Financial Management: Interior's Management of the Indian Trust Funds
(Testimony, 06/18/96, GAO/T-AIMD-96-111).

GAO discussed the Department of the Interior's management of Indian
trust funds. GAO noted that: (1) the Bureau of Indian Affairs (BIA) has
completed its reconciliation of trust fund accounts, but the accounts
could not be fully reconciled due to missing records and the lack of an
audit trail; (2) the January 1996 BIA report to the tribes did not
explain limitations in scope and methodologies used for the
reconciliation process; (3) two tribes have accepted their
reconciliation results, three tribes are disputing their results, and
the remaining 275 tribes have not yet decided whether to accept or
dispute their reconciliation results; (4) if Interior cannot resolve the
tribes' concerns, the disputes can be resolved through a legislated
settlement process; (5) Interior's trust fund management improvements
will take several years to complete; (6) although BIA is replacing its
inadequate management and accounting systems, it has not developed
systems requirements to ensure that the new systems provide accurate
information; (7) Interior has appointed a special trustee for Native
Americans who has developed an outline of needed trust fund management
improvements, but this outline needs to include various departmentwide
options and alternatives and their associated costs and benefits to
become a comprehensive strategic plan; and (8) resource constraints have
limited Interior's ability to make trust fund management improvements.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-AIMD-96-111
     TITLE:  Financial Management: Interior's Management of the Indian 
             Trust Funds
      DATE:  06/18/96
   SUBJECT:  Trust funds
             Native American claims
             Financial management systems
             Federal agency accounting systems
             Accounting procedures
             Systems conversions
             Requirements definition
             Funds management
             Claims settlement
             Strategic information systems planning
IDENTIFIER:  BIA Integrated Resources Management System
             BIA Land Records Information System
             Dept. of Interior Automated Land Records Management System
             
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Cover
================================================================ COVER


Before the Committee on Resources
Task Force on Indian Trust Fund Management
House of Representatives

For Release on Delivery
Expected at
10 a.m.
Tuesday,
June 18, 1996

FINANCIAL MANAGEMENT - INTERIOR'S
MANAGEMENT OF THE INDIAN TRUST
FUNDS

Statement of Linda M.  Calbom
Director, Civil Audits
Accounting and Information Management Division

GAO/T-AIMD-96-111

GAO/AIMD-96-111T


(913752)


Abbreviations
=============================================================== ABBREV


============================================================ Chapter 0

Mr.  Chairman and Members of the Task Force: 

We appreciate the opportunity to be here today to discuss our work on
the Department of the Interior's management of the Indian trust
funds.  My statement

  -- summarizes our assessment of the results of Interior's efforts
     to reconcile Indian trust fund accounts;

  -- discusses the Secretary's May 31, 1996, report on trust fund
     reconciliation results; and

  -- provides information on the status of Interior's trust fund
     management improvement initiatives which are needed to ensure
     that the trust fund accounts will be accurate in the future. 

In summary, as discussed in our May 1996 report,\1 while Interior has
brought its reconciliation project to a close, tribal accounts were
not fully reconciled due to missing records and the lack of an audit
trail in Interior's automated accounting systems.  In addition, the
January 1996 report package that Interior provided to each tribe on
the reconciliation results did not explain or describe the numerous
changes in reconciliation scope and methodologies or the procedures
that had been planned but were not performed.  Therefore, the
limitations of the reconciliation were not evident.  Also, due to
cost considerations and the potential for missing records, individual
Indian trust fund accounts were not included in the reconciliation
project. 

Tribes have expressed concerns about the scope and results of the
reconciliation process.  As stated in the Secretary's May 31, 1996,
report to the House Committee on Resources on Indian trust fund
reconciliation results, by April 30, 1996, only 2 tribes had accepted
their account reconciliation results, 3 tribes\2 had disputed their
results, and the remaining 275 tribes had not decided whether to
accept or dispute their account balances.  If Interior is unable to
resolve tribes' concerns, a legislated settlement process could be
used to resolve disputes about tribal account balances.  Our
September 1995 report\3 contained draft legislation outlining a
settlement process, which we prepared in response to a request from
the House Committee on Resources and the Senate Committee on Indian
Affairs to initiate discussions on options for resolving disputed
balances. 

While Interior has initiated several management improvement actions
over the past 3 years to correct the long-standing problems that gave
rise to the concerns over the accuracy of tribal trust fund accounts,
the improvements will take several years to complete.  Additionally,
the current trust fund management and accounting systems and controls
remain inadequate to ensure accurate trust fund accounting and asset
management.  Unless Interior corrects its long-standing trust fund
management, accounting, and control weaknesses, it may be faced with
additional costly reconciliations and settlements in the future. 

The appointment of the Special Trustee for American Indians was an
important step in establishing high-level leadership at Interior for
Indian trust fund management.  The Office of the Special Trustee was
implemented in February 1996.  The Special Trustee has recently
developed a concept paper which outlines needed trust fund management
improvements.  This concept paper will need to be expanded to include
various options and alternatives and their associated costs and
benefits and ultimately developed into a comprehensive strategic
plan. 

Ultimately, solving Interior's trust fund management problems will
require comprehensive planning, management commitment across all
Indian trust program offices, and additional resources. 


--------------------
\1 Financial Management:  BIA's Tribal Trust Fund Account
Reconciliation Results (GAO/AIMD-96-63, May 3, 1996). 

\2 The Secretary's report did not include in the number of tribes
that disputed their account balances two tribes whose attorneys
submitted letters on behalf of tribes that they represent indicating
that these tribes disputed their reconciled account balances. 

\3 Indian Trust Fund Settlement Legislation (GAO/AIMD/OGC-95-237R,
September 29, 1995). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Several Interior agencies are responsible for carrying out the
Secretary's Indian trust responsibilities.  These agencies include
the Bureau of Indian Affairs (BIA) and its Office of Trust
Responsibilities (OTR), which is responsible for resource management
and land and lease ownership information; BIA's 12 Area Offices and
85 Agency Offices; the Bureau of Land Management (BLM) and its lease
inspection and enforcement functions; and the Minerals Management
Service's (MMS) Royalty Management Program, which collects and
accounts for oil and gas royalties on Indian leases. 

In addition, an Office of the Special Trustee for American Indians
was established by the American Indian Trust Fund Management Reform
Act of 1994.  This office, implemented by Secretarial Order in
February 1996, has oversight responsibility over Indian trust fund
and asset management programs in BIA, BLM, and MMS.  The Order
transferred BIA's Office of Trust Funds Management (OTFM) to the
Office of the Special Trustee for American Indians and gave the
Special Trustee responsibility for the financial trust services
performed at BIA's Area and Agency Offices. 

At the end of fiscal year 1995, OTFM reported that Indian trust fund
accounts totaled about $2.6 billion, including approximately $2.1
billion for about 1,500 tribal accounts and about $453 million for
nearly 390,000 Individual Indian Money (IIM) accounts.  The balances
in the trust fund accounts have accumulated primarily from payments
of claims; oil, gas, and coal royalties; land use agreements; and
investment income.  Fiscal year 1995 reported receipts to the trust
accounts from these sources totaled about $1.9 billion, and
disbursements from the trust accounts to tribes and individual
Indians totaled about $1.7 billion. 

OTFM uses two primary systems to account for the Indian trust
funds--an interim, core general ledger and investment system and
BIA's Integrated Resources Management System (IRMS).  OTR's realty
office uses the Land Records Information System (LRIS) to record
official Indian land and beneficial ownership information.  BLM
maintains a separate system for recording mineral lease and
production information and MMS maintains separate royalty accounting
and production information systems. 

Our assessment of BIA's trust fund reconciliation and reporting to
tribes is detailed in our May 1996 report, which covered our efforts
to monitor BIA's reconciliation project over the past 5 and one-half
years.  As you requested, we also assessed Interior's trust fund
management improvement initiatives.  In order to do this, we
contacted the Special Trustee for American Indians, OTFM officials,
and OTR's Land Records Officer for information on the status of their
management improvement plans and initiatives.  We also contacted
tribal representatives for their views.  We focused on Interior
agency actions to address recommendations in our previous reports and
testimonies and obtained information on new initiatives. 


   TRUST FUND RECONCILIATION
   RESULTS
---------------------------------------------------------- Chapter 0:2

BIA recently completed its tribal trust fund reconciliation project
which involved a massive effort to locate supporting documentation
and reconstruct historical trust fund transactions so that account
balances could be validated.  BIA provided a report package\4 to each
tribe on its reconciliation results in January, 1996.  Interior's
prototype summary reconciliation report to tribes shows that BIA's
reconciliation contractor verified 218,531 of tribes' noninvestment
receipt and disbursement transactions that were recorded in the trust
fund general ledger.  However, despite over 5 years of effort and
about $21 million in contracting fees, due to missing records, a
total of $2.4 billion for 32,901 receipt and disbursement
transactions recorded in the general ledger could not be traced to
supporting documentation and only 10 percent of the leases selected
for reconciliation could be verified. 

In addition, BIA's reconciliation report package did not disclose
known limitations in the scope and methodology used for the
reconciliation process.  For example, BIA did not disclose or discuss
the procedures included in the reconciliation contract which were not
performed or could not be completed.  Also, BIA did not explain
substantial changes in scope or procedures contained in contract
modifications and issue papers, such as accounts and time periods
that were not covered and alternative source documents used. 
Further, BIA did not disclose that the universe of leases was unknown
or the extent to which substitutions were made to the lease sample
originally selected for reconciliation. 

In order for the tribes to conclude on whether the reconciliation
represents as full and complete an accounting as possible, it was
important that BIA explain the limitations in reconciliation scope
and methodology and the procedures specified under the original
contract that were not performed or were not completed.  At a
February 1996 meeting in Albuquerque, New Mexico, where BIA and its
reconciliation contractor summarized the reconciliation results,
tribes raised questions about the adequacy and reliability of the
reconciliation results. 


--------------------
\4 The report package presented the results of the reconciliation
procedures performed by BIA's contractor for fiscal years 1973
through 1992, and BIA's reconciliations for fiscal years 1993 through
1995.  It included unreconciled account statements and a schedule of
proposed adjustments for each of the years covered by the
reconciliation, and a transmittal letter which described the
information provided and BIA's plans to meet with tribes to discuss
the reconciliation results. 


   SECRETARY'S REPORT ON
   RECONCILIATION RESULTS
---------------------------------------------------------- Chapter 0:3

The American Indian Trust Fund Management Reform Act of 1994 required
that the Secretary of the Interior report to the House Committee on
Resources and the Senate Committee on Indian Affairs by May 31, 1996,
including a description of the methodology used in reconciling trust
fund accounts and the tribes' conclusions as to whether the
reconciliation represents as full and complete an accounting of their
funds as possible. 

During BIA's February 1996 meeting with tribes to discuss the
reconciliation reports and results, several tribes stated that they
would need significant time to review their reconciliation reports
and the supporting documents.  OTFM planned five regional meetings\5
between March 1996 and July 1996 to serve as workshops to assist
individual tribes in reviewing their reconciliation results.  Because
BIA has not yet held all of the scheduled meetings to discuss account
holder issues and comments and many account holders have not
communicated their acceptance or dispute of their reconciled account
balances, the Secretary has provided an interim report on account
holders' communications through April 30, 1996.  The Secretary plans
to submit a final report on account holder attestations of their
acceptance or dispute of their reconciled account balances by
November 15, 1996. 

According to the Secretary's May 31, 1996, report

  -- 3 tribes, including 2 tribes for which additional pilot
     reconciliation procedures were performed, have disputed their
     reconciled account balances;

  -- 2 tribes with nominal balances have accepted their reconciled
     account balances; and

  -- 275 tribes, including 3 tribes that had additional pilot
     reconciliation procedures performed, have not yet decided
     whether to accept or dispute their account balances. 

Tribal representatives have told us that they are still reviewing
their reconciliation report packages and that they have a number of
questions and concerns about the results.  If Interior is not able to
reach agreement with tribes on the reconciliation results, a
legislated settlement process would prove useful in resolving
disputes about account balances.  Our March 1995 testimony\6
suggested that the Congress consider establishing a legislated
settlement process.  Our September 1995 report provided draft
settlement legislation for discussion purposes. 

The draft legislation would provide for a mediation process and, if
mediation does not resolve disputes, a binding arbitration process. 
The proposed process draws on advice provided us by the Federal
Mediation and Conciliation Service and the rules of the American
Arbitration Association.  Both of these organizations have extensive
experience in the use of third party facilitators to provide
alternative dispute resolution.  The proposed process offers a number
of benefits, including flexibility in presentation of evidence and,
because the decision of the arbitrators would be binding and could
not be appealed, a final resolution of the dispute.  In addition,
arbitration has generally been found to be less costly than
litigation. 


--------------------
\5 OTFM has held three of the five planned meetings--on March 19-22
in Sacramento, California; on April 9-12 in Portland, Oregon; and on
June 4-7 in Tulsa, Oklahoma.  The fourth workshop is scheduled for
June 18-21 in Billings, Montana. 

\6 Financial Management:  Indian Trust Fund Accounts Cannot Be Fully
Reconciled (GAO/T-AIMD-95-94, March 8, 1995). 


   TRUST FUND MANAGEMENT
   IMPROVEMENT INITIATIVES
---------------------------------------------------------- Chapter 0:4

BIA's reconciliation project attempted to discover any discrepancies
between its accounting information and historical transactions that
occurred prior to fiscal year 1993.  While it is important for the
Congress to consider legislating a settlement process to resolve
discrepancies in account balances, unless the deficiencies in
Interior's trust fund management that allowed those discrepancies to
occur are corrected, such discrepancies could continue to occur,
possibly leading to a need for future reconciliation and settlement
efforts.  Since 1991, our testimonies and reports on BIA's efforts to
reconcile trust fund accounts have recommended a number of corrective
actions to help ensure that trust fund accounts are accurately
maintained in the future.  While OTFM and OTR have undertaken a
number of corrective actions, progress has been slow, results have
been limited, and further actions are needed. 

OTFM, Interior, and OTR have initiated several trust fund management
improvements during the past 3 years.  These include

  -- acquiring a cadre of experienced trust fund financial management
     staff;

  -- issuing trust fund IIM accounting procedures to BIA field
     offices, developing records management procedures manuals, and
     issuing a trust fund loss policy;

  -- implementing an interim, core general ledger and investment
     accounting system and performing daily cash reconciliations;

  -- studying IIM and subsidiary system issues;

  -- reinstating annual trust fund financial statement audits; and

  -- initiating improvements to the Land Records Information System. 


      QUALIFIED STAFF
-------------------------------------------------------- Chapter 0:4.1

Our 1991 testimonies\7 and June 1992 report\8 identified a lack of
trained and experienced trust fund financial management staff. 
Previous studies and audits by Interior's Inspector General and
public accounting firms also identified this problem.  Our June 1992
report recommended that BIA prepare an organization and staffing
analysis to determine appropriate roles, responsibilities,
authorities, and training and supervisory needs as a basis for sound
trust fund management.  In response to our recommendation, in 1992,
OTFM contracted for a staffing and workload analysis and developed an
organization plan to address critical trust fund management
functions. 

The appropriations committees approved OTFM's 1994 reorganization
plan.  As of October 1995, OTFM had made significant progress in
hiring qualified financial management and systems staff.  However,
during fiscal year 1996, 27 BIA personnel displaced by BIA's
reduction-in-force were reassigned to OTFM.  This represents about
one-third of OTFM's on board staff.  Some of these reassigned staff
displaced OTFM staff, while others filled vacant positions that would
otherwise have been filled through specialized hiring.  As a result,
OTFM will face the challenge of providing additional supervision and
training for these reassigned staff while continuing to work with
BIA's Area and Agency Office trust accountants to monitor corrective
actions and plan for additional improvements. 


--------------------
\7 Bureau of Indian Affairs' Efforts to Reconcile and Audit the
Indian Trust Funds (GAO/T-AFMD-91-2, April 11, 1991) and Bureau of
Indian Affairs' Efforts to Reconcile, Audit, and Manage the Indian
Trust Funds (GAO/T-AFMD-91-6, May 20, 1991). 

\8 Financial Management:  BIA Has Made Limited Progress in
Reconciling Trust Accounts and Developing a Strategic Plan
(GAO/AFMD-92-38, June 18, 1992). 


      POLICIES AND PROCEDURES
-------------------------------------------------------- Chapter 0:4.2

Our April 1991 testimony identified a lack of consistent, written
policies and procedures for trust fund management.  We recommended
that BIA develop policies and procedures to ensure that trust fund
balances remain accurate once the accounts are reconciled.  Our April
1994 testimony\9 reiterated this recommendation and further
recommended that BIA initiate efforts to develop complete and
consistent written trust fund management policies and procedures and
place a priority on their issuance.  BIA has not yet developed a
comprehensive set of policies and procedures for trust fund
management.  However, OTFM developed two volumes of trust fund IIM
accounting procedures for use by BIA's Area and Agency Office trust
fund accountants and provided them to BIA's Area and Agency Offices
during 1995. 

Also, during 1995, OTFM developed two records management manuals,
which address file improvements and records disposition.  Missing
records were the primary reason that many trust fund accounts could
not be reconciled during BIA's recent reconciliation effort.  In
addition, OTFM is developing a records management implementation
plan, including an automated records inventory system.  In January
1992\10 and again in January 1994,\11 we reported that BIA's trust
fund loss policy\12 did not address the need for systems and
procedures to prevent and detect losses, nor did it instruct BIA
staff on how to resolve losses if they occurred.  The policy did not
address what constitutes sufficient documentation to establish the
existence of a loss, and its definition of loss did not include
interest that was earned but not credited to the appropriate account. 
Our January 1994 report suggested a number of improvements, such as
articulating steps to detect, prevent, and resolve losses.  OTFM
addressed our suggestions and issued a revised trust fund loss policy
in 1995. 

However, while OTFM has made progress in developing policies and
procedures, OTFM officials told us that BIA's Area and Agency Office
trust accountants have not consistently implemented these policies
and procedures. 

In addition to developing selected policies and procedures, OTFM
officials told us that they began performing monthly reconciliations
of the trust fund general ledger to Treasury records in fiscal year
1993 and that they work with BIA Area and Agency Offices to ensure
that unreconciled amounts are properly resolved.  OTFM officials also
told us that they have had limited resources to monitor Agency Office
reconciliation performance and assist BIA Agency Office personnel in
resolving reconciliation discrepancies.  While we have not reviewed
this reconciliation process, it is expected that it would be reviewed
in connection with recently reinstated trust fund financial statement
audits. 

In addition, an OTFM official told us that a lack of resources has
impeded OTFM's performance of its quality assurance function, which
was established to perform internal reviews to help ensure the
quality of trust fund management across BIA offices.  For example,
according to the OTFM official, until recently, funds were not
available to travel to Area and Agency Offices to determine whether
the accounting desk procedures and trust fund loss policy have been
properly implemented. 


--------------------
\9 Financial Management:  Status of BIA's Efforts to Reconcile Indian
Trust Fund Accounts and Implement Management Improvements
(GAO/T-AIMD-94-99, April 12, 1994). 

\10 BIA Reconciliation Monitoring (GAO/AFMD-92-36R, January 13,
1992). 

\11 BIA's Trust Fund Loss Policy (GAO/AIMD-94-59R, January 14, 1994). 

\12 The loss policy addresses Indian trust fund account losses that
are due to BIA errors, such as mathematical errors or other losses
that resulted from poor accounting practices or controls. 


      INTERIM TRUST ACCOUNTING
      SYSTEM
-------------------------------------------------------- Chapter 0:4.3

Our June 1992 report recommended that BIA review its current systems
as a basis for determining whether systems modifications will most
efficiently bring about needed improvements or whether alternatives
should be considered, including cross-servicing arrangements,
contracting for automated data processing services, or new systems
design and development.  In response to our recommendation, OTFM
explored commercially available off-the-shelf trust accounting
systems and contracted for an interim, core general ledger and
investment accounting system. 

OTFM made a number of other improvements related to implementing the
interim, core trust accounting system.  For example, OTFM

  -- obtained Office of the Comptroller of the Currency assistance to
     develop core general ledger and investment accounting system
     operating procedures;

  -- initiated direct deposit of collections to BIA Treasury accounts
     through the Automated Clearing House;

  -- initiated automated payment processing, including electronic
     certification, to facilitate direct deposit of receipts to
     tribal accounts;

  -- conducted a user survey and developed a systems user guide;

  -- established a help desk to assist system users by providing
     information on the new system, including a remote communication
     package for tribal dial-in capability; and

  -- provided system access to Area and Agency Offices and tribal
     personnel. 

While the new system has eliminated the need for manual
reconciliations between the general ledger and investment system and
facilitates reporting and account statement preparation, tribes and
Indian groups have told us that the new account statements do not
provide sufficient detail for them to understand their account
activity.  For example, they said that because principal and interest
are combined in the account statements, it is difficult to determine
interest earnings.  They told us that the account statements also
lack information on investment yields, duration to maturity, and
adequate benchmarking.\13 For tribes that have authority to spend
interest earnings, but not principal amounts, this lack of detail
presents accountability problems.  Representatives of some tribes
told us that they either have or plan to acquire systems to fill this
information gap.  OTFM is planning system enhancements to separately
identify principal and interest earnings.  However, additional
enhancements would be needed to address investment management
information needs. 


--------------------
\13 OTFM provides benchmarks that are the average annual yield of all
tribal trust funds rather than comparable private sector yield
benchmarks. 


      IIM AND SUBSIDIARY
      ACCOUNTING SYSTEM
-------------------------------------------------------- Chapter 0:4.4

In January 1996, the Special Trustee formed a working group
consisting of tribal representatives and members of allottee
associations, which represent individual Indians; BIA and Office of
the Special Trustee field office staff; and OTFM staff to address IIM
and subsidiary accounting issues.  In addition, OTFM has scheduled
four consultation meetings with tribes and individual Indians between
June and August 1996 to determine how best to provide customer
services to IIM account holders.  These groups will also consider
ways to reduce the number of small, inactive IIM accounts.  According
to the Special Trustee, about 225,000 IIM accounts have balances of
less than $10. 


      TRUST FUND FINANCIAL
      STATEMENT AUDITS
-------------------------------------------------------- Chapter 0:4.5

In 1995, OTFM initiated a contract to resume audits of the trust fund
financial statements.  OTFM had not had a trust fund financial
statement audit since 1990, pending completion of the trust fund
account reconciliation project.  The fiscal year 1995 audit is
covering the trust fund Statement of Assets and Trust Fund Balances,
and the fiscal year 1996 audit will cover the same statement and a
Statement of Changes in Trust Fund Balances. 


      LAND RECORDS AND OWNERSHIP
      SYSTEM IMPROVEMENTS
-------------------------------------------------------- Chapter 0:4.6

In 1993, BIA's Office of Trust Responsibility (OTR) initiated
improvements to its Land Records Information System (LRIS).  These
improvements were to automate the chain-of-title function and result
in more timely land ownership determinations.  In September 1994, we
reported\14 that OTR had 2-year backlogs in ownership determinations
and recordkeeping which could have a significant impact on the
accuracy of trust fund accounting data.  We recommended that BIA
provide additional resources to reduce these backlogs, through
temporary hiring or contracting, until the LRIS improvements could be
completed. 

However, according to OTR's Land Records Officer, the additional
resources were not made available as a result of fiscal year 1995 and
1996 budget cuts.  Instead, BIA eliminated 6 Land Title and Records
Office positions in fiscal year 1995 and an additional 30 positions
in BIA's fiscal year 1996 reduction-in-force.  As a result, OTR's
five Land Title and Records Offices and its four Title Service
Offices now have a combined staff of 90 full-time equivalent (FTE)
positions--compared with 126 staff on September 30, 1994--to work on
the backlog in title ownership determinations and recordkeeping while
also handling current ownership determination requests.  While
current OTR backlogs are somewhat less than in 1994, BIA's Land
Records Officer estimates that over 104 staff years of effort would
be needed to eliminate the current backlog.  However, because LRIS
improvements are on hold, these backlogs are likely to grow. 


--------------------
\14 Financial Management:  Focused Leadership and Comprehensive
Planning Can Improve Interior's Management of Indian Trust Funds
(GAO/AIMD-94-185, September 22, 1994). 


      ADDITIONAL IMPROVEMENTS ARE
      NEEDED
-------------------------------------------------------- Chapter 0:4.7

While BIA and OTFM have begun actions to address many of our past
recommendations for management improvements, progress has been
limited and additional improvements are needed to ensure that trust
funds are accurately maintained in the future and the needs of the
beneficiaries are well-served.  For example, BIA's IRMS subsidiary
and IIM system may contain unverified and potentially incorrect
information on land and lease ownership that some BIA offices may be
using to distribute trust fund receipts to account holders. 
According to a BIA official, some of BIA's Agency Office staff update
IRMS ownership files based on unverified information they have
developed because LRIS information is significantly out-of-date.  Our
September 1994 report stated that without administrative review and
final determination and certification of ownerships, there is no
assurance that the ownership information in BIA's accounting system
is accurate.  Our report also stated that eliminating redundant
systems would help to ensure that only official, certified data are
used to distribute trust fund revenue to account holders. 

Although Interior formed a study team to develop an IIM subsidiary
system plan, the team's August 1995 report did not include a detailed
systems plan.  Further, BIA and OTFM have not yet performed an
adequate user needs assessment; explored the costs and benefits of
systems options and alternatives; or developed a systems architecture
as a framework for integrating trust fund accounting, land and lease
ownership, and other trust fund and asset management systems. 

However, even if OTR resolves its ownership determination and
recordkeeping backlogs and OTFM acquires reliable IIM and subsidiary
accounting systems, IIM accounting will continue to be problematic
due to fractionated ownerships.  Under current practices,
fractionated ownerships, which result from inheritances, will
continue to complicate ownership determinations, accounting, and
reconciliation efforts because of the increasing number of ownership
determinations and trust fund accounts that will be needed. 

Our April 1994 testimony\15 stated that BIA lacked an accounts
receivable system.  Interior officials told us that developing an
accounts receivable system would be problematic because BIA does not
have a master lease file as a basis for determining its accounts
receivable.  As a result, BIA does not know the total number of
leases that it is responsible for managing or whether it is
collecting revenues from all active leases.  BIA has not yet begun to
plan for or develop a master lease file. 

In addition, BIA and OTFM have not developed a comprehensive set of
trust fund management policies and procedures.  Comprehensive written
policies and procedures, if consistently implemented, would help to
ensure proper trust fund accounting practices.  Also, to encourage
consistent implementation of policies and procedures, quality
assurance reviews and audits are an important tool. 

In 1994, OTFM developed a plan to contract for investment custodian
and advisor services.  These initiatives were planned for
implementation in fiscal year 1995.  However, OTFM has delayed its
contract solicitation for investment custodian services until the end
of June 1996 and has only recently begun to develop a contract
solicitation for investment advisors.  OTFM officials told us that a
lack of resources has caused them to delay contracting for these
services. 


--------------------
\15 Financial Management:  Status of BIA's Efforts to Reconcile
Indian Trust Fund Accounts and Implement Management Improvements
(GAO/T-AIMD-94-99, April 12, 1994). 


      STRATEGIC PLAN FOR TRUST
      FUND MANAGEMENT
-------------------------------------------------------- Chapter 0:4.8

Since 1991, our testimonies and reports have called for Interior to
develop a comprehensive strategic plan to guide trust fund management
improvements across Interior agencies.  We have criticized Interior's
past planning efforts as piecemeal corrective action plans which fell
short of identifying the departmentwide improvements needed to ensure
sound trust fund management.  Our June 1992 and September 1994
reports and our April 1994 testimony recommended that Interior's
strategic plan address needed improvements across Interior agencies,
including BIA, BLM, and MMS.  We endorsed the American Indian Trust
Fund Management Reform Act of 1994, which established a Special
Trustee for American Indians reporting directly to the Secretary of
the Interior.  The act made the Special Trustee responsible for
overseeing Indian trust fund management across these Interior
agencies and required the Special Trustee to develop a comprehensive
strategic plan for trust fund management. 

The Senate confirmed the appointment of the Special Trustee for
American Indians in September 1995.  In February 1996, the Special
Trustee reported that the $447,000 provided for his office for fiscal
year 1996 is insufficient to finance the development of a
comprehensive strategic plan for trust fund financial management. 
Despite the funding limitations, using contractor assistance, the
Special Trustee has prepared an initial assessment and strategic
planning concept paper.  However, the concept paper focuses on one
potential system solution for addressing critical OTFM and BIA
financial management information requirements and does not address
other alternatives.  It also does not address programs across
Interior agencies or all needed improvements.  In addition, the
concept paper does not explain the rationale for many of the
assumptions that support the detail for the $147 million estimate to
implement the specified improvements. 

In contrast to the concept paper, a comprehensive strategic plan
would reflect the requirements of the Department, BIA, BLM, MMS,
OTFM, and other Interior agency Indian trust programs.  It would also
address the relationships of the strategic plans for each of these
entities, including information resource management, policies and
procedures, and automated systems. 

In addition, a comprehensive strategic plan would address various
trust fund related systems options and alternatives and their
associated costs and benefits.  For example, the concept paper
proposes acquiring new trust fund general ledger and subsidiary
accounting systems but, unlike a strategic plan, it does not analyze
the costs, benefits, advantages, and disadvantages of enhancing
OTFM's current core general ledger and investment system or
contracting for services instead of acquiring new systems. 

Further, since 1993, OTR has been planning for LRIS upgrades,
including automated chain-of-title, which would facilitate ownership
determinations and recordkeeping.  Because it is planned that LRIS
will provide a BIA link to Interior's core Automated Land Records
Management System (ALMRS), a comprehensive strategic plan would need
to consider the merits of LRIS in determining how trust ownership and
accounting information needs can best be addressed.  ALMRS is being
developed by BLM at an estimated cost of $450 million.  Because ALMRS
and LRIS were costly to develop and they contain interrelated data, a
comprehensive strategic plan would also need to consider the
advantages and disadvantages of linking LRIS to the trust fund
accounting system, as compared with acquiring a new land records and
ownership system, in determining the best way to manage Indian trust
funds and assets. 

The Special Trustee and OTFM Director told us that they currently
lack the resources to adequately plan for and acquire needed trust
fund system improvements.  However, without accurate, up-to-date
ownership and subsidiary accounting information, trust fund account
statements will continue to be unreliable. 

The Special Trustee told us that due to limited resources and the
need for timely solutions, he is considering ways to use changes in
policies and procedures to deal with some trust fund management
problems.  Many of the problems identified in his concept paper are
not strictly systems problems, and they do not necessarily require
systems solutions. 

We agree that certain changes should be considered that would not
require systems solutions.  For example, centralizing management
functions could help resolve the problems of inconsistent ownership
determinations and inconsistent accounting practices.  The
centralization of some functions, such as handling trust fund
collections through lock box payments to banks, could also result in
management efficiencies.  Similarly, ownership determination and
recordkeeping backlogs might be better addressed by centralizing the
five Land Title and Records Offices and using contractor assistance
or temporary employees until system improvements are in place.  Even
with centralization of some functions, customer information and
services could continue to be provided locally for customer
convenience. 


   GAO OBSERVATIONS
---------------------------------------------------------- Chapter 0:5

Although OTFM made a massive attempt to reconcile tribal accounts,
missing records and systems limitations made a full reconciliation
impossible.  Also, cost considerations and the potential for missing
records made individual Indian account reconciliations impractical. 
A legislated settlement process could be used to resolve questions
about tribal account balances. 

Three major factors--lack of comprehensive planning, lack of
management commitment across the organization, and limited
resources--have impeded Interior's progress in correcting
long-standing trust fund management problems.  When the trust fund
reconciliation project was initiated, it was envisioned that by the
time it was completed, adequate organizational structures, staffing,
systems, and policies and procedures would be in place to ensure that
trust fund accounts were accurately maintained in the future. 
However, piecemeal planning and corrective actions continue, and
Interior still lacks a departmentwide strategic plan to correct trust
fund management problems. 

In addition, while it is critical that all parts of the organization
are committed to supporting and implementing trust fund management
improvement initiatives, some BIA field offices are continuing to
follow improper and inconsistent accounting practices.  Given the
continuing difficulty in managing a trust program across
approximately 60 BIA offices, it is important to consider
streamlining options such as centralization of collections,
accounting, and land title and recordkeeping functions. 

Finally, Interior and BIA officials told us that they lack the
resources to implement many needed corrective actions.  However, the
development of a comprehensive strategic plan that addresses
interrelated functions and systems, identifies costs and benefits of
options and alternatives, and establishes realistic milestones is a
necessary first step.  A departmentwide plan would provide the basis
for management and congressional decisions on requests for resources. 


-------------------------------------------------------- Chapter 0:5.1

Mr.  Chairman, this concludes my statement.  I would be glad to
answer any questions that you or the Members of the Task Force might
have. 

*** End of document. ***