77 



annual report. If TSPIRS were applied to only the significant commercial sales, how 

 many forests would still show financial losses in recent years? 



Answer. Appendix 3 shows the sales and volume by category for each national 

 forest. [See page 92.] 



We have no information that would indicate the effect of separating out the 

 minor commercial portion, but would expect that it would not make a great deal of 

 difference since the average unit cost of preparing and administering these sales 

 would probably not vary greatly from those of sales going to larger companies. The 

 FY 1992 Timber Sale Program Annual Report indicates that the personal use pro- 

 gram produced a loss of $29 million. Some of this harvest was concentrated on a few 

 national forests in the Southwest and Pacific Southwest. Of the 66 national forests 

 that have produced net revenue losses over the last 3 years, 8 of them have operated 

 programs that were more than 80-percent personal use. If those forests were 

 dropped from the below-cost category, the remaining 58 would still show losses in 

 the commercial program. 



Question 22. Why are purchaser road credits (PRO counted as receipts when no 

 money has been exchanged between the purchaser and the Forest Service? Are the 

 PRC counted as receipts when they are granted (i.e., at the time of the sale) or when 

 they are used (i.e., at the time of harvest)? Does the Forest Service maintain data on 

 credits granted but not yet used? Are these data maintained at each national forest? 

 Are they available to the public? Are they regularly reported in any Forest Service 

 documents (e.g., the budget justification or the annual report)? What is the conse- 

 quence for the TSPIRS bottom line of counting them as current receipts and then 

 depreciating the roads over a decade or more? 



Answer. Purchaser credit is considered to be an offset — the exchange of a specific 

 value of road for an equal value of timber. Under generally accepted accounting 

 principles (GAAP), offset transactions must be recognized similar to cash transac- 

 tions on the income statement. The purchaser credit is counted when it is used by 

 the purchaser — at the time the exchange of the road and timber takes place. When 

 the Forest Service bills the purchaser for the harvest, the purchaser may use pur- 

 chaser credit to pay for the timber. Yes, the timber sales accounting system ac- 

 counts for unused purchaser credit. Data on the purchaser credit established but not 

 yet used are maintained by each national forest for each timber sale contract. 

 Under FOIA, this information is available to the public upon request. The data are 

 routinely included in internal agency reports that are used to aid in timber sale 

 contract administration work. Unused purchaser credit is also reported in the 

 Forest Service's yearly financial statement as a liability and this report is available 

 to the public and Congress. In accordance with the matching principle of GAAP, 

 road assets are expensed as they are "used up." This presents the most accurate 

 reflection of operations. If the question is what are the consequences of expensing 

 road assets in the year acquired, the table below illustrates that for FY-92. 



Revenues $83,646,739.54 Revenues $83,646,739.54 



Less Amount Capitalized 85,243,871.87 Less Amount Depreciated 47,226,262.47 



Net [Loss] [1,597,132.33] Net 36,420,477.07 



What we must consider is not which method provides the better "bottom line" but 

 which method meets generally accepted accounting principles used by the private 

 sector throughout the United States. 



Question 23. Road prism costs are excluded from TSPIRS depreciation accounts, 

 because they are seen as permanent, nondeteriorating assets. Is this accounting 

 treatment consistent with private sector accounting of such assets? How would the 

 TSPIRS bottom line change if private sector treatment of nondeteriorating invest- 

 ments were applied to road prism costs? 



Answer. As Associate Chief George Leonard noted at a congressional hearing, in 

 1989 we had Brown and Company, an independent public accounting firm, audit 

 TSPIRS. They did so in association with Grant Thornton, a large national public 

 accounting firm. The primary purpose of the audit was not to check the accuracy of 

 the data in TSPIRS, but rather to check the system for conformance with GAAP 

 and to make any recommendations for change. They recommended that we move to 

 the current method of accounting for road costs to be in conformance with GAAP 

 and we made that change in FY 1991. The GAO agreed with this concept of capital- 

 izing the road costs and only depreciating costs for those portions that wear out. We 

 are not familiar with what private or public corporations do in similar circum- 

 stances, but since virtually every corporation in the country prepares their financial 



