Financial Management: Indian Trust Fund Strategic Plan (Testimony,
07/30/97, GAO/T-AIMD-97-138).
GAO discussed the results of its analysis of the Special Trustee for
American Indians' Strategic Plan for Indian trust fund accounting and
asset management improvement, focusing on: (1) the trust asset
management problems that the Strategic Plan proposes to resolve; (2) a
high-level summary of the Strategic Plan; (3) the basis for the cost
estimates included in the Plan; and (4) implementation issues, including
key issues that the Congress would need to consider in deciding whether
to approve the initiatives described in the Plan.
GAO noted that: (1) management of the Indian trust funds and assets has
long been characterized by inadequate accounting and information
management systems, untrained and inexperienced staff, backlogs in
appraisals and ownership determination and recordkeeping, lack of a
master lease file and an accounts receivable system, inadequate written
policies and procedures, and poor internal controls; (2) because of
these overall weaknesses, account holders do not have assurance that
their accounts balances are accurate and that their assets are being
prudently managed; (3) to address the Department of the Interior's
long-standing Indian trust fund accounting and asset management
problems, the Congress passed the American Indian Trust Fund Management
Reform Act of 1994, which created the Office of the Special Trustee for
American Indians; (4) the act required that the Special Trustee provide
oversight of reforms within Interior, including development of policies,
procedures, and systems; (5) in April 1997, the Special Trustee
submitted his Strategic Plan to the Congress; (6) the Strategic Plan
proposes a new organization, independent of Interior, to administer
trust fund accounting and asset programs; (7) these proposals are
estimated to cost $168 million for fiscal years 1997 through 1999 and
another $61 million and $56 million for fiscal years 2000 and 2001,
respectively; (8) in addition, the Plan proposes establishing an Indian
economic development bank to be capitalized by the federal government;
(9) a number of areas require further clarification, planning, or
consideration before the Plan can move forward; (10) these include: (a)
implementation timing of certain initiatives, such as records cleanup
and the acquisition of a new individual Indian Money accounting systems
component; (b) proposals, such as establishing a centralized
organization and upgrading and acquiring systems, that need more
planning before they can be successfully implemented; (c) issues
relating to the desirability and feasibility of establishing the new
organization as a private entity, including the legality of transferring
the federal government's trust authorities and responsibilities to such
an entity; and (d) issues relating to the establishment of the trust
development bank, including the initial funding and on-going capital
maintenance proposals; and (11) in order to appropriately address these
issues, more information and analysis need to be included in the Plan to
provide clarification of the authority and responsibility of the
proposed organization, and its relationship to Interior.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-AIMD-97-138
TITLE: Financial Management: Indian Trust Fund Strategic Plan
DATE: 07/30/97
SUBJECT: Strategic planning
Indian lands
Federal agency reorganization
Trust funds
Funds management
Federal agency accounting systems
Native Americans
Information resources management
IDENTIFIER: Indian Trust Fund
BIA Integrated Records Management System
Dept. of the Interior Trust Asset and Accounting Management
System
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Cover
================================================================ COVER
Before the Committee on Indian Affairs
U.S. Senate
For Release on Delivery
Expected at
9:30 a.m.
Wednesday,
July 30, 1997
FINANCIAL MANAGEMENT - INDIAN
TRUST FUND
STRATEGIC PLAN
Statement of Linda M. Calbom
Director, Civil Audits
Accounting and Information Management Division
GAO/T-AIMD-97-138
GAO/AIMD-97-138T
(913811)
Abbreviations
=============================================================== ABBREV
AITDA - American Indian Trust and Development Administration
BIA - Bureau of Indian Affairs
BLM - Bureau of Land Management
CIO - Chief Information Officer
GLS - General Ledger System
GSE - government-sponsored enterprise
IIM - Individual Indian Money
IRM - Information Resources Management
IRMS - Integrated Records Management System
IT - information technology
LTRMS - Land and Title Records Management System
LTRO -
MMS - Minerals Management Service
OHA - Office of Hearings and Appeals
OMB - Office of Management and Budget
OST - Office of the Special Trustee for American Indians
OTFM - Office of Trust Funds Management
TAAMS - Trust Asset and Accounting Management System
TDBank - Trust and Development Bank
============================================================ Chapter 0
Mr. Chairman, Mr. Vice Chairman, and Members of the Committee:
Thank you for the opportunity to testify on the results of our
analysis of the Special Trustee for American Indians' Strategic Plan
for Indian trust fund accounting and asset management improvement.
As you requested, our testimony (1) describes the trust asset
management problems that the Strategic Plan proposes to resolve, (2)
provides a high-level summary of the Strategic Plan, (3) explains the
basis for the cost estimates included in the Plan, and (4) identifies
implementation issues, including key issues that the Congress would
need to consider in deciding whether to approve the initiatives
described in the Plan.
In summary, management of the Indian trust funds and assets has long
been characterized by inadequate accounting and information
management systems, untrained and inexperienced staff, backlogs in
appraisals and ownership determination and recordkeeping, lack of a
master lease file and an accounts receivable system, inadequate
written policies and procedures, and poor internal controls. Because
of these overall weaknesses, account holders do not have assurance
that their account balances are accurate and that their assets are
being prudently managed.
To address the Department of the Interior's long-standing Indian
trust fund accounting and asset management problems, the Congress
passed the American Indian Trust Fund Management Reform Act of 1994,
which created the Office of the Special Trustee for American Indians.
The act required that the Special Trustee provide oversight of
reforms within Interior, including development of policies,
procedures, and systems. The act also required the Special Trustee
to develop a comprehensive Strategic Plan to cover all phases of the
trust fund business cycle--land and lease ownership determinations
and recordkeeping, natural resource asset management, and trust fund
management, including accounting and investment. In April 1997, the
Special Trustee submitted his Strategic Plan to the Congress.
The Strategic Plan proposes a new organization, independent of the
Department of the Interior, to administer trust fund accounting and
asset programs. It also proposes adding new functions, such as an
Indian archives center, and acquiring new accounting, land record,
and lease management systems. The Plan would give the new
organization authority for the management and oversight of certain
other Indian asset management programs, such as natural resource and
realty management functions, that would remain with Interior as well
as programs administered by Self-Governance\1 and
Self-Determination\2 tribes who have agreements with the government
to administer certain programs. These proposals are estimated to
cost $168 million for fiscal years 1997 through 1999 and another $61
million and $56 million for fiscal years 2000 and 2001, respectively.
The cost estimates included in the Strategic Plan are based on the
costs of similar functions performed by private sector trust
companies, vendor estimates, actual costs of functions currently
performed by some Interior agencies, and assumptions about the
workload, staffing, and number of locations to be serviced.
In addition, the Plan proposes establishing an Indian economic
development bank to be capitalized by the federal government. The
Plan proposes that capital of $500 million be authorized for the Bank
and that authority be provided for up to $5 billion in additional
funding, including $3 billion from Treasury borrowing authority and
$2 billion from the sale of notes and bonds.
A number of areas require further clarification, planning, or
consideration before the Plan can move forward. These include
-- implementation timing of certain initiatives, such as records
cleanup and the acquisition of a new Individual Indian Money
(IIM) accounting system component;
-- proposals, such as establishing a centralized organization and
upgrading and acquiring systems, that need more planning before
they can be successfully implemented;
-- issues relating to the desirability and feasibility of
establishing the new organization as a private entity, including
the legality of transferring the federal government's trust
authorities and responsibilities to such an entity; and
-- issues relating to the establishment of the trust development
bank, including the initial funding and on-going capital
maintenance proposals.
In order to appropriately address these issues, more information and
analysis need to be included in the Plan to provide clarification of
the authority and responsibility of the proposed organization, and
its relationship to the Department of the Interior. Additionally,
certain critical processes and structures need to be developed before
proceeding with major information technology investments proposed in
the plan.
--------------------
\1 Public Law 103-413, title II, Tribal Self-Governance Act of 1994,
provides for tribes to enter into compacts--agreements between
sovereign entities--with the U.S. government to perform functions
for themselves, other tribes, or individual Indians that have
generally been provided by the government.
\2 Public Law 93-638, Indian Self-Determination and Education
Assistance Act, allows tribal organizations to contract with the U.S.
government to receive payment to perform, on behalf of the U.S.
government, administrative and program functions for the tribe that
have generally been provided by the government.
BACKGROUND
---------------------------------------------------------- Chapter 0:1
As trustee, the Secretary of the Interior is responsible for
administering the government's trust responsibility to tribes and
Indians. Several Interior agencies administer various portions of
the government's Indian trust responsibility, including the Bureau of
Indian Affairs (BIA), the Bureau of Land Management (BLM), the
Minerals Management Service (MMS), the Office of American Indian
Trust, and the Office of the Special Trustee for American Indians
(OST). In several instances these agencies' lines of authority
overlap or their functional areas of responsibility interrelate. See
attachment I for a chart showing the current Interior organizations
responsible for trust fund accounting and asset management functions.
Attachment I also highlights those agencies which the Strategic Plan
proposes to transfer to the American Indian Trust and Development
Administration (AITDA).
BIA performs land title and lease ownership determinations and
maintains official ownership records. BIA also performs appraisals
of some Indian assets and negotiates and executes leases and
contracts for use or sale of nonmineral assets--such as timber,
farming, grazing, real estate, and rights-of-way--and mineral assets
such as oil, gas, and coal. In addition, BIA collects and accounts
for Osage tribe mineral royalties.
BLM assists BIA in preleasing activities associated with valuing
mineral resources. BLM is also responsible for inspecting and
enforcing the terms of Indian mineral leases and verifying
production.
MMS collects and accounts for mineral royalty payments on Indian
leases and transfers the revenues to Treasury for deposit to the
Indian trust funds managed by OST's Office of Trust Funds Management
(OTFM).\3 In addition, MMS performs compliance audits that are
directed at ensuring that Indian royalty payments are consistent with
lease terms and production volume. MMS also provides funding to some
tribes for cooperative agreements to perform their own compliance
audits.
OTFM, in the Office of the Special Trustee for American Indians,\4
accounts for nonmineral revenues and distributes mineral royalties
received from MMS to tribal and individual Indian accounts, based on
lease and ownership information. OTFM disburses unrestricted\5 funds
to account holders upon request. OTFM also invests IIM and tribal
trust funds on behalf of account holders. While IIM accounts are
currently maintained in BIA's Integrated Records Management System as
separate accounts, OTFM invests the cash balances in these accounts
as a pool, primarily in U.S. Treasury and U.S. agency securities.
OTFM invests tribal funds in government securities or collateralized
accounts in federal depository banks.
The Office of American Indian Trust, in the Office of the Secretary
of the Interior, conducts annual reviews of tribes' performance of
trust functions assumed under the Tribal Self-Governance Act of 1994.
The office prepares federal Indian trust protection standards and
guidelines and reviews significant decisions affecting American
Indian trust resources, including treaty rights.
--------------------
\3 As previously mentioned, BIA's Osage Agency Office collects and
accounts for royalties for the Osage Tribe.
\4 OTFM was transferred from BIA to the Office of the Special Trustee
in February 1996.
\5 Funds held in accounts for minors and mentally incompetent
individuals require government approval before the funds can be
withdrawn.
SCOPE AND METHODOLOGY
---------------------------------------------------------- Chapter 0:2
To describe the trust asset management problems that the Strategic
Plan proposes to resolve, we reviewed the problems identified in the
Strategic Plan and relied on our past work and the work of
independent public accountants that Interior contracted with to
perform financial statement audits and reviews.
To summarize the Strategic Plan, we reviewed the Plan, its
accompanying appendixes, and other supporting documents. We met with
Office of Special Trustee officials, including the Special Trustee
for American Indians, and officials in BIA, BLM, and MMS to obtain
clarification on certain aspects of the Plan.
To explain the basis for the cost estimates contained in the
Strategic Plan, we reviewed its budget document and the cost data it
provided. We contacted OST officials for further information, as
necessary. As agreed with your office, we did not attempt to
validate the estimates presented in the Plan or their underlying
assumptions, nor did we assess whether the estimates included all
necessary costs of full implementation of the Plan.
To identify implementation issues, we analyzed the Plan in detail and
relied on our past work on Indian trust fund accounting and asset
management issues. We also met with Department of the Interior
officials, the Special Trustee for American Indians, and officials in
BIA, BLM, and MMS and contacted the Director of Interior's Office of
American Indian Trust to obtain their views on the Plan. In
addition, we reviewed tribal comments on the Plan, which were
provided to the Special Trustee as a result of his consultation
meetings with the tribes.
Although our work identifies key issues that the Congress needs to
consider in deciding whether to approve the initiatives described in
the Plan, it is by no means all inclusive and there are other issues
yet to be identified.
We conducted our work between April and July 1997 in accordance with
generally accepted government auditing standards.
PROBLEMS WITH CURRENT INDIAN
TRUST ASSET MANAGEMENT
---------------------------------------------------------- Chapter 0:3
As we have reported in the past,\6 Interior's Indian trust fund
accounting and asset management problems are long-standing and
permeate all facets of the trust fund management business cycle.
They include (1) the lack of accurate, up-to-date information on
ownerships to ensure that revenue is distributed to the correct
account and the increasing workload associated with fractionated
ownerships, (2) inadequate management of natural resource assets
resulting in a lack of assurance that all earned revenues are
collected, (3) weaknesses in trust fund management systems and
internal controls and policies and procedures that result in a lack
of assurance about the accuracy of trust fund balances, and (4) the
failure, in the past, to consistently and prudently invest trust
funds and pay interest to account holders. These overall weaknesses
preclude account holders from having assurance that their account
balances are accurate and that their assets are being prudently
managed.
Currently, trust fund accounting and asset management are complicated
by the lack of adequate numbers of trained field staff. In fiscal
year 1996, the Congress transferred the funding for BIA's Financial
Trust Services to OST. As a result, on February 9, 1996, a
Secretarial Order made OST responsible for accounting for IIM
receipts and, as a result, a number of BIA staff were transferred to
OTFM. However, at a number of area and agency offices, small staffs
handle a wide variety of duties of which trust activities are only
one part. Consequently, there are insufficient field staff at
present to provide separate, full-time collection and accounting
functions for OTFM and separate, full-time leasing and ownership
recordkeeping staff for BIA.
As a result, depending on the agency office, either OTFM or BIA
performs IIM accounting functions and procedures for processing
receipts, leasing activities, paying allowed claims, administering
IIM accounts (including establishing new accounts), monitoring
leases, performing guardianship activities, and billing and printing
checks. In addition, lines of supervision and accountability are
sometimes blurred. This problem has not yet been resolved.
Moreover, continued fractionation of Indian land and lease ownerships
has seriously complicated trust fund accounting and asset management.
According to the Strategic Plan, Interior may soon be unable to cope
with the recordkeeping of land titles and accurate distribution of
income due to the worsening fractionation. The Plan contains a
proposal for dealing with this problem. Interior officials agree
that fractionation must be reduced and eliminated to ensure the
success of Indian trust fund accounting and resource management
reforms. Interior has submitted a legislative proposal for
congressional consideration.
--------------------
\6 Financial Management: Focused Leadership and Comprehensive
Planning Can Improve Interior's Management of Indian Trust Funds
(GAO/AIMD-94-185, September 22, 1994).
STRATEGIC PLAN PROPOSAL
---------------------------------------------------------- Chapter 0:4
The Strategic Plan proposes a two-phase change to Interior's current
organizational and management structure for Indian trust management.
The first phase would establish a single organization for trust
management activities--the American Indian Trust and Development
Administration (AITDA)--independent of the Interior Department. The
proposed organization would be in the form of a government-sponsored
enterprise (GSE).\7
The AITDA would be organized by function--such as accounting or land
titles--and would be managed by a full-time Chairman and Chief
Executive Officer and a five-member Board of Directors appointed by
the President and confirmed by the Senate. Three members are to be
proposed by the Indian community and two members--the Chairman and
Chief Executive Officer--are to have financial and trust management
expertise and may also be American Indians. Board members would
serve staggered terms of 12 years. Attachment II provides a chart
showing AITDA and identifies those organizational components of AITDA
and lines of coordination with Interior agencies.
The Plan proposes that AITDA assume the federal government's Indian
trust authority related to Indian trust funds and assets. It also
proposes that certain organizations and related funding be
transferred to AITDA--including OST and OTFM, BIA's Land Title and
Records Office, and Interior's Office of American Indian Trust--along
with various Interior agency records management functions related to
trust fund accounting and asset management.
Specifically, the Plan proposes that responsibility for and funding
of various Interior asset management and compliance functions be
transferred to AITDA. These transfers include the following:
-- BIA's leasing activities and its Land Title and Records Office
to AITDA's Trust Resources Management Division.
-- BLM's lease inspection, enforcement, and production verification
activities to AITDA's Trust Resources Management Division.
-- MMS' compliance and valuation function to AITDA's Risk
Management and Control Division.
-- Interior's Office of American Indian Trust to AITDA's Risk
Management Control Division.
According to the Plan, AITDA would use the funds transferred from
BIA, BLM, and MMS to contract with these agencies or with tribes to
perform the related trust asset management activities. Also, it
would use funds transferred from MMS to contract with MMS for
compliance and control functions and perform oversight of
self-governance tribes, respectively. However, AITDA would have the
option to contract with other entities for these services.
In addition, the Plan would create the following three new
organizations within AITDA:
-- the National Indian Fiduciary Records Center, responsible for
controlling and preserving all Indian trust-related records, to
be located in Albuquerque, New Mexico, near OTFM;
-- a trust risk management unit to conduct operational audits,
credit and compliance reviews and audits of outside servicers
(including BIA, BLM, MMS, and tribes) and to perform appraisals
and other asset management functions; and
-- a centralized technical center for data processing.
To support the operations of the new organization, the Plan calls for
hiring qualified staff; acquiring or modifying trust fund accounting
and asset management systems; developing policies and procedures and
internal controls; and implementing internal and external audit
functions.
The major systems that would collectively support the new
organization fall under an umbrella concept known as the Trust Asset
and Accounting Management System (TAAMS). TAAMS would include trust
asset and accounting systems, a land title and records system, and a
trust fund general ledger accounting system.
The second phase of the Strategic Plan would establish a bank and
trust company--the American Indian Trust and Development Bank (TD
Bank)--to provide full financial services and economic development
funding to Indians. The TD Bank would be a nationwide financial
institution, backed by the full faith and credit of the U.S.
government, that lends to, invests in, and provides financial
services for American Indians, tribes, and their communities. The TD
Bank's Board of Directors' would consist of five members appointed by
the President and confirmed by the Senate and would be "identical
with AITDA's Board."
The TD Bank would initially be capitalized at $500 million by the
federal government through "appropriations, judgment funds, or funds
provided by other government-sponsored enterprises." This initial
capital would be permanent. Ownership of the TD Bank would be
distributed in initial capital stock to federally recognized American
Indian Tribes in proportion to the number of Indians living on or
near reservations, as determined by the latest census or other
appropriate information. This stock ownership would not be subject
to sale, trade, or withdrawal. Except for the right to receive
dividends and qualify for certain types of loans, the Plan does not
explain the rights and privileges that tribes would have as a result
of their stock ownership.
The TD Bank would be a for-profit financial institution but could
also receive appropriations to provide for the cost of lifeline
financial services\8 and the cost of other programs that the Congress
may choose to authorize in the future. The TD Bank would be
authorized to invest up to 25 percent (initially $125 million) of its
permanent capital in eligible individual Indian and tribal business
ventures and projects. The TD Bank would also be allowed to invest
up to $300 million for the purchase, holding, and financing of
fractionated Indian realty interests on allotted lands.
The Plan also proposes that the TD Bank be authorized to receive up
to $5 billion in additional funding from borrowing to provide loans
and other economic development funding to American Indians. The
additional funding would include $3 billion from Treasury borrowing
and $2 billion from the sale of bonds and notes to be guaranteed by
the U.S. government. The TD Bank would provide financial services
through 50 to 75 branch offices located on or near major American
Indian communities.
In addition, Phase II of the Plan calls for systems technology
enhancements and a new headquarters building. These proposals are
not fully discussed in the Plan.
--------------------
\7 A government-sponsored enterprise, although federally established
and chartered, is privately owned and operated to facilitate the flow
of credit to specific economic sectors. GSEs typically receive their
financing from private investment, but because they are established
by federal law, the credit markets treat GSEs as having implied
federal financial backing.
\8 Lifeline financial services typically include a limited package of
banking services, such as low- or no-fee checking and check cashing
privileges, and is generally available to all depositors. The Plan
proposes that these services would also include various tax planning
and investment services.
BASIS FOR COST ESTIMATES
INCLUDED IN THE STRATEGIC PLAN
---------------------------------------------------------- Chapter 0:5
Phase I of the Strategic Plan includes initiatives that are directed
toward (1) data conversion, reconciliation, and backlog cleanup, (2)
upgrading some existing systems and acquiring new systems, and (3)
substantially changing the way existing programs and functions are
performed. To implement these initiatives, the Strategic Plan
includes budget estimates indicating that about $168 million\9 will
be needed for fiscal years 1997 through 1999 and approximately $61
million and $56 million in fiscal years 2000 and 2001, respectively.
These cost estimates are generally based on the OST contractor's
assessment of the costs of similar functions performed by private
sector trust companies, vendor estimates, actual costs of functions
currently performed by certain Interior agencies; and assumptions
about the workload, staffing and number of locations to be serviced.
We did not attempt to validate the estimates presented in the Plan or
their underlying assumptions, nor did we assess whether the estimates
included all necessary costs of full implementation of the Plan.
Table 1 summarizes the cost estimates in the Strategic Plan.
Table 1
Estimated Cost of Phase I of the
Strategic Plan
(Dollars in millions)
Estimated costs, fiscal years
----------------------------------
Category 1977-99 2000 2001
---------------------------------- ---------- ---------- ----------
Data Conversion, Reconciliation, $48.945 $ 8,625 $ 7.200
and Backlog Cleanup
Standard Trust Asset and 34.663 19.666 18.123
Accounting Management System and
Land Title and Records Management
System
Information Technology 26.467 11.848 10.491
Infrastructure
Implementation 52.104 19.417 18.223
Management 5.548 1.861 1.861
======================================================================
Total $167.728 $ 61.417 $ 55.898
----------------------------------------------------------------------
Attachment III details the basis for each of the Phase I cost
estimates in the Strategic Plan.
Phase II costs in the Strategic Plan include previously discussed
capitalization and funding of the TD Bank and the fractionated realty
holdings, purchase, and sales program. Costs for Phase II would also
include automated systems modifications and acquiring a headquarters
building. Estimates of these costs are not provided in the Strategic
Plan.
--------------------
\9 Out of its 1997 appropriations, the Office of the Special Trustee
planned to use about $13 million to initiate these improvements.
IMPLEMENTATION ISSUES
---------------------------------------------------------- Chapter 0:6
A number of areas require further clarification, planning, or
consideration before the Plan can move forward. These include
-- implementation timing of certain initiatives, such as records
cleanup and acquiring a new IIM accounting system component;
-- proposals, such as establishing a centralized organization and
upgrading and acquiring systems, that need more planning before
they can be successfully implemented; and
-- issues requiring congressional consideration that relate to the
desirability and feasibility of establishing the new
organization as a private entity and establishing the trust
development bank.
IMPLEMENTATION TIMING ISSUES
-------------------------------------------------------- Chapter 0:6.1
Past audits by independent public accounting firms, Interior's Office
of Inspector General, and GAO have identified serious internal
control and systems weaknesses that impair the reliability of trust
fund accounting. To resolve these weaknesses, auditors have made
recommendations for BIA and Interior to take timely actions such as
correcting inaccurate and incomplete IIM accounting records,
eliminating ownership determination and recordkeeping backlogs, and
establishing a master lease file.
The Special Trustee has also concluded that there is an urgent need
to take action to correct increasingly deteriorating recordkeeping
deficiencies. Because Interior lacks the financial and managerial
resources to clean up the records, the Special Trustee proposes that
the cleanup be outsourced to independent contractors. This proposal
is consistent with our past recommendations. Cleanup of IIM accounts
is under way, and cleanup of appraisal and lease and ownership
backlogs could begin within a relatively short time.
As part of TAAMS, the Strategic Plan proposes that the commercial
trust accounting and investment system--which is currently used by
OTFM for tribal accounts--be expanded to include a component for IIM
accounting. Currently, IIM accounts are maintained on BIA's
Integrated Records Management System (IRMS), which is not a trust
accounting system. However, in determining the appropriate timing
for acquiring an IIM commercial trust accounting system component,
certain questions need to be addressed, including whether to (1)
convert all IIM accounts to the new system immediately, or convert
them as they are cleaned up, (2) identify and archive inactive
accounts before conversion, (3) convert small-balance or pass-through
accounts (zero balance accounts where receipts are immediately
withdrawn) to the new system or maintain them separately. Once these
issues and any other identified issues are resolved, the IIM
accounting system expansion should be able to move forward, assuming
it can reasonably be expected to support the systems and interfaces
required to build an integrated TAAMS.
PROPOSALS THAT NEED DETAILED
PLANNING
-------------------------------------------------------- Chapter 0:6.2
The Strategic Plan includes proposals for establishing a centralized
organization responsible for trust fund accounting and asset
management and upgrading or acquiring systems to support these
functions. While the basic premise--the need for a central
organization and major systems improvements may be sound, the Plan
does not adequately address how these reforms would be implemented.
For example, the Strategic Plan refers to MMS' mineral royalty
collection and accounting function, but it also refers to AITDA
acquiring a mineral management and accounting system. In addition,
the Plan does not adequately define all interrelated business
functions, such as the co-located BIA, BLM, and MMS mineral program
office in Farmington, New Mexico, or how the proposed new
organization will work with BIA, BLM, and MMS to provide assistance
to tribes on mineral leasing activities. Furthermore, the Plan does
not adequately address how BIA's agriculture, forestry, and realty
activities will be performed in the future.
Finally, the Plan was developed without sufficient input from
affected Interior agencies. For example, BIA, BLM, MMS, and Office
of American Indian Trust officials told us that they were not
consulted on the development of the Plan. Changes in trust systems
outlined in the Plan could have major effects on the business
processes and practices in these agencies.
The Plan needs to be more fully developed to (1) provide adequate
evidence of a framework for sharing related business and functional
information and program requirements among the cognizant
organizations and functions and (2) support the design and
development of management and information systems.
In addition, before proceeding with the major information technology
investments proposed by the Plan, the processes and structures
required by the Paperwork Reduction Act of 1995, the Clinger-Cohen
Act of 1996, and OMB guidance for funding information systems
investments need to be put in place.\10 These include the development
of a strategic Information Resources Management (IRM) plan, criteria
for the evaluation of major information system investments, and an
information architecture which aligns technology with mission goals.
Because OST has not developed a strategic IRM plan, and investment
process, or an information architecture, the organization risks
acquiring systems that will not meet their business needs.
In late May 1997, in response to the Clinger-Cohen Act, Interior
hired a Chief Information Officer (CIO) with both industry and
federal agency experience. The CIO and the Special Trustee need to
work closely to ensure that the investments in information systems
are made appropriately and effectively. Because of the systems'
size, impact, and complexity, the Department has reported to the
Office of Management and Budget that these trust systems constitute a
major information system investment for Interior.
--------------------
\10 These requirements and other information systems investment
guidance are discussed in attachment IV.
ISSUES THAT REQUIRE
CONGRESSIONAL CONSIDERATION
-------------------------------------------------------- Chapter 0:6.3
Two fundamental issues need to be addressed before the Congress can
make further decisions on whether and how to implement the Strategic
Plan's proposed initiatives. These two issues relate to the
desirability and feasibility of establishing (1) AITDA as a
government-sponsored enterprise (GSE) and (2) the Indian Trust
Development Bank. The Plan needs to provide more information on each
of these proposals in order to support full consideration by the
Congress. Specifically,
(1) The Strategic Plan proposes the establishment of AITDA as a
single organization responsible for trust fund and asset management
activities. The Plan proposes that AITDA be a GSE which is,
typically, a private corporation.
-- The Plan should more fully address the extent to which the
United States may transfer trust authorities and
responsibilities to a GSE. The government assumed many of these
authorities and responsibilities as a result of treaties
negotiated with individual Indian tribes.
-- Although the Plan characterizes AITDA as a GSE, it proposes that
AITDA receive appropriations and congressional oversight. The
Plan does not identify, however, the amount of funding or
whether the funding will be appropriated directly to AITDA or
provided in the form of grants or borrowing authority. Also,
the plan does not discuss what is meant by congressional
oversight.
-- The Plan proposes that AITDA, a private entity, oversee the
functions of various Interior agencies. Typically, nonfederal
entities do not have oversight responsibilities for federal
agencies. This issue needs to be addressed in the Plan.
(2) The Strategic Plan proposes the establishment of an Indian Trust
and Development Bank. The Plan also proposes that the TD Bank
receive appropriations, judgment funds, or funds provided by other
GSEs.
-- Under current law, judgment funds are not available to fund
programs. Also, the nature and type of contractual arrangement
with private sector institutions needs further clarification and
explanation. In addition, the basis for capital to be provided
by other GSEs needs to be defined and clarified.
-- The relationship, contractual or otherwise, that would exist
between the AITDA and the TD Bank is not fully defined. This
relationship, including the degree of liability that the AITDA
would be subject to regarding the TD Bank's operations, also
needs to be defined.
-- The Strategic Plan proposes that the TD Bank provide a wide
range of lifeline services at no cost or at a subsidized cost.
These services include basic functions such as checking and
savings accounts, money orders, and account statements, but also
include tax, investment, and retirement planning services.
Because these services would likely be funded by appropriations,
their cost needs to be identified.
-- The Plan would require that the federal government maintain
equity capital equal to 5 percent of average risk-adjusted
assets. Because this could result in significant additional
contributions by the federal government resulting from losses or
expansion by the TD Bank, the appropriateness of this proposed
requirement needs to be addressed.
-- Limitations on who can be a customer or shareholder (whether
only tribal members with certificates of Indian blood and
federally recognized tribes or others, including non-Indians)
needs to be defined and clarified.
These are key implementation issues that must be considered before
the Plan can move forward. Additional information is needed from the
Special Trustee about the proposed organization so that the Congress
may carefully consider the government's Indian trust responsibility;
type of organization, funding, and oversight; the types of programs
and services to be provided by the new organization; and the
relationship of any new organization to the Interior Department and
other external organizations. Once these and other organizational
issues are resolved, the next step is to proceed with the development
of the information systems planning described earlier. In our view,
both the additional organizational planning and the information
systems planning are essential to the success of this important
endeavor.
-------------------------------------------------------- Chapter 0:6.4
Mr. Chairman and Mr. Vice Chairman, this concludes my statement. I
would be glad to answer any questions that you or the Members of the
Committee might have.
CURRENT INTERIOR ORGANIZATIONS
WITH INDIAN PROGRAMS COVERED BY
THE STRATEGIC PLAN
=========================================================== Appendix I
(See figure in printed
edition.)
PROPOSED AITDA ORGANIZATION
========================================================== Appendix II
(See figure in printed
edition.)
BASIS FOR COST ESTIMATES
========================================================= Appendix III
The Strategic Plan includes budget estimates indicating that about
$168 million will be needed for fiscal years 1997 through 1999 and
about $61 million and $56 million for fiscal years 2000 and 2001,
respectively, to implement Phase I of the Plan. The Office of the
Special Trustee's fiscal year 1997 appropriations included a little
over $13 million to begin these improvements. Table III.1 summarizes
the cost estimates contained in the Strategic Plan followed by
detailed explanations of the basis for these cost estimates. As
agreed with committee staff, we did not attempt to validate these
estimates or assess whether they represent the full cost of
implementing the Plan.
Table III.1
Estimated Cost of Phase I of the
Strategic Plan
(Dollars in millions)
Estimated costs, fiscal years
----------------------------------
Category 1997-99 2000 2001
---------------------------------- ---------- ---------- ----------
Data Conversion, Reconciliation, $ 48.945 $ 8.625 $ 7.200
and Backlog Cleanup
Standard Trust Asset and 34.663 19.666 18.123
Accounting Management System and
Land Title and Records Management
System
Information Technology 26.467 11.848 10.491
Infrastructure
Implementation 52.104 19.417 18.223
Management 5.548 1.861 1.861
======================================================================
Total $167.727 $ 61.417 $ 55.898
----------------------------------------------------------------------
The following discussion explains the basis for the cost estimates
for the three main components of the plan--data conversion,
reconciliation, and backlog cleanup; upgrading and acquiring systems;
and forming a new organization.
DATA CONVERSION,
RECONCILIATION, AND BACKLOG
CLEANUP
------------------------------------------------------- Appendix III:1
The principal objective of Phase I of the Strategic Plan is to
address and resolve the root causes of the long-standing trust
management problems as quickly as possible. The Plan proposes that
$49 million be provided for fiscal years 1997 through 1999, and $8.6
million and $7.2 million for fiscal years 2000 and 2001,
respectively, to support data conversion to new systems. These
estimates include cleanup of probates, land title records, IIM and
tribal accounting records and reconciliations, and appraisals. Table
III.2 summarizes these costs.
Table III.2
Cost Estimates for Records Cleanup and
Data Conversion
(Dollars in millions)
Estimated costs, fiscal years
----------------------------------
Task 1997-99 2000 2001
---------------------------------- ---------- ---------- ----------
Probate-related backlog 11.570 1.425 ------
Pre-conversion IIM file cleanup $ 7.400 $---- $----
and data/documentation check
IIM/Lease subsystem conversion 2.215 ------ ------
LRIS\a conversion/ownership 4.600 2.000 2.000
reconciliation/
defective title cleanup
Imaging cleanup 3.160 ------ ------
Appraisal cleanup and ongoing 20.000 5.200 5.200
management
======================================================================
Total $48.945 $ 8.625 $ 7.200
----------------------------------------------------------------------
\a BIA's Land Records Information System.
To eliminate probate backlogs, the Plan proposes that $11.5 million
be provided for fiscal years 1997 through 1999 and $1.4 million be
provided in fiscal year 2000. This estimate includes approximately
$1.1 million for BIA agency office initial document preparation, $2.4
million for probate hearings and appeals, and $8 million for BIA's
Land Title and Records Office (LTRO) title and ownership
determination and recordkeeping for fiscal years 1997 through 1999.
The Plan also estimates that $1.4 million will be needed for fiscal
year 2000 to complete the LTRO effort.
-- The estimate of $1.1 million for fiscal years 1997 through 1999
to reduce the backlog associated with BIA agency office
preparation of probate documents was based on OST's estimate of
a backlog of 3,500 probates and an average workload of 10
completed probates a month per probate clerk, or 120 per year.
Thus, the Plan proposes providing a total of 30 probate clerk
staff years at a GS-7 salary and benefits rate of $38,000 a
year.
-- The estimated $2.4 million for fiscal years 1997 through 1999 to
eliminate probate court hearing and appeals backlogs was based
on OST's estimate of a backlog of 3,453 cases.\1 The Plan
proposes providing an additional 12 administrative law judges
and 12 paralegals and 12 secretaries at the GS-7 level to
eliminate the backlog.
-- To eliminate backlogs in land title and ownership determinations
and recordkeeping, the Plan proposes that $8 million be provided
for fiscal years 1997 through 1999, and that an additional $1.4
million be provided for fiscal year 2000. This estimate is
based on BIA information on backlogs and the level of effort
needed to complete the tasks shown in table III.3.
To clean up inaccurate IIM accounting records and perform data and
document checks, the Plan proposes that $7.4 million be provided
through fiscal year 1999. Cost estimates for cleanup of IIM
accounting records are based on OTFM's experience with records
cleanup at five field offices. As of mid-July 1997, OTFM had
performed work at 11 BIA agency offices to clean up IIM records.
Cost estimates for data conversion of IIM and lease records from
BIA's Integrated Records Management System (IRMS) to the expanded
trust accounting system are $2.2 million for fiscal years 1997
through 1999. These estimates are based on data obtained from
private sector trust companies for conversion of similar data.
To support LRIS conversion, reconciliations of ownership data, and
cleanup of defective titles, the Plan proposes that $4.6 million be
provided for fiscal years 1997 through 1999, and that $2 million each
be provided for fiscal year 2000 and fiscal year 2001. These
estimates cover Land Title Office research, review, and
identification of all tracts with title defects.
The Plan estimates that $3 million will be needed for imaging cleanup
for fiscal years 1997 through 1999. The cost estimate is based on
the level of work needed to complete the electronic imaging of
documents (preparing a hard-copy document in electronic form)
identified for the tribal reconciliations.
To support asset management and cleanup appraisals, the plan proposes
that $20 million be provided for fiscal years 1997 through 1999 and
that $5 million each be provided for fiscal year 2000 and fiscal year
2001. The cost estimates are based on (1) OTFM's estimates that
there are, on average, 100,000 active leases at a given point in time
and that 20,000 of these produce 80 percent of the total lease
revenues, (2) fee information for summary report appraisals obtained
through interviews with private sector appraisal companies in two
geographic areas of the country, and (3) appraisal policy assumptions
that transactions producing 80 percent of the total lease revenue
from Indian lands would receive an outside, certified, independent
appraisal during fiscal years 1998 and 1999 and once every 5 years
after 1999, and that 5 percent of smaller-revenue leases would
receive an independent appraisal annually.
--------------------
\1 Interior's Office of Hearings and Appeals (OHA) has advised the
Department that the 3,453 cases cited as a backlog represent the
normal annual caseload and, thus, OHA believes there is no backlog
and no additional funding or positions are needed.
EXPANDING AND ACQUIRING SYSTEMS
------------------------------------------------------- Appendix III:2
The Plan estimates that about $61 million would be needed for fiscal
years 1997 through 1999 and approximately $31 million and $29 million
for fiscal years 2000 and 2001, respectively, to implement the new
systems. The estimated systems and infrastructure costs are shown in
table III.3.
Table III.3
Trust Systems Costs
(Dollars in millions)
Estimated costs, fiscal years
----------------------------------
Trust System Cost 1997-99 2000 2001
---------------------------------- ---------- ---------- ----------
Trust Asset and Accounting $18.108 $12.971 $12.971
Management System (TAAMS)
Land Title and Records Management 11.255 6.095 4.552
System (LTRMS)
General Ledger System (GLS) 2.300 .300 .300
Interface Development 3.000 .300 .300
Subtotal $34.663 $19.666 $18.123
AITDA, BIA, BLM, and MMS network, $22.386 $ 9.829 $ 9.355
hardware, software, and support
Tribes--network, 4.081 2.019 1.136
hardware,software, support and
end-user training
======================================================================
Total $61.130 $31.514 $28.614
----------------------------------------------------------------------
According to the Plan, the $18 million for TAAMS includes about $17
million for the trust fund accounting system and about $.8 million
for a trust real property system for fiscal years 1997 through 1999.
The accounting system costs are based on estimates obtained from
commercial trust system vendors and include estimated annual account
maintenance fees of $35 per IIM account per year for 350,000 IIM
accounts and $85 per tribal account per year for 1,500 tribal
accounts, which would total about $12 million. The estimates also
include one-time licensing and start up fees and user fees.
The Trust Real Property Management System component of TAAMS would
provide for management and administration of an estimated 100,000
active and pending surface and mineral leases each year. The Trust
Real Property Management system would consist of 2 major
components--an asset management information system (including a
history file), and one or more surface and mineral property
management and accounting systems, depending on the type of asset,
such as real estate rentals, mineral leasing, and timber contracts.
The cost estimate for the Trust Real Property System is based on
pricing structures for private sector lease management software that
is compatible with commercial trust accounting systems. Cost
estimates total about $.8 million for fiscal years 1997 through 1999
including a one-time fee for an interface with the trust financial
system.
The Plan also proposes a Land Title and Records Management System to
provide land title and records management and administration of over
170,000 tracts of land and related title documents. This system is
estimated to cost $11 million for fiscal years 1997 through 1999,
with costs of ongoing operations of about $6.1 million in fiscal year
2000 and about $4.6 million in fiscal year 2001. These cost
estimates are based on BIA estimates for LRIS upgrades to achieve
automated chain-of-title and records storage, which were included in
OST's fiscal year 1998 budget request.
The Plan proposes that $2.3 million be provided for fiscal years 1997
through 1999 and that $.3 million each be provided for fiscal years
2000 and 2001 for a trust fund accounting general ledger system.
These estimates are based on private sector vendor information and
OTFM's current general ledger trust accounting system needs.
The Plan proposes that $3 million be provided for fiscal years 1997
through 1999 and that $.3 million be provided each year thereafter
for ongoing costs of integrating and implementing the systems
described above.
To support the overall TAAMS, the Strategic Plan proposes that $26.5
million be provided for fiscal years 1997 through 1999 for an
information technology infrastructure, plus approximately $12 million
in fiscal year 2000 and about $10 million in fiscal year 2001 for
ongoing costs. This infrastructure is to include systems
architecture, a local area network, and systems installation. The
infrastructure estimate includes $4 million for fiscal years 1997
through 1999, $2 million in fiscal year 2000 and approximately $1
million in fiscal year 2001 for computer equipment and end-user
training for tribes. Cost estimates for these systems components are
based on private sector vendor fee schedules for servicing over 1,900
sites, 450 tribal and 1,535 AITDA work stations, a network and 120
file servers, software, encryption, laser printers, support, and
maintenance.
IMPLEMENTING THE NEW
ORGANIZATION
------------------------------------------------------- Appendix III:3
Implementing the new organization is estimated to cost about $52
million for fiscal years 1997 through 1999 and ongoing costs are
estimated at $19.4 million for fiscal year 2000 and $18.2 million for
fiscal year 2001. These estimates are based on OST's strategic
planning contractor's analysis of private sector equipment, systems,
and software costs. According to the Strategic Plan, implementation
costs include those shown in table III.4.
Table III.4
Implementation Costs
Estimated costs, fiscal years
----------------------------------
Function 1997-99 2000 2001
---------------------------------- ---------- ---------- ----------
Document imaging\a $ 4.339 $ 1.608 $ 1.608
Training: AITDA, BIA, MMS, and BLM 10.026 $ 2.495 $ 2.302
Policy, procedure, and legal 4.250 .250 .250
manuals
Risk management 9.040 4.520 4.520
Archives and records management 18.449 8.044 8.044
External professional services 6.000 2.500 1.500
======================================================================
Totals $52.104 $19.417 $18.223
----------------------------------------------------------------------
\a Document imaging is the process of copying a document from its
hard copy (original) state to an electronic format.
Training of AITDA, BIA, MMS, and BLM staff is estimated to cost $10
million for fiscal years 1997 through 1999 and $2.5 million in fiscal
year 2000 and $2.3 million in fiscal year 2001. These estimates are
based on a training needs assessment and information obtained from
private sector vendors on the costs of commercially available
courses. The estimate includes nearly $5 million for function and
task training for all levels of the organization and over $5 million
directed at training four functional groups--end users, end-user
support, application developer support, and trust management systems
staff. Training costs are projected to vary from $150 per day to
$365 per day for each participant depending on the type of training
and such factors as the cost to transport trainers to remote
locations.
In addition to the $10 million for training AITDA, BIA, MMS, and BLM
staff, the Plan proposes $2.7 million for end-user training for
tribes. That amount is included in the systems infrastructure cost
estimates shown in table III.3.
Cost estimates of $4.2 million for fiscal years 1997 through 1999 and
$.2 million each for fiscal years 2000 and 2001 are to cover
development of policies and procedures and legal manuals. These
estimates are based on OST's strategic planning contractor's
assessment of costs for similar efforts at private trust banks.
The cost estimates of $9 million for fiscal years 1997 through 1999
and $4.5 million each for fiscal year 2000 and 2001 for the new risk
management organization are based on actual amounts spent by risk
managers in two separate private sector trust companies with a scale
of operations similar to the trust management activities at Interior.
As proposed by the Strategic Plan, risk management and control
activities would include internal and external audits, review and
approval of policies and procedures, oversight of appraisal and
leasing functions, and computer security.
Risk management and control would be carried out by a Risk Control
Group, which would monitor the effectiveness of systems and controls,
and an Audit Group, which would be responsible for audit and review
of service bureau functions provided by BIA, BLM, MMS, and tribes.
The Audit Group would include the following:
-- An Asset Review Division, responsible for internal and external
audits and evaluations.
-- An Appraisal Services Division, responsible for assessing real
property values and market trends affecting leasing decisions
for natural resource assets and portfolio management.
-- A Compliance Division, responsible for ensuring compliance with
laws and regulations.
The Plan proposes transferring Interior's Office of American Indian
Trust and funding and MMS' funding for compliance and valuation
functions to AITDA's Compliance Division. The Plan does not include
these funds in the AITDA budget proposal because they do not
represent new funding, but rather, they represent existing funding
that would be transferred to AITDA from these Interior agencies. The
incremental costs of the proposed risk management and control
function are shown in table III.5.
Table III.5
Risk Management and Control Costs
(Dollars in millions)
Estimated costs, fiscal years
----------------------------------
Category 1997-99 2000 2001
---------------------------------- ---------- ---------- ----------
Salaries and benefits $ 6.960 $ 3.480 $ 3.480
Equipment rental and maintenance, .344 .172 .172
software maintenance,
depreciation, and repairs
Travel .552 .276 .276
Training .150 .075 .075
Utilities, supplies, and services 1.034 .517 .517
======================================================================
Totals $ 9.040 $ 4.520 $ 4.520
----------------------------------------------------------------------
The remaining costs of the new organization include archives and
records management, external professional services, and overall
management. Archives and records management costs are based on OST's
estimates of costs for a leased facility, personnel, building lease,
equipment, supplies, and shipping.
The cost for external professional services is based on private
sector fee schedules for system integration services. These costs
were expected to be $6 million for fiscal years 1997 through 1999 and
ongoing costs are estimated as $2.5 million for fiscal years 2000 and
$1.5 million for 2001.
Overall management costs associated with AITDA are estimated at $5.5
million for fiscal years 1997 through 1999, including $4.9 million
for AITDA's executive management and $.6 million for its Advisory
Board. Ongoing costs are estimated at $1.9 million, including $1.7
million for AITDA and $.2 million for the Advisory Board in both
fiscal years 2000 and 2001. According to OST, AITDA cost estimates
are based on OST's current authorized staffing and related operating
costs for office space and travel. Advisory Board cost estimates are
based on current OST Advisory Board costs for travel and per diem at
government rates.
GUIDANCE FOR IMPROVING FEDERAL
AGENCY INFORMATION TECHNOLOGY
INVESTMENTS
========================================================== Appendix IV
MAJOR LEGISLATIVE REFORMS
-------------------------------------------------------- Appendix IV:1
Paperwork Reduction Act of 1995, requires agencies to use information
resources in a manner to improve the efficiency and effectiveness of
their operations in the fulfillment of their missions.
Clinger-Cohen Act of 1996, requires federal agencies to focus on
results that they are achieving through information technology (IT)
investment. The act requires the head of an agency to implement a
process for maximizing the value and assessing and managing the risks
of the agency's IT acquisition and ensuring the development of
reliable financial and program performance information. The act also
requires agencies to appoint a Chief Information Officers (CIOs) to
direct and oversee agency information resource management.
Federal Acquisition Streamlining Act of 1994, requires agencies to
define cost, schedule, and performance goals for federal
acquisitions, including IT projects, and monitor the programs to
ensure that they remain within prescribed tolerances.
OFFICE OF MANAGEMENT AND BUDGET
GUIDANCE
-------------------------------------------------------- Appendix IV:2
OMB Circular A-127, Financial Management Systems, prescribes policies
and standards for executive departments and agencies to follow in
developing, operating, evaluating, and reporting on financial
management systems.
OMB Memorandum M-97-02, "Funding Information Systems Investments,"
commonly referred to as "Raines Rules," prescribes decision criteria
for evaluation of major information system investments proposed for
funding in the President's fiscal year 1998 budget.
GAO GUIDANCE
-------------------------------------------------------- Appendix IV:3
Executive Guide: Improving Mission Performance Through Strategic
Information Management and Technology (GAO/AIMD-94-115, May 1994).
Assessing Risks and Returns: A Guide for Evaluating Federal
Agencies' IT Investment Decision-making, Version I (GAO/AIMD-10.1.13,
February 1997).
*** End of document. ***