In July 1996, the USDA IG concluded that the Forest Service’s financial statements for fiscal year 1995 were unreliable. The IG’s report cited numerous shortcomings in the Forest Service’s accounting and financial data and information systems that precluded the agency from presenting accurate and complete financial information. For example, in reporting its fiscal year 1995 financial results, the Forest Service could not determine for what purposes $215 million of its $3.4 billion in operating and program funds were spent. In December 1996, we reported on how the inaccuracy of the financial statement data precluded the agency and the Congress from using this financial data to help make informed decisions about future funding for the Forest Service and raised questions about the reliability of program performance measures and certain budget data. Forest Service officials determined that corrective actions could not be completed in time to improve the Forest Service’s fiscal year 1996 financial data. As a result, the agency did not prepare financial statements for fiscal year 1996. Instead, the Forest Service agreed to a three-party effort (the Forest Service, USDA’s Office of the Chief Financial Officer (OCFO), and the IG) to correct the problems identified in the fiscal year 1995 IG audit report. On December 23, 1994, the Office of the Chief Financial Officer purchased a new accounting system, the Foundation Financial Information System (FFIS), to implement USDA-wide. Because of the reported financial deficiencies at the Forest Service, it was decided that the Forest Service would be one of the first USDA agencies to implement FFIS. While the overall responsibility and oversight for implementing FFIS rests with the USDA OCFO, implementation at the Forest Service is a joint effort between the Forest Service and the USDA OCFO. Forest Service management is responsible for the other corrective measures that are required to achieve financial accountability. The Forest Service’s goal was to correct some of the deficiencies during fiscal year 1997 and to achieve financial accountability by the end of fiscal year 1999. In August 1997, we reported to your Committee that it is doubtful that the Forest Service can achieve financial accountability by the end of fiscal year 1999 if management and staff commitment waver, planned tasks are not accomplished, and sufficient resources are not provided. Our objectives were to monitor and report on the Forest Service’s (1) implementation of a new financial accounting system, (2) correction of certain accounting deficiencies, (3) resolution of key staffing and financial management organizational issues, and (4) commitment to achieving financial accountability. We reviewed steps taken by the Forest Service, USDA OCFO, and USDA IG to correct deficiencies in the Forest Service’s accounting and financial data and systems since we last reported to you on August 29, 1997. To assess the status of the Forest Service’s (1) effort to improve the reliability of its accounting and financial data and (2) its commitment to improvement, we reviewed the Forest Service’s financial health monitoring reports, the Forest Service’s Financial Management Strategy and Action Plan, project management plans, and other documents outlining improvement initiatives and their status. We also attended planning conferences where progress and critical tasks were identified, and interviewed regional and headquarters Forest Service officials. In addition, we reviewed two internal USDA assessments of FFIS implementation problems. We also interviewed IG officials and USDA’s Acting CFO about the status of the Forest Service’s corrective actions. We performed our review from September 1997 through February 1998 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Special Assistant to the Chief, Forest Service; the Acting Deputy Chief of Operations, Forest Service; the Acting Director of Financial Management, Forest Service; the Acting Chief Financial Officer, USDA, and his staff; and staff from the IG’s office. These comments are discussed in the “Agency Comments and Our Evaluation” section. The new accounting system, FFIS, being implemented at the Forest Service is designed to be a fully integrated financial accounting and reporting system that the Forest Service is counting on to correct many of the agency’s current financial shortcomings. FFIS was piloted at the Forest Service in three units, representing about one-third of all Forest Service transactions, as scheduled on October 1, 1997. However, the pilot units experienced many problems, primarily related to transferring data from other feeder systems to the new FFIS system. For example: FFIS initially rejected 45 percent of the data transferred to it from the procurement system, and the data had to be re-entered. These rejects occurred for various reasons, including the two systems maintaining inconsistent vendor data such as different purchase order numbers for the same item. The timber sales system could not transfer data to FFIS; therefore, sales data had to be entered into FFIS manually. About 1,200 outstanding travel orders had to be rekeyed because the data in the new travel system could not be automatically transferred to FFIS. The agency is continuing to address these types of problems as they are identified during the implementation process. In addition, the agency’s fiscal year 1998 first quarter budget execution reports that are required by the Office of Management and Budget contained estimated rather than actual amounts because FFIS could not generate actual information. Unforeseen problems also have precluded the pilot units from using FFIS to produce other critical budgetary and financial reports that the Congress and the agency need to track obligations, assets, liabilities, revenues, and costs. These problems occurred, in part, because budgetary information had not yet been brought forward from the old accounting system, which is no longer functional in the pilot units. Also, the FFIS system generates accounting information at the detailed transaction level, but is currently unable to produce summary-level data needed to carry prior year balances forward as well as to determine current balances. The Forest Service subsequently discovered that its reports contained errors in the logic used to compute summary balances. These errors are being corrected. The overall problems with the system implementation are reflective of the lack of complete integrated testing of the system, including its reporting capability, prior to implementation in the pilot units. Our prior work at other agencies has shown that the lack of adequate testing of systems before piloting and implementation is one of the primary causes of new systems implementation failures. As a result of the reporting problems, the OCFO and the Forest Service are revising the scheduled completion of FFIS implementation in the pilot units from February 23, 1998, to March 30, 1998. The Acting Director of Financial Management has a team, including region and forest-level staff, at the National Finance Center working on correcting the identified reporting deficiencies. According to the USDA Acting CFO, the team plans to initially focus on monthly and quarterly reporting requirements and will address year-end and other reporting demands later in the fiscal year. If these problems are not resolved, FFIS cannot be successfully implemented in the remaining units as scheduled on October 1, 1998. Further, the inability to produce budget and financial reports for the three pilot units subjects the assets of these units to a high level of risk and vulnerability to misuse. Another issue that must be addressed is to ensure that FFIS, as well as all other mission critical computer systems, is Year 2000 compliant. The Year 2000 problem is rooted in the way dates are recorded and calculated in many computer systems. For the past several decades, systems have typically used two digits to represent the year in order to conserve on electronic data storage and reduce operating costs. With this two-digit format, however, the year 2000 is indistinguishable from the year 1900. As a result, system or application programs that use dates to perform calculations, comparisons, or sorting may generate incorrect results when working with years after 1999. The version of FFIS purchased in 1994 and piloted in October 1997 is not Year 2000 compliant. Forest Service officials and the USDA Acting CFO told us that the FFIS pilot would have been delayed up to 1 year if the agency had waited for the vendor to release a Year 2000 compliant version of FFIS. We did not assess the decision-making process for procuring FFIS or the level of effort required to make the system Year 2000 compliant. The Office of Management and Budget reported that as of November 15, 1997, USDA had demonstrated insufficient evidence of adequate Year 2000 progress. However, the USDA Acting CFO said that USDA is taking steps to ensure that FFIS, as well as all other mission critical financial systems, becomes Year 2000 compliant before January 1, 2000. He further stated that FFIS will be Year 2000 compliant by the summer of 1998. We are initiating another assignment which will examine Year 2000 issues in USDA. The Forest Service has corrected some of the accounting deficiencies identified in the IG’s fiscal year 1995 audit report, but many of the serious shortcomings that we reported on in December 1996 still remain. The agency has implemented procedures and begun cleaning up some of the erroneous data recorded in its old accounting system, such as amounts other agencies owe to the Forest Service for work performed on a reimbursable basis. This process should help ensure that invalid data are not transferred to the new FFIS system. However, the reported $7.8 billion in land, buildings, roads, and equipment is still questionable because reliable values and quantities for many of these assets have not been established. Therefore, as we reported in December 1996, the Forest Service continues to be exposed to mismanagement and misuse of these assets. Each region was scheduled to complete equipment inventories verifying that all items are accounted for by July 31, 1997. Written certifications were due from the units to Financial Management staff by September 30, 1997. However, one of the Forest Service’s 10 regions did not complete its certification until February 12, 1998. The remaining inventories of land, buildings, and roads are to be completed and certified by June 30, 1998. Until these counts are completed and recorded in the accounting records, the correct quantities and costs of these assets will not be determinable. Therefore, the Congress cannot be assured that Forest Service requests for funds related to roads and buildings are fully warranted.