Forest Service
Year-end Financial Reporting Significantly Improved, but Certain Underlying Problems Remain Gao ID: GAO-03-538 May 1, 2003Since 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.
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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-538, Forest Service: Year-end Financial Reporting Significantly Improved, but Certain Underlying Problems Remain
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Report to the Chairman and Ranking Minority Member, Subcommittee on
Forests and Forest Health, Committee on Resources, House of
Representatives:
May 2003:
FOREST SERVICE:
Year-end Financial Reporting Significantly Improved, but Certain
Underlying Problems Remain:
GAO-03-538:
GAO Highlights:
Highlights of GAO-03-538, a report to the Chairman and Ranking
Minority Member, Subcommittee on Forests and Forest Health, Committee
on Resources, House of Representatives.
Why GAO Did This Study:
Since 1996, we have periodically reported on Forest Service financial
management problems that we, the U.S. Department of Agriculture‘s
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 Subcommittee 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.
What GAO Found:
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.
What GAO Recommends:
We recommend that the Forest Service develop a comprehensive financial
management strategy that
* defines financial management goals and objectives,
* specifies corrective actions,
* identifies target dates and resources needed,
* identifies responsible parties, and
* prioritizes and links improvement initiatives, including USDA
financial management systems enhancements.
The Forest Service concurred with our recommendations and indicated
that it is developing a strategic plan.
www.gao.gov/cgi-bin/getrpt?GAO-03-538.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact McCoy Williams at (202) 512-6906 or
williamsm1@gao.gov.
[End of section]
Letter:
Results in Brief:
Background:
Scope and Methodology:
The Forest Service Has Made Significant Progress toward Achieving
Financial Accountability:
Despite Progress Made, Accountability Challenges Remain:
An Efficient and Effective Financial Management Organization Is Key to
Achieving Financial Accountability:
Corrective Actions Are Underway or Planned to Resolve Remaining
Problems:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix:
Appendix I: Comments from the Forest Service:
Tables:
Table 1: Forest Service History of Audit Opinions:
Table 2: Forest Service Material Internal Control Weaknesses:
Letter May 1, 2003:
The Honorable Scott McInnis
Chairman
The Honorable Jay Inslee
Ranking Minority Member
Subcommittee on Forests
and Forest Health
Committee on Resources
House of Representatives:
Since December 1996, we have periodically reported[Footnote 1] 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
accountability, and:
* actions underway or planned by the Forest Service for resolving
remaining problems.
Results in Brief:
In fiscal year 2002, the Forest Service made significant progress
toward achieving financial accountability, receiving its first
unqualified or "clean" audit opinion on its 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. We consider this a positive step toward achieving financial
accountability. However, sustaining this outcome and achieving
financial accountability requires more than obtaining reliable onetime
year-end numbers for financial statement purposes.
The Forest Service still must overcome several major challenges before
it can routinely produce reliable and timely financial information to
effectively manage operations, monitor revenue and spending levels, and
make informed decisions about future funding needs for its programs.
The fiscal year 2002 financial statement audit report disclosed
material internal control weaknesses[Footnote 2] in several areas,
including its two major asset accounts--fund balance with the U.S.
Department of the Treasury (Treasury) and property, plant, and
equipment--certain estimated liabilities, payroll processes, computer
security controls, and application software controls related to its
procurement and personal property systems. The audit report also
discussed areas in which the Forest Service's financial management
systems are not in substantial compliance with Federal Financial
Management Improvement Act of 1996 (FFMIA)[Footnote 3] requirements.
These relate primarily to the above internal control weaknesses.
As discussed in our prior reports and testimonies, the agency faces the
challenge of replacing or enhancing certain antiquated financial
subsidiary systems-called feeder systems-that transfer data to the
Foundation Financial Information System (FFIS), its standard accounting
system, and implementing a financial management field organization that
supports efficient and effective day-to-day financial operations. In
1999, we designated Forest Service financial management as high risk on
the basis of serious financial and accounting weaknesses.[Footnote 4]
Again in our January 2003 report,[Footnote 5] we reiterated our
concerns due to the serious deficiencies that remain.
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 make sure its
strategic plan is comprehensive--integrating and prioritizing the
various corrective actions--and includes detailed steps for
implementing these actions.
The independent auditor hired by the Forest Service made numerous
recommendations to improve the internal control weaknesses identified
during its audit of the fiscal year 2002 financial statements. We
support these recommendations. In addition, we are recommending to the
Chief of the Forest Service that the Budget and Finance Deputy Chief/
Chief Financial Officer (CFO) develop a comprehensive financial
management strategic plan to effectively manage the improvement efforts
underway and planned. The Forest Service concurred with our
recommendations and it is developing a strategic plan.
Background:
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[Footnote 6] 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.
Table 1: Forest Service History of Audit Opinions:
Fiscal year: 1991; Opinion: Adverse; Explanation: Major inaccuracies in
the financial statements.
Fiscal year: 1992; Opinion: Adverse; Explanation: Major inaccuracies in
the financial statements.
Fiscal year: 1993; Opinion: Qualified; Explanation: Pervasive errors in
the field-level data supporting the land, buildings, equipment,
accounts receivable, and accounts payable.
Fiscal year: 1994; Opinion: Qualified.
Fiscal year: 1995; Opinion: Adverse; Explanation: Continuing pattern of
unfavorable conclusions about the Forest Service's financial
statements. Several shortcomings in accounting and financial data and
information systems were identified.
Fiscal year: 1996; Opinion: No Audit; Explanation: Due to the severity
of the accounting and reporting deficiencies, the Forest Service did
not prepare financial statements for fiscal year 1996, but chose;
instead to focus on resolving these problems.
Fiscal year: 1997; Opinion: Disclaimer; Explanation: Unable to reliably
track and report on major assets worth billions of dollars, including
accounts receivable, real property, and accounts payable. Also errors
in records of fund balances with Treasury.
Fiscal year: 1998; Opinion: Disclaimer; Explanation: Lack of basic
accountability for major assets and liabilities; the inability to
accurately track the cost of programs and activities, and significant
reporting; errors in the Forest Service financial statements and
supporting records.
Fiscal year: 1999; Opinion: Disclaimer; Explanation: Unable to
determine accuracy of property, plant, and equipment and unable to
verify fiscal year fund balance with Treasury because of lack of
reconciliations and unsupported balances; remaining from its old
accounting system.
Fiscal year: 2000, 2001; Opinion: Disclaimer; Explanation: Material
internal control weaknesses existed in the financial statement
compilation process and in; procedures for compiling the balances for
fund balances with Treasury and general property, plant, and equipment.
Because of these weaknesses, the agency was not able to provide timely,
sufficient, and competent evidential matter to support amounts in the
financial statements.
Source: GAO Analysis.
[End of table]
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.
Scope and Methodology:
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.
The Forest Service Has Made Significant Progress toward Achieving
Financial Accountability:
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[Footnote 7] 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[Footnote 8] items, monitoring collection of receivables, and
compliance with CFO accounting guidance.
Despite Progress Made, Accountability Challenges Remain:
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.
Remaining Internal Control and FFMIA Compliance Deficiencies Need to Be
Resolved:
Our Standards for Internal Control in the Federal Government[Footnote
9] 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.
Table 2: Forest Service Material Internal Control Weaknesses:
Financial management area: Fund balance with the Treasury; Conditions
and recommendations reported by auditor: While the Forest Service has
progressed in fiscal years 2001 and 2002 in reconciling its fund
balance with Treasury accounts, control deficiencies still exist in its
reconciliation processes. The Forest Service had a large backlog of
unreconciled items that needed to be researched and resolved. In order
to bring the Forest Service's fund balance with Treasury accounts into
balance with Treasury records as of September 30, 2002, the Forest
Service recorded an adjustment of $107 million. The auditor recommended
that the Forest Service document its reconciliation processes,
establish a point of contact at the National Finance Center to assist
in the reconciliation process, analyze and determine the proper
disposition of its budget and clearing accounts, and allocate the
necessary resources to complete monthly reconciliations in a timely
manner.
Financial management area: Property, plant, and equipment; Conditions
and recommendations reported by auditor: Material deficiencies in the
controls related to the accurate recording of property, plant, and
equipment transactions remain. For example, there were instances in
which recorded amounts did not agree with supporting documentation and
inappropriate payroll expenses were included in property values instead
of being recorded as expenses, resulting in an overstatement of
property and an understatement of expenses. Further, the Forest Service
did not have effective controls over the initial recording of
acquisition costs, in-service date, and useful life of property items.
Because the Forest Service did not require reviews of data input for
property transactions by a supervisor, another independent person or by
system checks within property systems, certain property items were not
recorded properly. The auditors recommended that the Forest Service
train personnel on accurate transaction recording, require supervisory
review of data input of property transactions, and design and implement
a control methodology that verifies recording of acquisition costs, in-
service date, and useful life and other critical elements, to ensure
proper depreciation of capital assets.
Financial management area: Accrued liabilities; Conditions and
recommendations reported by auditor: The Forest Service's proposed
methodology for estimating certain liabilities, such as grants, was not
accurate and did not substantially support the unpaid amount of
services that had been delivered as of year-end. In addition, the
proposed methodology did not consider payments to states, which are
recorded as liabilities as of September 30. If the Forest Service had
used its proposed methodology, both its accrued liabilities and
associated expenses would have been understated for fiscal year 2002.
As a result, sampling methodologies were used to project the year-end
balance. The auditor recommended that the Forest Service develop a new
methodology for estimating liabilities and maintain the supporting
documentation used to determine the estimate.
Financial management area: Payroll process; Conditions and
recommendations reported by auditor: Serious automated control
deficiencies existed with the Forest Service's payroll time card entry
system. For example, it allowed the Forest Service users to submit
their time sheets for approval to an employee that was not the
designated supervisor. In some locations, the employee could send the
time sheet to him/herself for approval. In addition, deficiencies in
manual controls over the payroll process existed, such as missing
employee and/or supervisor signatures. The auditor recommended that the
Forest Service implement controls to ensure that employees' supervisors
appropriately review and approve their subordinates' time sheets,
reinforce the requirement for time sheets to be signed by both the
employee and supervisor, and reconcile and biweekly certify its payroll
registers to its personnel listing.
Financial management area: General and software application controls;
Conditions and recommendations reported by auditor: The Forest Service
had material deficiencies in its general controls[A] environment. For
example, controls for determining the trustworthiness of personnel,
such as background checks, and limiting access to information systems
needed improvement. Software application controlsb related to
procurement, and real and personal property feeder systems also needed
improvement. Without sufficient application controls, the Forest
Service is exposed to the risk of its property records being corrupted,
lost, or altered, and errors and omissions not being prevented,
detected, and corrected. The auditor recommended several actions for
improving controls over user access, system interfaces, system edits,
separation of duties, and data accuracy and completeness.c.
Source: GAO analysis.
[A] General controls include the structure, policies, and procedures
that apply to the agency's overall computer operations, for example:
security management programs, access control, application software
development and change, system software control, segregation of duties,
and service continuity.
[B] Application controls covers the structure, policies, and procedures
designed to help ensure the accuracy, completeness, authorization and
validity of all transactions during the application process.
Application controls play a crucial role in the auditability of these
feeder systems.
[C] Due to the sensitive nature of the issues identified, the auditor
provided the Forest Service with a separate limited-distribution report
that contains the detailed findings and specific recommendations.
[End of table]
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.[Footnote 10] 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.
Financial Management Systems Remain an Obstacle to Achieving
Sustainable Accountability:
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,[Footnote 11] 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.
An Efficient and Effective Financial Management Organization Is Key to
Achieving Financial Accountability:
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.
Corrective Actions Are Underway or Planned to Resolve Remaining
Problems:
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.
Conclusion:
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.
Recommendations for Executive Action:
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
and objectives;
* 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
actions;
* 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.
Agency Comments and Our Evaluation:
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.
[See PDF for image]
[End of figure]
Signed by:
McCoy Williams
Director, Financial Management and Assurance:
[End of section]
Appendixes:
Appendix I: Comments from the Forest Service:
United States Department of Agriculture:
Forest Service:
Washington Office:
14th & Independence SW
P.O. Box 96090
Washington, DC 20090-6090
File Code: 1310/1930:
Dare: APR 24 2003:
Mr. McCoy Williams:
Director, Financial Management and Assurance U.S. General Accounting
Office:
441 G Street, N.W. Washington, DC 20548:
Dear Mr. McCoy:
Thank you for the opportunity to review and comment on the draft
General Accounting Office (GAO) Report, GAO-03-538, "Forest Service:
Year-end Financial Reporting Significantly Improved, But Certain
Underlying Problems Remain." The report effectively recognizes the
progress the Forest Service made toward achieving financial management
accountability in FY 2002. The report also identifies the necessity for
the Agency 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. Thus,
the Forest Service concurs with the audit findings and recommendations.
Preparation of the financial management strategic plan is in process.
Sincerely,
DALE N. BOSWORTH:
Chief:
Signed by DALE N. BOSWORTH:
cc: Mary S Matiella, Sandy T Coleman:
[End of section]
(190066):
FOOTNOTES
[1] U.S. General Accounting Office, Financial Management: Forest
Service's Efforts to Achieve Accountability, GAO/AIMD-99-68R
(Washington, D.C.: Feb. 8, 1999); Forest Service: Barriers to Financial
Accountability Remain, GAO/AIMD-99-1 (Washington, D.C.: Oct. 2, 1998);
Forest Service: Status of Progress Toward Financial Accountability,
GAO/AIMD-98-84 (Washington, D.C.: Feb. 27, 1998); Financial Management:
Forest Service's Progress Toward Financial Accountability, GAO/AIMD-
97-151R (Washington, D.C.: Aug. 29, 1997); and Letter to the Chairman,
House Committee on the Budget, GAO/AIMD-97-11R (Washington, D.C.: Dec.
20, 1996).
[2] A material weakness is a condition in which the design or operation
of one or more of the internal control components does not reduce to a
relatively low level the risk that errors, fraud, or noncompliance in
amounts material to the financial statements may occur and not be
detected promptly by employees in the normal course of performing their
duties.
[3] P.L. 104-208, title VIII, 110 Stat. 3009-389 (1996).
[4] U.S. General Accounting Office, High-Risk Series: An Update, GAO/
HR-99-1 (Washington, D.C.: January 1999).
[5] U.S. General Accounting Office, High-Risk Series: An Update, GAO-
03-119 (Washington, D.C.: January 2003).
[6] The SGL provides a standard chart of accounts and standardized
transactions that agencies are to use in all their financial systems.
[7] FFIS is programmed to debit or credit certain general ledger
accounts based on identifiers, such as job code and transaction
identification number and type, used to record the accounting event.
[8] Suspense accounts are used to temporarily hold collections and
disbursements until disposition is determined and they can be properly
classified in the applicable receipt or expenditure budget accounts.
[9] See U.S. General Accounting Office, Standards for Internal Control
in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.:
November 1999), which contains the internal control standards to be
followed by executive agencies in establishing and maintaining systems
of internal controls as required by 31 U.S.C. Section 3512(c), (d),
commonly called the Federal Manager's Financial Integrity Act of 1982.
[10] Statement of Federal Financial Accounting Standard No. 7,
Accounting for Revenue and Other Financing Sources, requires
collections be recorded as revenue at the point of sale.
[11] As part of the fiscal year 2002 financial statement audit of
Forest Service's financial statements, the auditor conducted a review
of the Forest Service's information and technology general and
application controls. Due to the sensitive nature of the findings, the
auditors issued a separate restricted report to Forest Service
Management.
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