the Knutson-Vandenberg Fund. The memorandum pointed out that the regions needed to review the balances in their NFF, Salvage Sale Fund, and Knutson-Vandenberg Fund and stressed that if the regions had a deficit in their NFF accounts, it should be offset by a transfer of funds from one of the other accounts. These adjustments resulted in a total of $56.1 million being transferred to the NFF—$35.6 million that would have been deposited in the Salvage Sale Fund and $20.5 million that would have been deposited in the Knutson-Vandenberg Fund. According to the Forest Service’s records, the regions used a variety of approaches to make these accounting adjustments. While most regions made the adjustments at the regional level, some were made at the forest level, and one region was granted permission to make no adjustments at all. Although the regions and forests were told that the August and September accounting adjustments would be reversed, thus allowing them to deposit the funds into the Salvage Sale Fund and the Knutson-Vandenberg Fund as originally intended, this was not possible because the balance in the NFF is unavailable for disbursement after the close of the fiscal year. These funds must be returned to the Treasury, and therefore, the Forest Service’s Salvage Sale Fund and the Knutson-Vandenberg Fund lost this amount for fiscal year 1996. According to Forest Service officials, several situations arose after the initial analysis of the NFF shortfall. In early summer, the Pacific Northwest Region sharply curtailed its timber harvesting program because of the extensive fire season it was experiencing, which reduced the estimated receipts from that region. In addition, several internal deliberations raised concerns about the budget implications of requesting the spotted owl guarantee appropriation, which necessitated additional discussions with congressional committees. Also, according to Forest Service officials, external concerns arose about the interpretation of the statutory amounts allowed under the legislation—that is, Office of Management and Budget (OMB) attorneys questioned whether the Forest Service was entitled to the entire spotted owl guarantee or just the shortfall. Because of the uncertainty about whether the Forest Service would receive the appropriation, the Forest Service needed to assure the U.S. Department of Agriculture that all external parties would agree to the request before it could be submitted. Thus, in early September 1996, the Forest Service started working with OMB to obtain its concurrence with the request for the spotted owl guarantee appropriation from the Treasury because of the $17.8 million shortfall in the NFF. In a letter dated September 19, 1996, the Forest Service requested that the Treasury provide the spotted owl guarantee appropriation for fiscal year 1996 of $135 million as authorized by P.L. 103-66, as amended. In its request, the Forest Service stated that its national forest receipts had declined significantly in fiscal year 1996 and would not be sufficient to cover the full payments due the states, including the spotted owl guarantee. On October 3, 1996, the Treasury advised the Forest Service that while the Forest Service had the authority to obtain the spotted owl guarantee appropriation, funds could not be deposited directly into the NFF as requested and that the request must be resubmitted for a new General Fund expenditure account. Five weeks later, on November 7, 1996, the Forest Service resubmitted its request to the Treasury for a new General Fund expenditure account entitled “Payments to the States, Northern Spotted Owl Guarantee, Forest Service.” According to a Forest Service official, this delay in resubmitting the request to Treasury resulted from higher-priority tasks of year-end closings. Because they were assured that they would be receiving the appropriation and that the moneys would be received in fiscal year 1997 for the fiscal year 1996 payments, the Forest Service considered the year-end closings a higher priority. On November 26, 1996, the Treasury—with the concurrence of OMB—approved the request and provided a warrant of $135 million to the Forest Service to make the spotted owl guarantee payments. Because the deficit in the NFF was only $17.8 million, when the Forest Service placed the $135 million into the NFF, it created a balance of $115.9 million after final adjustments. Forest Service officials told us that they will return this amount to the Treasury; however, as of August 12, 1997, the Forest Service still retained the money in the NFF. Our review of the fiscal year 1996 timber balances in the NFF revealed that many forests—especially in the Pacific Northwest Region—had negative year-end balances in their NFF accounts.