Indian Issues: BIA's Distribution of Tribal Priority Allocations
(Testimony, 04/21/1998, GAO/T-RCED-98-168).

The Bureau of Indian Affairs (BIA) began efforts that evolved into the
Tribal Priority Allocation (TPA) in the early 1970s. The goal was to
give tribes an opportunity to set priorities and allocate funds for
those activities that they wanted to fund, in consultation with BIA. GAO
discusses (1) BIA's basis for distributing 1998 TPA funds; (2) total
distributions of TPA funds in fiscal year 1998 and a per capita analysis
of those distributions; (3) revenue and business income information
reported by tribes under the Single Audit Act; and (4) what additional
revenue and income information might be useful to Congress in deciding
whether to distribute TPA funds, considering the total financial
resources available to tribes, including possible barriers to collecting
this information.

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

 REPORTNUM:  T-RCED-98-168
     TITLE:  Indian Issues: BIA's Distribution of Tribal Priority
	     Allocations
      DATE:  04/21/1998
   SUBJECT:  Native Americans
	     Prioritizing
	     Reporting requirements
	     Funds management
	     Indian lands
	     Intergovernmental fiscal relations
	     Financial statement audits

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GAO/T-RCED-98-168

Cover
================================================================ COVER

Before the Committee on Appropriations, Subcommittee on Interior and
Related Agencies, U.S.  Senate

For Release
on Delivery
Expected at
9:00 a.m.  EDT
Tuesday,
April 21, 1998

INDIAN ISSUES - BIA'S DISTRIBUTION
OF TRIBAL PRIORITY ALLOCATIONS

Statement of Victor S.  Rezendes, Director,
Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-98-168

GAO/RCED-98-168T

(141181)

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

  BIA -
  DOI -
  TPA -

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

Mr.  Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the preliminary results of
our review of the Bureau of Indian Affairs' (BIA) distribution of
Tribal Priority Allocation--or TPA--funds.  BIA began efforts that
evolved into TPA in the early 1970s as a way to pursue Indian
self-determination by giving tribes the opportunity to set priorities
and allocate funds for those activities they wanted to fund, in
consultation with BIA.  We are conducting this review at your and
Chairman Stevens' request, and we will issue our report on TPA-funds
distribution by June 1.  Today I will discuss (1) BIA's basis for
distributing 1998 TPA funds; (2) total distributions of TPA funds in
fiscal year 1998 and a per capita analysis of those distributions;
(3) revenue and business income information reported by tribes under
the Single Audit Act; and (4) what additional revenue and income
information might be useful to the Congress in deciding whether to
distribute TPA funds considering the total financial resources
available to tribes, including possible barriers to collecting this
information.

As of October 1997, 556 tribes had been recognized by the federal
government and are eligible to receive financial assistance through
BIA.  Each of these tribes may receive funds for activities such as
law enforcement, social services, adult vocational training, child
welfare, and natural resource management through TPA; specific
activities and priorities may vary from year to year.  BIA provides
TPA funds to tribes either by funding tribally operated activities or
through services provided by BIA.\1 TPA funds are also used to
support some of BIA's management and administrative costs.

TPA funds are the largest portion of BIA's direct appropriation in
fiscal year 1998, representing 45 percent--or $757 million--of the
$1.7 billion total.  To put this in perspective, TPA represents 10
percent of the $7.5 billion in federal funding that the Office of
Management and Budget reports was appropriated for Indian programs in
1998.  This funding was for a wide variety of programs, such as food
distribution and rural business opportunity grants through the
Department of Agriculture, environmental restoration through the Army
Corps of Engineers, and library services through the Department of
Education.

In summary, we found:

  -- Two-thirds of the 1998 TPA funds were distributed primarily on
     the basis of historical levels, and tribes may shift these
     "base" funds among TPA activities according to their needs.  For
     example, a tribe needing more funds for law enforcement than for
     adult vocational education may move funds to meet those needs.
     The remaining one-third, known as "non-base" funds, are used for
     such activities as road maintenance and housing improvement and
     were generally distributed on the basis of specific formulas.

  -- In total, 95 percent of the TPA funds appropriated in fiscal
     year 1998 have been distributed.  Average TPA distributions
     varied widely among BIA's 12 area offices when analyzed and
     compared on a per capita basis; the per capita averages ranged
     from $121 per tribal member within BIA's Muskogee area to $1,020
     per tribal member within BIA's Portland area.  Mr.  Chairman,
     let me emphasize that we present this analysis for your
     information only--BIA does not distribute TPA funds on a
     per-capita basis, nor does BIA recommend that such a
     distribution method be used.  According to Interior officials,
     there are reasons for differences in TPA distributions, and they
     do not consider the population estimates to be reliable.
     Appendix I contains additional information on total TPA
     distributions by area office and a per capita analysis of these
     distributions.

  -- Nonfederal entities--including tribes--meeting certain federal
     assistance thresholds (those receiving $100,000 or more in
     federal funds before 1997, and those expending $300,000 or more
     in 1997 or later) must submit audited financial statements
     annually under the Single Audit Act.  We reviewed all 326
     financial statements on file with the Department of the Interior
     that were most recently submitted by tribes; the statements
     generally covered fiscal years 1995 or 1996.\2 While some tribes
     reported only their federal revenues, others included revenues
     from state, local, and private sources.  In total, the
     statements reported that these tribes received more than $3.6
     billion in revenues during the years covered by them.  These
     revenues included such things as taxes and fees, lease and
     investment income, and funds received through governmental
     grants and contracts.  Some tribes also reported income from
     their businesses for the periods covered by the statements:  98
     reported about $1.2 billion in operating profits, and another 70
     reported operating losses of about $50 million.  However, the
     quality of the information reported in the statements varied;
     only about half of the statements received "unqualified"
     opinions from auditors, while the others were deficient to
     varying degrees.\3

  -- In deciding whether to consider tribal revenues or business
     income in distributing TPA funds, information that might be
     useful to the Congress could include more complete and reliable
     financial information for all tribes.  However, there are
     several impediments to obtaining this information.  For example,
     under the Single Audit Act, financial statements must be
     submitted only by those nonfederal entities (including tribes)
     expending at least $300,000 of federal funds in a year and may
     not include income from tribes' businesses.

--------------------
\1 For the purposes of this report, subsequent references to "tribes"
that receive TPA funds also include BIA offices that receive TPA
funds on the tribes' behalf.

\2 Appendix II provides additional details of our scope and
methodology.

\3 An unqualified opinion on the financial statements generally means
that the auditor concludes the financial statements and accompanying
notes present fairly, in all material respects, the assets,
liabilities, and net position of the entity at the end of the period;
and the net costs, changes in net position, and cash flows for the
period are in conformity with the entity's basis of accounting or
generally accepted accounting principles.

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

In the early 1970s, BIA began giving tribes more training,
involvement, and influence in BIA's budget process, in efforts that
evolved into TPA.\4 At that time, according to BIA officials, few
tribes were experienced in budgeting or contracting, and most
depended on BIA for services.  Over the years, tribes have become
more experienced and sophisticated in TPA budgeting, are more
involved in directly contracting and managing their TPA activities,
and have more flexibility in shifting funds between activities within
TPA.  Since 1991, through amendments to the Indian Self-Determination
and Education Assistance Act, 206 tribes have entered into
self-governance agreements with the federal government.  Under the
terms of these agreements, the tribes assume primary responsibility
for planning, conducting, and administering programs and
services--including those activities funded under TPA.

--------------------
\4 See Tribal Participation in the Bureau of Indian Affairs Budget
System Should Be Increased (GAO/CED-78-62, Feb.  15, 1978) and Indian
Programs:  Tribal Influence in Formulating Budget Priorities Is
Limited (GAO/RCED-91-20, Feb.  7, 1991).

   BIA'S BASIS FOR DISTRIBUTING
   TPA FUNDS
---------------------------------------------------------- Chapter 0:2

Of the $757 million in TPA funds that the Congress appropriated in
fiscal year 1998, about $507 million was for base funding, and about
$250 million was for non-base funding.  Base funding was distributed
in three components:  $468 million generally on the basis of
historical funding levels, $16 million to supplement funding for
"small and needy" tribes, and $23 million in a general funding
increase.

According to Interior officials, how TPA base funds for tribes were
initially determined is not clearly documented, and adjustments may
have been made over time in consideration of specific tribal
circumstances.  While most increases in the TPA budget prior to the
1990s resulted from congressional appropriations for specific tribes,
subsequent increases have generally been distributed on a pro rata
basis.  The $468 million in base funds may be used by tribes for such
activities as law enforcement, social services, and adult vocational
training.  Tribes may move these funds from one TPA activity to
another.

In 1998, the Congress appropriated TPA funds for BIA to supplement
historical distribution levels for "small and needy" tribes; as a
result, $16 million in additional base funds was distributed to 292
tribes.  The designation "small and needy" was developed by the Joint
Tribal/BIA/DOI Advisory Task Force on Bureau of Indian Affairs
Reorganization in 1994.\5

The task force recommended that tribes with service populations of
less than 1,500 have available minimum levels of TPA base
funds--$160,000 in the lower 48 states and $200,000 in Alaska--to
allow them to develop basic self-government capacity.\6 Because some
small tribes were receiving less than $160,000, the Congress directed
BIA to supplement TPA base funds with the 1998 distribution so that
each of these tribes would receive $160,000.  For fiscal year 1999,
BIA has requested an additional $3 million to move the "small and
needy" tribes in Alaska closer to the task force-recommended minimum
funding level of $200,000.

The $23 million general increase in base funds was evenly distributed
among BIA's 12 area offices, as recommended in January 1998 by a
special task force assembled under the 1998 Interior Appropriation
bill.  Each equal portion was subsequently distributed to tribes and
BIA offices according to various considerations.  For example, the
tribes in BIA's Sacramento area each received an equal share of the
area office's $1.95 million allocation.  The tribes in BIA's Juneau
area each received $4,000, and the remainder was distributed on the
basis of population and TPA base funding levels.

The remaining $250 million is non-base funds and is generally
distributed according to specific formulas that consider tribal
needs.  In general, tribes may not shift these funds to other
activities without special authorization.  Road maintenance, housing
improvement, welfare assistance, and contract support are all
included in this category.  For example, road maintenance funds are
distributed to BIA's area offices based on factors such as the number
of miles and types of roads within each area.  Housing improvement
funds are distributed to area offices on the basis of an inventory of
housing needs that includes such things as the number of units in
substandard condition and the number of units needing renovation or
replacement.

--------------------
\5 The Tribal Budget System:  Preliminary Assessment of Most Needy
Small Tribes, Joint Tribal/BIA/DOI Advisory Task Force on Bureau of
Indian Affairs Reorganization (Apr.  1994).

\6 "Service population" refers to the number of Indians eligible to
receive services from BIA.

   DISTRIBUTION OF FISCAL YEAR
   1998 TPA FUNDS AND PER CAPITA
   ANALYSIS
---------------------------------------------------------- Chapter 0:3

As of March 1998, 95 percent of the $757 million in TPA funds had
been distributed among the tribes and BIA offices.  Our per capita
analysis shows that the distributions ranged from a low of $121 per
tribal member within BIA's Muskogee area to a high of $1,020 within
the Portland area.  However, according to Interior officials, there
are reasons for the differences in TPA distributions and the
differences should not all be perceived as inequities.  For example,
BIA is required to fund law enforcement and detention in states that
do not have jurisdiction over crimes occurring on Indian lands, so
tribes located in those states may receive more TPA funds for these
purposes than tribes located in other states.  Similarly, BIA has a
trust responsibility for natural resources on reservations, so tribes
that have large land bases may receive more TPA funds for this
purpose than tribes with small land bases.  Furthermore, tribes with
self-governance agreements may include funds in their TPA base amount
that are not included for tribes without self-governance agreements.
BIA officials also noted that they do not consider the service
population figures, which are estimated by tribes, to be
reliable--although they did not offer other figures that they
believed to be more accurate.  They also noted that TPA funds are
distributed to tribes, rather than individuals, and that a lower per
capita figure may reflect that tribes in one area have larger
memberships but smaller land bases than tribes in another area.
Appendix I presents the distributions and per capita analyses for
BIA's area offices.

The remaining 5 percent of TPA funds not distributed to tribes
includes $30 million, primarily for welfare assistance and contract
support, that will be distributed later in the fiscal year on the
basis of tribal need.  While most of the contract support and welfare
assistance funds are distributed on the basis of the prior year's
expenditures, between 15 and 25 percent is withheld until later in
each fiscal year, when tribes' actual needs are better known.  An
additional $9 million not distributed to tribes is for other uses,
including education funding to non-tribal entities (such as states
and public schools) and payments for employees displaced as a result
of tribal contracting.

   REVENUES AND INCOME REPORTED
   UNDER THE SINGLE AUDIT ACT
---------------------------------------------------------- Chapter 0:4

Nonfederal entities--including tribes--meeting the federal assistance
thresholds for reporting under the Single Audit Act (those receiving
at least $100,000 in federal funds before 1997 and those expending at
least $300,000 in 1997 or later) must submit an audited
general-purpose financial statement and a statement of federal
financial assistance.\7 We examined all 326 financial statements on
file with Interior that were most recently submitted by tribes; these
statements generally covered fiscal years 1995 or 1996.

The tribes' financial statements varied in the type and amount of
information reported.  While some statements included only federal
revenues, others also included revenues from state, local, and
private sources; some included financial information only for tribal
departments that expended federal funds, while others provided more
complete reporting on their financial positions.  In total, the
statements reported that these tribes received more than $3.6 billion
in revenues during the years covered by them.  These revenues
included such things as taxes and fees, lease and investment income,
and funds received through governmental grants and contracts.

About half of the financial statements we examined also included some
information on tribal businesses.  Tribal businesses include, for
example, gaming operations, smokeshops or convenience stores,
construction companies, and development of natural resources such as
minerals or timber.  The tribes that reported the results of their
businesses had operating income totaling over $1.1 billion.  Not all
of these tribes reported a profit, however--about 40 percent reported
operating losses totaling about $50 million.

The reliability of the general-purpose financial statements we
reviewed varied.  Of the 326 we reviewed, 165--or about half--of the
statements were certified by independent auditors as fairly
presenting the financial position of the reporting entity and
received "unqualified" auditors' opinions.  However, auditors noted
that 38 of the "unqualified" statements were limited to certain funds
and were not intended to represent the financial position of the
tribe as a whole.  The independent auditors' opinions for the
remaining financial statements indicated that the statements were
deficient to varying degrees.

Tribes with gaming operations are required under the Indian Gaming
Regulatory Act to submit annual financial reports to the National
Indian Gaming Commission.  In 1997, we reported that 126 tribes with
class II and class III gaming operations (which include bingo,
pull-tabs, slot machines, and other casino games) reported a total of
about $1.9 billion in net income from their gaming operations in
1995.\8 About 90 percent of the gaming facilities included in that
report generated net income, and about 10 percent generated net
losses.  Because the financial statements we examined covered
different fiscal years and did not always include gaming revenues, we
did not attempt to reconcile them to information reported to the
Gaming Commission.

--------------------
\7 The Single Audit Act is intended, among other things, to establish
uniform requirements for audits of federally awarded contracts or
assistance administered by nonfederal entities, including state and
local governments, nonprofit organizations, and Indian tribes.  Prior
to fiscal year 1997, such entities receiving $100,000 or more in
federal assistance annually were required to have an audit for that
year.  The 1996 Single Audit Act amendments changed the reporting
threshold:  Beginning in fiscal year 1997, entities with annual
expenditures of $300,000 or more in federal funds are required to
have an audit for that year.

\8 Tax Policy:  A Profile of the Indian Gaming Industry
(GAO/GGD-97-91, May 5, 1997).

   ADDITIONAL TRIBAL REVENUE
   INFORMATION THAT COULD BE
   USEFUL AND BARRIERS TO
   COLLECTING THIS INFORMATION
---------------------------------------------------------- Chapter 0:5

In deciding whether to consider tribal revenues or business income in
order to determine the amount of TPA funds tribes should receive,
information that might be useful to the Congress could include (1)
financial information for all tribes, including those tribes not
submitting reports under the Single Audit Act; (2) more complete
information on the financial resources available to tribes from
tribal businesses, including gaming; and (3) more reliable data on
tribes' financial positions.  However, there are several impediments
to obtaining this information.

For fiscal year 1997 and later, nonfederal entities (including
tribes) expending less than $300,000 in federal funds are not covered
by the Single Audit Act.  Tribes reporting under the act do not have
to report financial information for their tribal businesses if those
businesses do not receive, manage, or expend federal funds.  Interior
officials also noted that under the terms of the Alaska Native Claims
Settlement Act, Congress established for-profit native corporations
as separate legal entities from the non-profit arms that receive
federal financial assistance; for this reason, financial information
on the for-profit arms would not be reported under the Single Audit
Act.  Further, financial information submitted by Alaskan villages
that have formed an association or consortium or operate under
self-governance agreements reflect only the operations of the
umbrella organization and do not provide information regarding the
separate tribal governments.  Interior officials further noted that
some tribes that meet the reporting threshold of the act have not
submitted financial statements annually as required, or have not
submitted them in a timely manner, and that BIA has few sanctions to
encourage these tribes to improve their reporting.  Finally, the
financial statements we examined included a range of auditors'
opinions, and the reliability of the information in the statements
varied.

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

Mr.  Chairman, this concludes my prepared statement.  I will be
pleased to respond to any questions that you or Members of the
Subcommittee may have.

DISTRIBUTION OF FISCAL YEAR 1998
TPA FUNDS AS OF MARCH 25, 1998
=========================================================== Appendix I

                                             BIA service    Per-capita
BIA area                         TPA Funds  population\a      analysis
----------------------------  ------------  ------------  ------------
Aberdeen                       $76,099,497       128,412          $593
Albuquerque                     41,797,628        59,598           701
Anadarko                        24,105,317        45,535           529
Billings                        40,783,297        42,427           961
Eastern                         37,161,454        50,272           739
Juneau                          80,523,960        85,259           944
Minneapolis                     48,483,202        76,883           631
Muskogee                        34,514,007       284,740           121
Navajo                         100,098,796       225,668           444
Phoenix                         89,480,881       100,854           887
Portland                       106,977,145       104,841         1,020
Sacramento                      38,263,720        55,717           687
======================================================================
Distributed subtotal          $718,288,904     1,260,206        $570\c
Not distributed\b               39,059,096           Not           Not
                                              applicable    applicable
======================================================================
Total                         $757,348,000     1,260,206        $601\c
----------------------------------------------------------------------
\a Service population is the number of Indians eligible to receive
services from BIA as of 1995, which were the most recent data
available.  Source:  Indian Service Population and Labor Force
Estimates (BIA, 1995).

\b These include TPA funds for other BIA offices or non-tribal
entities (e.g., funds for BIA's Central Office, funds for employees
displaced due to tribal contracting, and education funds for
non-tribal entities), as well as funds that will be but have not yet
been distributed to tribes or area/agency offices (e.g., funds for
contract support and welfare assistance).

\c Per-capita figures were calculated by dividing the subtotal and
total TPA funds by the total BIA service population.

Source:  GAO analysis based on BIA-provided data.

SCOPE AND METHODOLOGY
========================================================== Appendix II

We obtained information about (1) BIA's bases for distributing 1998
TPA funds; (2) distributions of TPA funds in fiscal year 1998; (3)
revenue and business income reported by tribes under the Single Audit
Act; and (4) additional revenue and income information that might be
useful to the Congress in deciding whether to distribute TPA funds
considering total financial resources available to tribes.  We
contacted officials with the Department of the Interior's Bureau of
Indian Affairs, Office of Audit and Evaluation, and Office of
Self-Governance in Washington, D.C., and its Office of Audit and
Evaluation in Lakewood, Colorado.  We analyzed distribution data
provided by BIA and Office of Self-Governance officials to determine
specific amounts distributed to area offices and tribes in fiscal
year 1998.  We did not independently verify the distribution or
population data.

At Interior's Office of Audit and Evaluation in Washington, D.C.  and
Lakewood, Colorado, we examined all 326 of the most recent financial
statements on file that were submitted under the Single Audit Act by
tribes, tribal associations, and tribal enterprises.  We excluded
statements for some entities, such as tribal housing authorities and
community colleges, because they are financially separate from the
tribes.  Of the 326 financial statements, 290 were for federally
recognized tribes, 20 were for tribal businesses or components of
tribes, 14 were for consortia or associations representing over 170
individual tribes, and 2 were for tribes not federally recognized.
From each of the financial statements we examined, we obtained
information about the independent auditor's opinion, revenues for all
fund types reported, and operating income for tribes that included
tribal business information in their statements.

We performed our review from November 1997 through April 1998 in
accordance with generally accepted government auditing standards.
*** End of document ***