1). Common services:  Covers  nonpersonnel costs associated with  providing space and a working  environment for employees. Factors Identified by the Forest Service

According to the Forest Service, the four factors contributing most to indirect cost increases during the 5-year review period were the implementation of the emergency salvage timber sale program, employee buyouts, the late assignment of costs, and a new computer system. Of this amount, the Forest Service’s accounting records show that $211,423 was the result of the head tax. However, over our 5-year review period, the instructions explaining how to account for indirect costs changed several times. The regional supplement to the Forest Service Manual supports this decision by saying that “Contributors do not need to be assessed for overhead charges if the contributors are unwilling to accept them.”
Since fiscal year 1995, the Rocky Mountain Region has classified rent charged to the Brush Disposal Fund entirely as an indirect cost, whereas the Southwestern Region has classified rent charged to the same fund both as a direct and an indirect cost. Actions Taken to Control Costs

Overall, the Forest Service reduced its permanent staff by 14 percent during the 5-year period of our review, and individual offices implemented additional measures designed to reduce costs. Most of these efforts have been aimed at reducing costs generally and have not been targeted specifically at indirect expenditures. The congressional appropriations committees also reduced the budget line item for general administration during the period, but one way the Forest Service responded to the decrease was by reclassifying some general administration activities as benefiting function activities. One way that the Forest Service has been able to comply with the reduction was by reclassifying costs previously considered general administration costs to other indirect cost categories. Actions Essential in Controlling Indirect Costs

In an effort to reduce overall costs, the Forest Service has closed and consolidated offices, downsized, and centralized certain administrative functions. An essential first step for the Forest Service in controlling indirect costs is to know clearly what these costs are from year to year and office to office. A starting point for this effort involves establishing clear definitions for indirect costs and applying them consistently over time. In July 1995, the Financial Accounting Standards Advisory Board, the group that recommends accounting principles for the federal government, released Statement of Federal Financial Accounting Standard (SFFAS) No. 4 would go a long way towards producing cost data that are consistent and reliable. Once these problems are solved and indirect costs from year to year and office to office are clearly known, there is the opportunity for informed decisions about indirect costs and how to reduce them. 4 into the Forest Service’s cost accounting system. 498)

	Cooperative Work—Knutson- Vandenberg Fund

A trust fund that uses deposits made by timber purchasers to reforest timber sale areas. In phase one, we provided information on the amount of indirect expenditures charged to these five funds between fiscal years 1993 and 1997. This second phase has the three objectives of identifying (1) the reasons why indirect costs rose, (2) actions taken by the Forest Service and others to control these expenditures, and (3) other actions that may help the Forest Service control such expenditures in the future.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on overhead costs for the Forest Service's Brush Disposal Fund, Salvage Sale Fund, Reforestation Trust Fund, Cooperative Work--Other Fund, and Cooperative Work--Knutson-Vandenberg Fund, focusing on: (1) the reasons why indirect costs rose; (2) actions taken by the Forest Service and others to control these costs; and (3) other actions that may help the Forest Service control these costs in the future.

What GAO Found

GAO noted that: (1) inconsistencies in the Forest Service's accounting system make it difficult to ascertain specifically why indirect costs rose for these five funds during fiscal years 1993-97; (2) according to the Forest Service, indirect costs rose for four main reasons: the implementation of a congressionally established program to increase the amount of salvage timber offered for sale, additional costs associated with downsizing, the allocation of costs incurred in previous years but not charged against the funds at the time, and computer modernization; (3) however, during this same time period, the Forest Service was changing its policies about how to account for indirect costs, and individual regions and forests were implementing these policies in markedly different ways; (4) as a result, the accounting system produced information that was not consistent from year to year or location to location; (5) neither GAO nor the Forest Service is able to say how much indirect costs increased as a result of the factors the Forest Service cites and how much they changed because of these accounting inconsistencies; (6) to control costs, the Forest Service took a number of actions, most of which were aimed at reducing costs generally and not targeted specifically at indirect costs; (7) in particular, the agency reduced its permanent staff by 14 percent, and individual regions used a variety of other measures, including closing some district offices, consolidating others, and centralizing certain administrative functions, such as contracting and procurement; (8) for their part, congressional appropriation committees reduced the budget line item for some indirect costs; (9) one way the Forest Service responded to the reductions was to reclassify some indirect costs to other accounts; (10) an essential step for controlling indirect costs is establishing clear definitions for them and applying the definitions consistently over time and across locations; (11) if implemented properly, a new accounting standard released by the Financial Accounting Standards Advisory Board, which recommends accounting principles for the federal government, will go a long way towards providing consistent and reliable data on the Forest Service's indirect costs; and (12) once the problems with the Forest Service's accounting system are solved and the agency's indirect costs are clearly known, there is the opportunity for informed decisions to be made on how to control them.