[Independent Auditors Report on the Financial  Statements
       for Fiscal Years 1998 and 1997 for the Office of the Special
Trustee for American Indians Tribal and Other Special Trust
Funds and Individual Indian Monies Trust Funds Managed
by the Office of Trust Funds Management]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 00-i-434

Title: Independent Auditors Report on the Financial  Statements
       for Fiscal Years 1998 and 1997 for the Office of the Special
       Trustee for American Indians Tribal and Other Special Trust
       Funds and Individual Indian Monies Trust Funds Managed
       by the Office of Trust Funds Management

Date:  May 22, 2000




                  **********DISCLAIMER**********

This file contains an ASCII representation of an OIG report.
No attempt has been made to display graphic images or
illustrations.

Some tables may be included, but may not resemble those in the
printed version.  A printed copy of this report may be obtained
by referring to the PDF file or by calling the Office of
Inspector General, Division of Acquisition and Management
Operations at (202) 208-4599.

                  ******************************




U.S. Department of the Interior
Office of Inspector General



AUDIT REPORT
INDEPENDENT AUDITORS REPORT ON
THE FINANCIAL STATEMENTS FOR 
FISCAL YEARS 1998 AND 1997
FOR THE OFFICE OF THE SPECIAL TRUSTEE FOR AMERICAN INDIANS
TRIBAL AND OTHER SPECIAL TRUST FUNDS
AND INDIVIDUAL INDIAN MONIES
TRUST FUNDS MANAGED BY THE
OFFICE OF TRUST FUNDS MANAGEMENT


REPORT NO. 00-I-434

MAY 2000



EXECUTIVE SUMMARY

Independent Auditors Report on the
Financial Statements for Fiscal Years 1998 and 1997
for the Office of the Special Trustee for American 
Indians Tribal and Other Special Trust Funds and 
Individual Indian Monies Trust Funds Managed by the 
Office of Trust Funds Management (No. 00-i-434)

BACKGROUND

The Office of Trust Funds Management contracted with the
independent public accounting firm of Griffin and Associates,
P.C., to audit  the financial statements of the Tribal and Other
Special  Trust Funds and financial statements of the Individual
Indian Monies Trust Funds as of and for the years ended September
30, 1998, and 1997.  These funds are managed by the Office of
Trust Funds Management.

RESULTS IN BRIEF

In its reports on the financial statements, the independent
public accountant issued qualified opinions because cash balances
were materially greater than those reported by the U.S. Treasury,
major deficiencies in the accounting systems' controls and
records caused the systems to be unreliable, and certain Trust
Funds beneficiaries disagreed with balances recorded by the
Office of Trust Funds Management and had filed or were expected
to file claims against the Office of Trust Funds Management.
These conditions prevented the cash and Trust Funds balances and
the receipts and disbursements from being audited.  In addition,
a potential liability to the Federal Government existed because
of the lawsuits filed over the Government's fiduciary
responsibilities.  

Griffin and Associates identified a new internal control weakness
concerning the operation of the  electronic data processing
system involving system security, physical access to the data
center, access controls, and disaster recovery.

RECOMMENDATIONS

Griffin and Associates recommended that the Bureau of Indian
Affairs and the Office of Trust  Funds Management implement
adequate policies and procedures defining appropriate system
security, physical access controls, password controls, and
disaster recovery plans. In addition, the report contained a
summary of internal control issues reported since fiscal year
1995.  Of the 42 issues reported, 27 recommendations remained
unimplemented as of September 30, 1998. 

AUDITEE COMMENTS AND OIG EVALUATION

Based on the responses from the Office of Trust Funds Management
and  the Bureau of Indian Affairs, we considered the new
recommendation concerning the EDP system to be resolved but not
implemented.  

CONTENTS

                                                         Page

REPORT ON FINANCIAL STATEMENTS FOR FISCAL YEARS 1998 AND 1997
FOR THE OFFICE OF THE SPECIAL TRUSTEE FOR AMERICAN
INDIANS TRIBAL AND OTHER SPECIAL TRUST FUNDS AND
INDIVIDUAL INDIAN MONIES TRUST FUNDS MANAGED
BY THE OFFICE OF TRUST FUNDS MANAGEMENT....................5

U.S. DEPARTMENT OF THE INTERIOR, OFFICE OF THE SPECIAL TRUSTEE
FOR AMERICAN INDIANS, TRIBAL AND OTHER SPECIAL TRUST FUNDS
MANAGED BY THE OFFICE OF TRUST FUNDS MANAGEMENT,
FINANCIAL STATEMENTS, SEPTEMBER 30, 1998 AND 1997 WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS...................9

APPENDICES

1.RESPONSE FROM BUREAU OF INDIAN AFFAIRS .................80
2.STATUS OF RECOMMENDATIONS IN AUDIT REPORT
  NO. 98-I-206............................................83

3.STATUS OF AUDIT REPORT RECOMMENDATIONS..................84



                                                C-IN-BIA-003-99-R

Memorandum

     To:  Special Trustee for American Indians,
          Office of the Special Trustee for American Indians 

Subject:  Independent Auditors Report on the Financial 
          Statements for Fiscal Years 1998 and 1997 for the
          Office of the Special Trustee for American Indians
          Tribal and Other Special Trust Funds and Individual
          Indian Monies Trust Funds Managed by the Office of
          Trust Funds Management (No. 00-i-434)

The Office of Trust Funds Management contracted with the
independent public accounting firm of Griffin and Associates,
P.C., to audit  the statements of assets and Trust Funds balances
and the statements of changes in Trust Funds balances for Tribal
and Other Special Trust Funds and for Individual Indian Monies
Trust Funds as of and for the fiscal years ended September 30,
1998, and 1997.  The Trust Funds, which are managed by the Office
of Trust Funds Management, under the Office of the Special
Trustee for American Indians, consist of tribal and individual
Indian monies and other special appropriated funds.

For the fiscal year 1998 annual financial report, Department of
the Interior and Office of Trust Funds Management officials
issued  two sets of financial statements with accompanying notes:
one set for the Tribal and Other Special Trust Funds and the
other set for the Individual Indian Monies Trust Funds.  The
financial statements and notes to the financial statements of the
Tribal and Other Special Trust Funds were reported using the cash
basis of accounting, and the Individual Indian Monies Trust Funds
were reported using a modified cash basis of accounting.
Comparative data for fiscal year 1997 have also been presented.

In its reports on the financial statements, the independent
public accountant issued qualified opinions because cash balances
were materially greater than those reported by the U.S. Treasury,
major deficiencies in the accounting systems' controls and
records caused the systems to be unreliable, and certain Trust
Funds beneficiaries disagreed with balances recorded by the
Office of Trust Funds Management and had filed or were expected
to file claims against the Office of Trust Funds Management.
These conditions prevented the cash and Trust Funds balances and
the receipts and disbursements from being audited.  In addition,
a potential liability to the Federal Government existed because
of the lawsuits filed over the Government's fiduciary
responsibilities.

The independent public accountant's report on the internal
control structure contained one recommendation to address
weaknesses in the Office of Trust Funds Management's trust
accounting systems.  These weaknesses had been reported in the
opinion on the financial statements for fiscal year 1995 as two
internal control weaknesses.  This year's report also restated 8
material weaknesses, 11 reportable weaknesses, and 5 advisory
comments from prior years' audit reports for which the
recommendations remained unimplemented, although the Office of
Trust Funds Management concurred with the recommendations.  

The recommendation contained in this year's report was based on
the following internal control weakness that the independent
public accountant classified as another advisory comment that was
addressed to the Bureau of Indian Affairs as follows:

-System security:
--  Periodic reviews of system reports were not performed.
--  Specific clearly defined information security policies and
procedures for system security monitoring did not exist.
--  Physical access to the Operations Service Center at the
Bureau of Indian Affairs:
--  Not all access cards were assigned to specific individuals.
--  Certain individuals were in possession of multiple cards.
--  Certain contractors with limited need were in possession of
access cards.
--  Certain personnel whose jobs should not have required access
to the computer room were in possession of access cards.
--  Two Bureau of Indian Affairs employees, not employees of the
Operations Service Center, were in possession of access cards.

-Documentation:  Access request forms were not stored in a secure
location.

-Password controls:
--  User codes were not routinely removed for terminated or
transferred employees.
--  Passwords were not changed on a regular basis.
--  Complete documentation did not exist to readily identify the
owner of each user code.

-Disaster Recovery Plan:  The plan had not been tested in almost
2 years. 

The independent public accountant's report on compliance with
laws and regulations contained one material noncompliance issue,
an immaterial noncompliance issue, and another noncompliance
issue. The material noncompliance issue and the immaterial
noncompliance issue had been reported in prior audit reports.
The material issue was that tribal organizations and classes of
individual Indians had filed various claims against the Federal
Government for its failure to fulfill its fiduciary
responsibilities and had made other related charges.  The
immaterial noncompliance issue (No. C.1) related to the Office of
Trust Funds Management accepting voluntary deposits, which is
generally prohibited by the Code of Federal Regulations (25 CFR
115.8).  The report on internal controls noted several instances
where the Office of Trust Funds Management accepted voluntary
deposits to Individual Indian Money accounts. The other
noncompliance issue related to the Office of Trust Funds
Management's disclosure in its management representation letter
that, since September 30, 1995, it had not complied with the
Federal Managers Financial Integrity Act of 1982.  Specifically,
the Office of Trust Funds Management failed to assess (1) the
effectiveness of its internal control structure over safeguarding
the assets against unauthorized acquisition, use, or disposition;
(2) compliance with laws and regulations; and (3) financial
reporting based on control criteria established under the Act.
The report contained no recommendations for these issues.  One
other noncompliance issue and one immaterial noncompliance issue
from a prior audit report were also included in this year's
report because implementation of these recommendations had not
been accomplished.    

In addition to the results of the audit of the financial
statements as of and for the fiscal years ended September 30,
1998, and 1997, the independent public accountant's report
contained a summary of internal control issues reported since
fiscal year 1995.  Of the 42 issues reported, 27 recommendations
remained unimplemented as of September 30, 1998. The status of
recommendations contained in our prior report (No. 98-I-206) is
in Appendix 2 of this report.

Based on the response from the Office of Trust Funds Management
(which was incorporated into the independent public accountant's
report) and the March 17, 2000, response from the Bureau of
Indian Affairs (see Appendix 1) to Recommendation 42 in the
report on internal controls, we consider the recommendation
resolved but not implemented.  Accordingly, the recommendation
will be referred to the Assistant Secretary for Policy Management
and Budget for tracking of implementation.  Recommendation 42 was
addressed to the Bureau of Indian Affairs, which indicated in its
response that it had identified the weakness in its Federal
Managers Financial Integrity Act report for fiscal year 1999 and
that some of the recommendations had been implemented.  However,
the Bureau of Indian Affairs did not provide target dates for
implementation of the recommendations.  In addition, the Bureau
responded to several other recommendations that had been
previously reported and referred for resolution and tracking of
implementation.   

In conjunction with the audit, we reviewed the independent public
accountant's report and related working papers.  Our review, as
differentiated from an audit performed in accordance with
generally accepted Government auditing standards, was not
intended to enable us to express, and we do not express, opinions
on the financial statements of the Office of the Special Trustee
for American Indians, on management's assertions about the
effectiveness of its internal controls, or on its compliance with
applicable laws and regulations.  The independent public
accountant is responsible for the auditor's report dated January
22, 1999, and the conclusions expressed in the report.  However,
our review disclosed no instances in which the independent public
accountant did not comply in all material respects with generally
accepted auditing standards.  

Since the report's recommendation is considered resolved, no
further response to the Office of Inspector General is required
(see Appendix 3).

Section 5(a) of the Inspector General Act (5 U.S.C. app. 3)
requires the Office of Inspector General to list this report in
its semiannual report to the Congress.  In addition, the Office
of Inspector General provides audit reports to the Congress.

This report is intended for the information of management of the
Office of the Special Trustee for American Indians, the Bureau of
Indian Affairs, the Office of Management and Budget, and the
Congress. However, this report is a matter of public record, and
its distribution is not limited.


                               Roger La Rouche
                               Acting Assistant Inspector General 
                                for Audits

cc:  Assistant Secretary for Indian Affairs
 




U.S. DEPARTMENT OF THE INTERIOR
OFFICE OF THE SPECIAL TRUSTEE
FOR AMERICAN INDIANS
TRIBAL AND OTHER SPECIAL TRUST FUNDS,
AND INDIVIDUAL INDIAN MONIES TRUST FUNDS
MANAGED BY THE
OFFICE OF TRUST FUNDS MANAGEMENT

FINANCIAL STATEMENTS

SEPTEMBER 30, 1998 AND 1997

WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



TABLE OF CONTENTS

SEPTEMBER 30, 1998 AND 1997

            Page
OVERVIEW	4-8

COMBINED TRIBAL AND OTHER SPECIAL TRUST FUNDS:

	REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON	10 - 11
	FINANCIAL STATEMENTS
	COMBINED STATEMENT OF ASSETS AND TRUST FUND	13
	BALANCES - CASH BASIS
	COMBINED STATEMENT OF CHANGES IN TRUST FUND
	BALANCES - CASH BASIS
	NOTES TO THE FINANCIAL STATEMENTS	15 - 25
	SUPPLEMENTARY COMBINING SCHEDULE OF ASSETS	27
	AND TRUST FUND BALANCES ï¿½ CASH BASIS
	SUPPLEMENTARY COMBINING SCHEDULE or CHANGES	28
	IN TRUST FUND BALANCES ï¿½ CASH BASIS
	INDIVIDUAL INDIAN MONIES TRUST FUNDS:
	REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON	30 - 31
	FINANCIAL STATEMENTS
	STATEMENT OF ASSETS AND TRUST FUND BALANCES -33
	MODIFIED CASH BASIS
	STATEMENT OF CHANGES IN TRUST FUND BALANCES -34
	MODIFIED CASH BASIS
	NOTES TO THE FINANCIAL STATEMENTS	35 - 46
	REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON	51 - 67
	INTERNAL CONTROL STRUCTURE
	REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON	69 - 71
	COMPLIANCE WITH LAWS AND REGULATIONS

	
OVERVIEW

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 1998

Designated Trustee

The Secretary of the Interior ("the Secretary") is designated as
primary Trustee of funds held by the federal government for
Indian Tribes and individual Indians. The Secretary delegated
authority for the management of Indian trust funds to the
Assistant Secretary ï¿½ Indian Affairs. This authority was
redelegated to the Bureau of Indian Affairs ("BIA") and was
administered by the BIA's Office of Trust Funds Management
("OTFM").

The Office of the Special Trustee for American Indians ("OST")
was established, under authority provided by the American Indian
Trust Food Management Reform Act enacted in 1994 (the "Act"), to
oversee all facets of trust management improvement for the
Department of Interior ("DOI"). The Secretary rescinded the BIA's
delegation of authority for the management of Indian trust funds
and redelegated the authority to OST. In February 1996, the OTFM
was transferred from the BIA to the OST. The Special Trustee has
since redelegated program and administrative authority to the
Director, OTFM.

The OTFM manages all trust activities associated with the
receipt, accounting, investing, and disbursement of funds for
American Indians and Alaska Natives in accordance with public
laws, regulations, policies, and procedures. The OTFM is working
with the Special Trustee to mitigate deficiencies in all
processes, and to make the appropriate improvements to the
overall administrative activities while providing efficient and
timely service to account holders.

Due to numerous General Accounting Office reports, DOI/Office of
Inspector General audits, and DOI and Congressional reports, the
management of Indian Trust Funds has been and continue. to be a
highly visible program and has been under very close scrutiny
during the past few years. The creation of the OST in 1994 was an
initial step toward improving trust funds management and
developing the major reforms necessary to resolve program
deficiencies.

Fiduciary Responsibility

The U.S. Federal Government holds funds in a fiduciary capacity
on behalf of various Indian entities (i.e., individuals and
tribes). The U.S. Federal Government has a fiduciary
responsibility for several deposit and trust funds. The DOI has
responsibility for the assets held in trust on behalf of American
Indian Tribes, individuals, and other Special Trust Funds. The
fiduciary funds are held in accounts for over 315 tribes 286,000
individual Indian accounts and other funds, including the Alaska
Native Escrow Fund. The assets held in trust for Native Americans
are owned by the account holders and are not U.S. Federal
Government assets. In carrying out the management and oversight
of the Indian Trust Funds, the Secretary has a fiduciary
responsibility to ensure that trust accounts are properly
maintained and invested in accordance with applicable law, and
that accurate and complete reports are provided to the account
holders.

Decisions of the Supreme Court reviewing the legality of
administrative conduct in managing Indian property have, in part,
held officials of the United States to "moral obligations of the
highest responsibility and trust" and "the most exacting
fiduciary standards," and be "bound by every moral and equitable
consideration to discharge its trust with good faith and
fairness."

Mission Statement of OST/OTFM

To assure the highest level of accuracy, responsiveness and
service in the receipt, investment and disbursement of all
judgement awards, special acts and income from trust resources
belonging to Native Americans in accordance with the American
Indian Trust Fund Management Reform Act of 1994.

Trust Fund Accounts

Indian Tribes and individual Indians trust funds are primarily
derived from judgment awards, claims, and proceeds from surface
and sub-surface leasing such as agriculture, business, timber,
minerals, or oil and gas. The major portion of tribal funds
consist of individual Indian funds consist of judgment awards and
interest income while individual Indian funds realize receipts
primarily from various leasing activities mineral royalties,
sales of extracted minerals, timber and forest products, fees and
fines and the granting of easements.

Appropriated Account

In the fiscal year ended September 30, 1998 ("FY 1998"), the OST
received direct appropriation for operational services. The FY
1998 funds have been utilized for executive direction, program
operations, support and improvements and trust fund improvement
initiatives. These appropriated program funds are not American
Indian Trust Funds and have not been included in these financial
statements. However, they are included in the Office of the
Secretary's annual financial statement audit.

The FY 1998 funding for Executive Direction supports staffing for
the Office of Special Trustee, funding for the Special Trustee's
Advisory Board ("the Board") and the Intertribal Monitoring
Association ("ITMA"). The Board advises the Special Trustee on
all matters pertaining to trust funds operations and management,
and the appropriated funding was used to pay travel costs of the
Board and related expense.. The ITMA is a tribal membership
organization with a 12-member Board of Directors that provides
Tribal input and views on various aspects of trust issues to the
Special Trustee and the DOI.

Part of the program operations funding provides for service
bureau agreements for administrative support services with other
Federal Agencies.

Another part of program operations funds staffing and operating
costs for the 62 OST field offices located throughout the United
States which comprise 11 Area offices, 50 Agency offices and one
Division of Field Operations office.

Annual Financial Audits

In prior year audits (fiscal years ended September 30, 1995 and
September 30, 1996), the audit coverage was intended to meet the
requirements of the Chief Financial Officers Act of 1990 ("CFO
Act"). However, following OTFM management's consultations with
the DOI and officials of the Office of Management and Budget, the
consensus is to account for Tribal and Other Special Trust Funds
on the cash basis and IIM Trust Funds on the cash basis with
modifications to record investment earnings on the accrual basis,
both of which are an other comprehensive basis of accounting. The
basis for this position is that the majority of assets held in
trust for Native Americans are owned by the account holders and
are not U.S. Federal Government assets.

For the annual financial audit for FY 1997 and thereafter,
Departmental and OTFM managers have agreed to issue two sets of
financial statements with accompanying notes to the financial
statements, a combined report on internal control structure and a
combined report on compliance with laws and regulations of the
trust funds managed by OTFM.1

As a result, one set of financial statements include the Tribal
and Other Special Trust Funds. These statements are presented
using the cash basis of accounting, with assets stated at
historical cost and at market value. Premiums and discount. are
not amortized or accreted.

The other set of financial statements include only the Individual
Indian Monies. These statements are presented on a modified cash
basis of accounting. Assets are presented at amortized historical
cost. Premiums and discounts are amortized and accreted.

The audits encompass all Indian trust funds managed by the OTFM,
which include funds in the following Treasury account symbols:

Tribal Trust Funds

14X5197	Tribal Economic Recovery Fund
14X8176	Crow Creek Tribe Infrastructure Development Trust Fund
14X8327	Northern Cheyenne Indian Water Rights Settlement Trust
Fund
14X8365	Tribal Trust Funds
14X8368	Navajo Rehabilitation Trust Fund

Other Special Trust Funds

14x5166	Cochiti Wetfields Project
14X6140	Deposits of Proceeds of Lands Withdrawn for Native
Selection
14X8060	Bequest of George C. Edgeter Fund
14X8366	Papago Cooperative Fund
14X8563	Funds Contributed for the Advancement of the Indian Race

Individual Indian Monies Trust Funds

1  The following is excerpted from a letter to the Director,
Office of Trust Funds Management, from the Director, Office of
Financial Management, United States Department of the Interior:

"From a theoretical standpoint, the 'Tribal Trust Funds' as a
reporting entity consists of the sum of the individual accounts,
which are measured on the cash basis, plus any assets,
liabilities, reveres and expenses of the trust funds which have
not been allocated to the account holders. Based on c:=cusslons
between the Office of Eir.ancial Management and OTFM, all cash,
assets, and revenues received By the 'Tribal Trust Funds' entity
have been distributed to individual account holders. Likewise,
there are no liabilities or expenses, which have not been
allocated... Given this, a summation of the cost basis of the
tribal accounts would constitute a complete presentation of the
reporting entity, and would constitute 'an other comprehensive
basis of accounting'... in accordance with private sector
accounting guidance. As with reports to individual account
holders, market value could be presented along side the cost
basis for informational purposes..."

"Regarding Individual Indian Money (IIM) accounts, we concur with
the decision to use of modified accrual accounting [cash basis
with modificaticns to reflectinvestment earnings on the accrual
basis. Due to differences in the underlying nature of the IIM
versus Tribal accounts, and the different accountinq
methodologies applied, separate statements and footnotes should
be prepared for each type of trust activity." 


14X6039 Individual Indian Monies

OTFM appropriation 14X0120, which is OTFM's program operating
fund, is specifically excluded from these financial statements.

Customer Service

The OTFM has offices that provide intensified trust funds
management services to field offices, Tribes, and individual
account owners. They are responsible for assisting in planning
and recommending policies and procedures governing the management
of controlled trust fund accounts. Technical advice and
assistance are being provided to America Indian Tribe" in
developing financial plans and investment strategies for tribal
and individual Indian trust funds.

Government Performance and Results Act ("GPRA")

The American Indian Trust Fund Management Reform Act of 1994
directs the OST to consult with Indian Tribes and Indian
organization. and to develop a comprehensive strategic plan to
reform the trust fund management system. This planning process,
by law, is on a separate but parallel track toward developing a
resultsï¿½based strategic plan. The Special Trustee submitted hi.
strategic plan to the Secretary of the Interior and the Congress
in April 1997. The plan identifies a mission and goals for the
improvement and operation of a Trust Fund Management system for
the American Indians. While fulfilling the intentions and
requirements of GPRA, compliance with some of the time frames of
GPRA may be delayed.

HIGH LEVEL IMPLEMENTATION PLAN ("HLIP")

The Secretary and the Special Trustee agreed that selected trust
system improvements and data clean up efforts in the Strategic
Plan could and should proceed as soon as possible within the
organizational structure of the Department. The approach selected
to implement the Secretary's decisions on portions of the Special
Trustee's Plan is centered on 13 major Sub projects. The Sub
projects were identified and designed to ensure coverage of not
only the data clean up and systems improvements, but also to
address the longstanding deficiencies cited by external oversight
groups with regard to the support systems ï¿½ records management,
training, policy and procedures, and internal controls. The Sub
projects are:

Office of the Special Trustee Financial Data Clean up Bureau of
Indian Affairs Resources Data Clean up Bureau of Indian Affairs
Probate Backlog Office of Hearings and Appeals Probate Backlog
Bureau of Indian Affairs Appraisal Program Trust Funds Accounting
System Trust Asset and Accounting Management System Land Records
Information System Enhancements Minerals Management Service
Systems Reengineering Record. Management Policy and Procedures
Training Internal Control.

Each of the 13 Sub projects are presented in the Department's
Trust Management Improvement Project's HIGH REVEL IMPLEMENTATION
PLAN ("HLIP") issued in July 1998.

The HLIP provides information on each of the 13 Sub projects
including responsible Bureaus and Offices, supporting tasks,
critical milestones, work plans, resource estimates, and
accountable officialï¿½. Although identified and organized as
separate Sub projects, they are very much integrated and
complementary.

OST has primary responsibility for 2 Sub project. (OST Trust
Financial Data Clean Up and the Truat Funds Accounting System Sub
projects). As of this date, OST also has taken the lead in
developing and organizing 3 Sub projects (Policy and Procedures,
Training, and Internal Controls). A description of these 5 Sub
projects follows:

OST Trust Financial Data Clean up: In this Sub project, OST will
standardize and verify the IIM subsidiary system data for trust
resource records, and correct and establish an inventory of hard
copy records used daily for each trust fund account.

Trust Funds Accounting System: This Sub project will acquire,
install and pilot, using a service bureau approach, a proven
commercial offï¿½theï¿½self trust accounting system to replace the
present BIA IIM accounting module.

Policy and Procedures: DOI trust policies and procedures will be
inventoried, reviewed and, where appropriate, revised or
established. This Sub project specifically involves and includes
representatives of OST, BIA, MMS, BLM, OHA and other Departmental
Offices involved in Indian trust management.

Training: The Training Sub project will plan and deliver both
trust management ant employee skills training relevant to
delivery of Interior's trust fiduciary responsibilities to
American Indians. Training will be provided across the Interior
trust workforce and include Tribes and participating contractors.

Internal Control : The Sub project will systematically address
documented internal control deficiencies in Indian trust
management, item by item, that have been identified through
internal and external audit, Congressional oversight and outside
reviewï¿½. Corrective actions will be validated and/or designed to
assure resolution of all internal control weaknesses.



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENTS

To the U.S. Department of the Interior

Office of the Special Trustee for American Indians:

We have audited the accompanying Combined Statements of Assets
and Trust Fund Balances and the related Combined Statements of
Changes in Trust Fund Balances for the Tribal and Other Special
Trust Funds managed by the U.S. Department of the Interior Office
of the Special Trustee for American Indians (the "OST") Office of
Trust Funds Management (the "OTFN") as of and for the years ended
September 30, l99e and 1997. These financial statements are the
responsibility of management of the OTFN. Our responsibility is
to express an opinion on these financial statements based on our
audit=. As discussed in Note 1, the OTFN used the cash basis of
accounting to prepare these financial statements, which is a
comprehensive basis of accounting other than generally accepted
accounting principles.

Except as discussed in the following paragraph, we conducted our
audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used, and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

As discussed further in the Notes to the Financial Statements,
(1) cash balances reflected in the accompanying combined
financial statements are materially greater than balances
reported by the U.S. Treasury, (2) inadequacies in various
Department of the Interior ("DOI") Indian Trust Fund accounting
systems and subsystems, controls and records caused the systems
to be unreliable, (3) various Tribal organizations and classes of
Individual Indians for whom the OTFM holds assets in trust do not
agree with certain OTFN accountings and balances recorded by the
OTFM; and certain of these parties have filed, or are expected to
file, claims against the OTFM. This may result in a potential
liability to the U.S. Federal Government that is not reasonably
estimable. Because of these matters, it was not practicable to
extend our auditing procedures to enable us to express an opinion
regarding the basis on which cash and Trust Fund balance. in the
Combined Statements of Assets and Trust Fund Balances and
individual categories within the Combined Statements of Changes
in Trust Fund Balances are stated.

In our opinion, except for the effect on the financial statements
of adjustments that might have been determined had we been able
to perform adequate audit procedures to verify the financial
elements described in the preceding paragraph, the financial
statements referred to above present fairly, in all material
respects, the financial position and change in Trust Fund
balances of the Tribal and Other Special Trust Funds managed by
the U.S. Department of the Interior Office of the Special Trustee
for American Indians Office of Trust Funds Management as of
September 30, 1998 and 1997, and for the years then ended in
conformity with the comprehensive basis of accounting described
in paragraph one above.

We have also issued separate reports dated January 22, 1C99, on
the OTFM's internal control structure and on its compliance with
laws and regulations.

Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Market Value
columns, Supplementary Combining Schedule of Assets and Trust
Fund Balances, and the related Supplementary Combining Schedule
of Changes in Trust Fund Balances as reflected on pages 27 and 28
are presented for purposes of additional analysis and are not a
required part of the basic combined financial statements. Such
information has been subjected to the auditing procedures applied
in the audit of the basic combined financial statements, and in
our opinion, except for the items set forth above, are fairly
stated in all material respects in relation to the basic
financial statements taken a. a whole.

Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The information in
the Overview Section is not a required part of the basic
financial statements, but is supplementary information. We did
not audit this information, and because of the exceptions set
forth above, we do not express an opinion on such information.

GRIFFIN & ASSOCIATES, P.C.
Certified Public Accountants
Boulder, Colorado
January 22, 1999




U.S. DEPARTMENT OF THE INTERIOR
OFFICE OF THE SPECIAL TRUSTEE FOR AMERICAN INDIANS
TRIBAL AND OTHER SPECIAL TRUST FUNDS
MANAGED BY THE
OFFICE OF TRUST FUNDS MANAGEMENT

FINANCIAL STATEMENTS

SEPTEMBER 30, 1998 AND 1997





 
              COMBINED STATEMENTS OF ASSETS AND
               TRUST FUND BALANCES - CASH BASIS
                        SEPTEMBER 30



          Consult table copy of this report on PDF, page 13. 







COMBINED STATEMENTS OF CHANGES IN TRUST FUND BALANCES - CASH
BASIS FOR THE YEARS ENDED SEPTEMBER 30,

		                             1998	         1997

	RECEIPTS:
	Interest and dividends earned
	on invested funds (Note 2B)	$ 132,513,719	$ 153,714,298
	Net gain on disposition of investments	14,965,058	9,501,186
	Other receipts (Note 2C and 9)	374.246.762	443.781.192
		                            521,725,539 606,996,676

	DISBURSEMENTS:
	Payments to and on behalf of
	Indian Tribes and Other
	Special Trust Funds and Withdrawal of
	of trust funds by Tribe. (Note 2D)	465,398,361	438,E85,964
	Receipt. in excess of disbursements	56,327,178	168,110,712
	TRUST FUND BALANCES, beginning of year	2,403,721,352
2,297,852,046
	Beginning Trust Fund balances
	adjustment for cash basis (Note 10)		(62,241,406)
	TRUST FUND BALANCES, end of year (Note 7)	$ 2,460,048,530
2,403,721,352

              Market Value - Information Only

	TRUST FUND BALANCES, beginning of year
	at Market Value	$ 2,553,600,561	$ 2,261,723,615
	Receipts in excess of disbursements	56,327,178	168,110,712
	Unrealized Gain (loss)	63,937,878	123,766,234
	TRUST FUND BALANCES, end of year
	at Market Value (Note 7)	$ 2,673,865,617	$ 2,553,600,561

The accompanying notes are an integral part of these statements.


NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

NOTE 1 -- BACKGROUND AND DESCRIPTION OF THE ORGANIZATION

A. Overview of Trust Funds, the Office of the Special Trustee for
American Indians ("OST") and the Office of Trust Funds Management
("OTFM")

Formation of the Trust Funds ï¿½ The legislation, which authorizes
the Secretary of the Interior ("the Secretary") to manage the
Tribal and Other Special Trust Funds ("Trust Funds"), recognizes
the unique trust relationship that exists between the Indian
Tribe. and the U.S. Federal Government. Agreements between the
U.S. Federal Government and the various Indian Tribes, many of
these in the form of treaties, recognize the sovereignty of
tribes. During the course of the Nation's history and the U.S.
Federal Government's varying policies toward Indian Tribes, the
trust relationship has retained characteristics based upon tribal
sovereignty.

The balances that have accumulated in the Trust Funds have
generally resulted from payments of claims by the U.S. Federal
Government, land use agreements, oil, gas and mineral extraction
and investment income.

The Secretary has been designated by the U.S. Congress as the
primary U.S. Federal Government trustee on behalf of the account
holders of the Trust Funds. Through Fed N ary 8, 1996, the
Secretary, in turn, delegated authority for management of the T N
st Funds, including accounting and financial reporting, to the
Assistant Secretary ï¿½ Indian Affairs, who carried out the
management of the Trust Funde through the Bureau of Indian
Affairs ("~IA"). The American Indian Trust Fund Management Reform
Act of 1994 ("P.L. 103ï¿½412") provided for the establishment of
the OST. On Fed N ary 9, 1996, Secretarial Order 3197 ("the
Order") redelegated this authority to OST and transferred the
OTFM, and financial t N st services performed at BIA Area and
Agency Offices, from the BIA to the OST.

Organization of the OST - Trust assets are managed under the
delegated authority of the OST and the BIA.

Agency and Field Offices - The OST and BIA maintain Agency and
Field Offices located throughout the United States. Generally,
Agency and Field Office. are physically located near the Tribes
served. The Agency and Field Offices may play a significant role
in Tribal affairs through assistance in financial planning,
financial operations and policy and program development. OST
personnel located at most of the Agency Offices perform various
functions related to trust funds activities.

Area Offices - Each of the Agency and Field Offices is organized
under one of the Area Offices. The Area Offices provide
administrative and operational support for their respective
Agency and Field Offices.

Office of Trust Funds Management - The OTFM, established October
26, 1989, and located in Albuquerque, New Mexico, has management
responsibility over all Indian Trust Funds. The OTFM carries out
its responsibilities through the following Divisions and Staff
Offices:


NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 

O Division of Trust Funds Quality Assurance - This division
plans, develops, and implements the OST-wide operational review,
evaluation, policies and regulatory management programs. The
division advises OST/OTFM management on the efficiency, economy,
legality and effectiveness of operation. and compliance with all
mandated laws and regulations at the program, field and tribal
level where appropriate. It identifier, develops, and coordinates
the preparation of trust fund management policies and operational
procedures.

0 Division of Trust Funds Systems - This division provides daily
technical support for trust funds financial accounting systems to
end users, including OST, BIA, and tribal employees. The division
coordinates OST's ADP and related information management
activities and provides support in such areas as acquisition
assistance and management, technology assessment, and technical
support for office automation hardware, software, and training.

0 Division of Trust Funds Accounting - This division processes
and controls accounting activities which record and report funds
collected, disbursed, invested, and held in trust. It plans,
develops, and recommends policies and procedures governing
collection of Trust Funds, as well as monitoring collections and
recording of funds. It is also responsible for investment
accounting activities and for providing custodial services for
investment activities.

0 Division of Trust Funds Services - This division plans,
develops, operates, and controls the buying, selling, and trading
of investments in accordance with applicable lawï¿½, regulationï¿½,
and policies. It provides technical advice and assistance to Area
Offices, Agency Offices, and Indian Tribes in developing
financial plans and investment strategies for Trust Funds.

0 Division of Trust Funds Reporting/Reconciliation - This
division is responsible for reconciling subsidiary accounts and
monitoring Trust Fund activities. The division prepares certain
financial and accounting reports for use within the U.S. Federal
Government and for inclusion in various OTFM-wide reports.

0 Division of Field Operations - This division coordinates the
administrative and technical execution of financial trust
programs conducted at subordinate offices; providing or obtaining
adequate technical service to guide and support field operations;
and evaluating the performance of field level organizations. The
division, through its subordinate offices, is also responsible
for the work processes related to receiving, recording, and
disbursing general trust and judgement funds collected by the
BTA, belonging to tribes, and preparing, maintaining, and
reconciling records.


NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

B. Description of the Trust Funds

The Trust Funds are managed by the OTFM and BIA on behalf of
Tribes and Other Special Trust Funds. Certain of the Tribal and
Special Trust Funds are subject to legal, regulatory, budgetary,
court ordered or other restrictions. A brief description of each
Trust Fund follows:

Tribal Fund - Approximately 315 Tribes have accounts in the
Tribal Fund; however, some Tribes have multiple accounts. As a
result, approximately 1,700 ant 1,600 separate accounts comprise
the Tribal Fund as of September 30, 1998 and 1997 respectively.
Approximately 494 and 44% of the Tribal Fund asset. are held on
behalf of six account holders as of September 30, 1998 and 1997,
respectively.

Tribes realize receipts from a variety of sources including land
use agreements, royalties on natural resource depletion, Tribal
enterprises related to trust resources, judgment awards,
settlement of Indian claims and investment income.

Other Special Trust Funds - Other Special Trust Funds represent
other trust assets currently managed by the OTFM. Authorization
for management of these assets is based on U.S. Congressional
Acts establishing such funds. Each of these funds either reverts
back to the U.S. Federal Government upon certain conditions, or
the corpus of the fund is non-expendable. A brief description of
each Fund follows:

O Alaska Native Escrow Fund ï¿½ The Alaska Native Escrow Fund was
established by U.S. Congressional act for Alaska Native
Corporations and Villages for land of which boundaries were
disputed. Proceeds received or deposited into this fund are
derived primarily from contracts, leases, licenses, permits,
rightsï¿½ofï¿½way, etc. The proceeds, plus accrued interest, are paid
out to the appropriate corporation or individual to which the
land is conveyed by the U.S. Federal Government.

0 Cochiti Wetfields Fund - The Pueblo de Cochiti ("Pueblo") and
the U.S. Army Corps of Engineers entered into a settlement
agreement for water seepage problems at the Cochiti Dam on Tribal
lands. The agreement established a fund for the sole and specific
purpose of operating, maintaining, repairing and replacing this
drainage system. Although the fund is invested and managed by the
OTFM, the fund remains the property of the United States, and
will revert to the Department of the U.S. Treasury ("Treasury")
if Cochiti Dam becomes non-operational and the Pueblo agrees that
the drainage system is no longer needed.

0 Papago Cooperative Fund - The Tohono O'odham Nation, with
respect to the San Xavier Reservation and the Schuk Toak District
of the Sells Papago Reservation, was awarded a settlement in the
form of water rights for water that was taken from reservation
land. The water rights give the Tribe flexibility in the
management of water resources and encourage allocation of those
resource. to their highest and best uses. The awarded funds are
to be used for Tribal government, health, education, social
services, capital improvements and economic development programs.

0 Contributed Funde - The OTFM maintains eight (8) contributed
funds that were established by donations. The individual funds
each have a specific use or purpose in some form to better the
lives of American Indians by giving assistance for education.

O George C. Edgeter Fund - This fund is available, according to
the terms of the bequest, for expenditure as determined by the
Assistant Secretary - Indian Affairs for the relief of indigent
American Indians.

C. Investment of Trust Fund Assets

Authorizing legislation and a substantial body of case law
specify how the Indian Trust Fund assets should be managed and
which financial instruments constitute appropriate investments
for Indian Trust Funds. Trust funds are directly invested in U.S.
Federal Government securities, including U.S. Treasury and U.S.
Federal Government Agency issues, as well as certain other
securities that are guaranteed by the U.S. Federal Government. A
portion of Indian Trust Funds are also invested with financial
institutions at which such deposits are covered by Federal
depository insurance.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Accounting

The OTFM uses the cash basis of accounting, which is a
comprehensive basis of accounting other than generally accepted
accounting principles, for the Tribal and Other Special Trust
Funds. The cash basis of accounting differs from generally
accepted accounting principles in that receivables and payables
are not recorded and premiums and discounts are not amortized or
accreted. Investments are stated at historical cost. Interest
receipts reported in the Statement of Changes in Trust Fund
Balances reflect the interest received during the fiscal year.
The financial statements include a market value column for
informational purposes. The market value information is integral
to the fiduciary responsibilities of the OTFM.

The Indian Trust Funds account for assets held for others in a
trust capacity and do not involve measurement of operations.
Receipts are recorded when received, because it is not
practicable to measure the majority of such items prior to
receipt. Accordingly, receivables are not reflected in the
accompanying financial statements. The accompanying financial
statements include only the balances held in trust by the OST and
OTFM for others and do not include (1) the account balances of
the OST and OTFM "general appropriations, personnel and occupancy
costs, etc.), or (2) the values of Indian lands, buildings or
other nonï¿½monetary assets regardless of the source of funding
tribal monies, Congressional appropriations, Indian Trust Fund
resources, etc.).

B. Interest Receipts

Tribal Trust and Other Special Trust Funds are invested
separately by account with interest recorded based on actual
income received from each investment. Interest is received in two
ways: (1) directly from investment securities in which the Trust
Funds are placed, such a. certificates of deposit at financial
institutions or U.S. Treasury, Agency or U.S. Federal Government
sponsored securities, or (2) from a U.S. Treasury overnight
investment ("overnighter"), which earns a rate comparable to "Fed
Funds" rates. The interest on the overnighter investments is
calculated daily, compounded, accumulated separately for
participating accounts and posted to the separate accounts
monthly.

C. Other Receipts

Approximately 27% and 33% of other receipts are as a result of
claims and judgment awards to Tribes and Other Special Trust
Funds by the U.S., State and local governments, and private
entities and individuals for the years ended September 30, 1998
and 1997 respectively.

Other trust receipts are generated from a variety of assets that
are held in trust by the U.S. Federal Government and managed by
the various Agencies and the BIA on behalf of Tribes. Such
amounts include receipts from various leasing activities, mineral
royalties, and sales of extracted minerals, timber and forest
products, fees and fines, and the granting of easements.

D. Disbursements

Payments disbursed to Tribes and Other Special T. N st Funds
consist of investment income as well as funds from various income
producing activities such as leasing, royalty payments, minerals
extraction and timber and forest product sales. Under certain
conditions, Tribes disburse per capita payments to their enrolled
members from the T. N st Funds. Payments are made to Tribes from
the proceeds of various judgment awards. Upon secession and
approval of the required documentation, Tribes may suh_it
requests for payments in accordance with terms and conditions of
the awards.

P.L. 103-412 specifically allows for the voluntary withdrawal
from the Trust Funds program. An Indian Tribe may submit a plan
to withdraw some or all funds held in trust for the Tribe. The
plan must be approved by the Secretary, DOI, and the appropriate
Tribal governmental body, and must provide an indication as to
the capability and experience of the individuals or institutions
managing the Trust Funds. During fiscal year 1997, one Tribe
withdrew approximately $60 million pursuant to P.L. 103-412.

E. Significant Estimates

The preparation of financial statements requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates. Management considers the market value of
investments one such significant estimate.

NOTE 3 -- ACCOUNTING SYSTEMS AND MATERIAL INTERNAL CONTROL
WEAKNESSES

The accounting systems, subsystems and internal control
procedures used by the OST and the OTFM have historically
suffered from a variety of system and procedural internal control
weaknesses. Some of these weaknesses along with their
improvements are as follows:

A. There were and still are some gaps of consistency in the
application of accounting and related procedures being utilized
OTFM-wide, which cause accounting errors in the Indian Trust
Funds. Standardized documented policies and procedures are in
various stages of development to address all significant
accounting processes.

B. There is inadequate segregation for many key duties,
particularly in the accounting processes performed at the Area
and Agency Offices. Efforts have been implemented to centralize
the accounting input functions to the central office, which is
expected to address the segregation of conflicting duties issue.

C. Records management is inconsistent and inadequate to ensure
the proper filing and safekeeping of Trust Fund records to
support trust financial activity, however, a mandatory documents
policy has been adopted and verification of these mandatory
documents will be checked in the centralized accounting
preï¿½posting review procedures.

D. Prior to October 1998, internal financial statements were not
being prepared in accordance with the cash basis of accounting
which is a comprehensive basis of accounting other than generally
accepted accounting principles. The OTFM did compile a Statement
of Assets and Trust Fund Balances and Statement of Changes in
Trust Fund Balances as of and for the month ended October 31,
1998 and is expected to compile financial statements on a
quarterly basis.

E. There is an unreconciled difference of approximately
$35,000,000 between the total cash balances reflected by the OTFM
for Tribal and Other Special Trust Funds, and Individual Indian
Monies and the balances reported by Treasury as of September 30,
1998 and 1997. Treasury reports reflect balances less than OTFM
balances. Issue papers and proposed action plans for these
differences have been shared with departmental personnel and are
the subject of interdepartmental discussions.

F. Many individual Tribal accounts need to be reconciled and/or
resolved through negotiation and settlement before reliance can
be placed on the balances reflected in the Trust Fund accounts.
Upon resolution, it may be possible to reconcile OTFM cash
balances to Treasury. Issue papers and proposed action plans for
these differences have been shared with departmental personnel
and are the subject of interdepartmental discussions.

G. Uncertainties regarding the division of responsibilities
between BIA and OTFM staff resulted in inconsistent
implementation of responsibilities.

In an effort to address these pervasive issues, the OTF~ was
placed under the direction of the OST, effective February 9, 1996
with Secretarial Order 3197. The Secretary's decision on system
improvements and data clean up were organized into separate, but
complementing Sub projects, which comprise the Trust Management
Improvement Project ("TMIP"). The High Level Implementation Plan
("HILP") for the TRIP provides information on and describes each
of the 13 Sub projects, responsible Bureaus and Offices,
supporting tasks, critical milestones, work plans, resource
estimates, and accountable officials.

NOTE 4 -- CASH AND OVERNIGHT INVESTMENTS

Tribal and Other Trust Funds are disbursed by the OTFM through
disbursing functions provided by the Department of the Treasury.
Vouchers and Schedules of Payments are submitted to the Treasury
and processed through an electronic processing and certification
system. Upon verification that Treasury has processed and issued
the resulting disbursements, corresponding accounting entries are
recorded into the respective trust fund accounts. Starting with
fiscal year ending September 30, 1992, Treasury checks are only
negotiable for one year from the date of issuance and the OTFM
receive. credit, and credit. back to the appropriate account
holders, amounts on checks that are not negotiated. Cash balances
consist of cash deposits to Treasury between the cutï¿½off time for
overnight investment, 1:00 p.m. (MST/MDT), and the end of the
business day. Amounts on hand at the Area and Agency Offices
waiting for deposit to Treasury are not included in the financial
statements.

Overnight investments consist of available cash invested with
Treasury.

NOTE 5 -- INVESTMENTS

Investments are recorded at unamortized historical cost.

The Trust Fund assets have a concentration of credit risk in U.S.
Federal Government securities as mandated by 25 USC 162.

Certificates of Deposit

All Certificates of Deposits as of September 30, 1998 and 1997
were covered by depository insurance.


U.9. DEPARTMENT OF THE INTERIOR
OFFICE OF THE SPECIAL TRUSTEE FOR AMERICAN INDIANS
TRIBAL AND OTHER SPECIAL TRUST FUNDS
MANAGED BY THE
OFFICE OF TRUST FUNDS MANAGEMENT
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 L 1997

Investments (at fair market value) with scheduled maturities are
as follows:

		                      Tribal	Other Special	Combined
		                      Trust 	Trust Funds	    Total

September 30, 1998:

	U.8. Treasury And Agency securities:			~ ~
	Overnight investments	$ 270,574,963	$ 2,838,883	$
273,413,846
	Less then 1 Year	233,387,412	8,587,869	241,975,281
	1 - 5 Years	469,816,749	      24,531,093	494,347,842
	5 - 10 Years	844,533,757 	14,764,993	859,298,750
	Greater than 10 Years 676,195,694 3,075,051	679,270,745
		              2,494,508,575	53,797,889	2,548,306,464
	Certificates of Deposit, 1 - 5 years	607,865		607,865
	Equities with no scheduled maturities	5,131,035
5,131,035
	Mortgage backed securitis
	with varying maturities	103,687,933		103,687,933

		$2,603,935,408	$ 53,797,889 S	2,657,733,297

	September 30, 1997:

	U.S. Treasury and Agency securities:
	Overnight investments	289,077,794 $ 770,654	$ 289,848,448
	Less than 1 Year		289,944,929 2,703,752	292,648,681
	1 - 5 Years     		741,287,707 20,105,364	761,393,071
	5 - 10 Years	    	849,045,566 7,749,566	856,795,132
	Greater then 10 Years	216,168,749 16,907,361	233,076,110
			           2,385,52d,745  48,236,697	2,433,761,442

	Certificates of Deposit:
	Less than 1 Year		4,790,805	4,790,805
	1 - 5 Years		607,865	607,865			5,398,670	5,398,670

	Equities with no scheduled maturities	7,814,213	7,814,213
	Mortgage backed securities
	with varying maturities		      105,891,225	  105,891,225

	           	$2,504,628,853	$ 48,236,697	$ 2,552,865,550


NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

NOTE 6 -- COMMITMENTS AND CONTINGENCIES

The Secretary has been designated by the U.S. Congress as the
primary fiduciary with responsibility for monetary resources held
in trust, collecting all monies due from outside
individuals/organizations for the use of Indian lands and the
extraction of natural resources from Indian lands, and disbursing
such monies collected to the appropriate beneficiaries.

Tribal organizations have filed various claims against the United
States for failure to fulfill its fiduciary responsibilitioa and
for related charges. Neither the OTFM nor the Office of the
Solicitor for the U.S. Department of the Interior can presently
determine the outcome of these actions or the total amount,
responsibility and funding source of the potential liability.

Any actual liabilitioa resulting from adverse outcomes of the
contingencies described above are generally expected to be
satisfied with U.S. Federal Government funds, and not assets of
the Trust Fund. No amounts have been accrued in the accompanying
Trust Fund financial statements for potential claims receivable
from the U.S. Federal Government.

NOTE 7 -- TRUST FUND BALANCES

Trust Fund balances are the aggregation of monetary assets held
in trust and represent the amounts owed to beneficiaries as of
September 30, 1998 and 1997, for which the OTFM has a fiduciary
responsibility.

Included in the Tribal Trust Funds are balances not presently
identified to specific Tribes because judgment awards were
granted to several Indian Tribes in a particular geographic area
for settlement of claims related to certain lands.

Tribal organizations have filed various claims against the United
States for failure to fulfill its fiduciary responsibilities and
for related charges. Neither the OTFM nor the Office of the
Solicitor for the U.S. Department of the Interior can presently
determine the outcome of these actions or the total amount,
responsibility and funding source of the potential liability.

Any actual liabilities resulting from adverse outcomes of the
contingencies described above are generally expected to be
satisfied with U.S. Federal Government funds, and not assets of
the Trust Fund. No amounts have been accrued in the accompanying
Trust Fund financial statements for potential claims receivable
from the U.S. Federal Government.

NOTE 8 -- SIGNIFICANT TRANSACTIONS WITH OTHER U.S. FEDERAL
GOVERNMENT ORGANIZATIONS

Debt Arrangements

The BIA is a party to various note payable agreements. These
agreements are primarily between the Indian Tribes and the U.S.
Department of Agriculture Farmers Home Administration ("FmHA") or
the U.S. Department of Commerce Economic Development
Administration {"EDA"). The proceeds of the FmHA loans are used
by Indian Tribe. to repurchase fractional ownership interests in
allotted lands from individual Indians.

The receipts from the acquired ownership interests are deposited
into "Special Deposit" accounts in the IIM Trust Fund, and
principal and interest payments are made from these accounts. EDA
loans are utilized for construction of Tribal facilities
(governmental/administrative buildings, and facilities for
enterprise activities such as manufacturing, hotel/motel
facilities, etc.). Individual Tribes are liable for repayment of
these loans. Proceeds of Labor Trust Fund accounts may be
utilized for repayment of these loans.

Minerals Management Services

The OTFM receives royalty payments from the U.S. Department of
the Interior Minerals Management Service ("MMS") on behalf of
Indian Tribes and Individuals Indians holding mineral rights. EMS
generally transfers the royalty payments to the OTFM upon
receipt. At the time the royalty payments are received, EMS
provides the OTFN with a breakdown of 100% Tribally owned lease
royalties, thus permitting the OTFM to allocate the receipts
directly into Tribal accounts. For Tribally and individually
coï¿½owned leases, the royalty payments are forwarded by MMS and
subsequently distributed through the Royalty Distribution
Reporting System ("RDRS"). MMS and the Bureau of Land Management
both perform verification and other monitoring procedures of
mineral assets.

Oil and gas companies sometimes make overpayments to MMS. These
are first paid to the OTFM on behalf of Indian Tribes and
individualï¿½, and then disbursed by the OTFw to the beneficiaries.
The overpayments generally result from payments being made based
on estimated mineral production, in order to comply with the
Federal Oil and Gas Royalty Management Act of 1982 which requires
timely distribution of royalties. Typically, the oil and gas
companies recover such overpayments by adjusting future payments.
The amount of such overpayments if any as of September 30, 1998
and 1997 are not readily determinable and has not been quantified
in these financial statements.

Other

As discussed in Note 4, the Treasury holds cash and overnight
investments and disburses for the OTFM. As discussed in Note 6,
the DOI Office of the Solicitor serves as legal counsel for the
OST and OTFM.

NOTE 9 -- TRANSFERS

The OTFM receives monies into IIM special deposit accounts for
both Tribal and IIM beneficiaries. These accounts are to be used
a. suspense account. to which funds are posted when the
allocation is not immediately clear. Funds are subsequently
transferred from the IIM system to the appropriate Tribal account
when the proper allocations are determined by BIA. These
transfers amounted to approximately $49,000,000 and $43,000,000
during the fiscal years ended September 30, 1998 and 1997
respectively. The other receipts category of the Statement of
Changes in Trust Fund Balances includes these net transfers. The
amount of monies not yet transferred has not been quantified in
these Tribal and Other Special Trust Fund. financial statements.

NOTE 10 -- RESTATEMENT OF BEGINNING FUND BALANCE

In audits of the fiscal years ended September 30, 1995 and
September 30, 1996 the audit coverage was intended to meet the
requirements of the Chief Financial Officers Act of 1990 ("CFO
Act") and contained adjustments to reflect accrued interest and
dividends, and amortization of premium or accretion of discount.
However, following management's consultations with the Department
of the Interior and officials of the Office of Management and
Budget ("OMB"), a consensus was achieved to account for Tribal
and Other Special Trust Funds on a cash basis. The basis for this
position is that the majority of assets held in trust for
American Indians are owned by the account holders and are not
Federal assets. This method of financial statement presentation
is consistent with periodic account statements provided to
account holders.

The Federal Financial Accounting Standards Advisory Board issued
Interpretation Number 1 which indicated that the Indian trust
funds were not federal monies, and therefore, superseded the
hierarchy of accounting principles, for the Indian trust funds,
that were approved by the Secretary of the U.S. Treasury, The
Director of the OMB and the U.S. Comptroller General for use by
U.S. Federal Government entities. This interpretation no longer
required the Indian trust funds to use the reporting requirement.
as outlined in OMB Bulletins No. 94-01 and 97-01 (Form and
Content of Agency Financial Statements). Previous Indian trust
fund financial statements (fiscal years ended September 30, 1995
and 1996) were prepared under the requirements of OMB Bulletins
No. 94-01 and 97-01.

Beginning with the fiscal year, 1997, the OTFM used the cash
basis of accounting to prepare the annual Tribal and Other
Special Trust Funde financial statements. The net accrual and
amortization/accretion at September 30, 1996 amounted to
$62,241,406.


SUPPLEMENTARY COMBINING SCHEDULE OF ASSETS
AND TRUST FUND BALANCES - CASH BASIS
SEPTEMBER 30, 1998 
                              Tribal	Other Special	Combined
		                      Trust	    Trust Funds 	Total
	ASSETS
	Cash (Note 4)	$ 16 166 462	$ (34 142)	$ 16 132 320
	Investment (Notes 1C,4 and 5):
	Overnight investments	270 574 963	2 838 883	273 413 846
	U.S. Treasury and Agency securities	2 017,444 998	49,190
570	2 066,635 568
	Certificates of deposit	607,865		607 865
	Equity securities - TVA preferred stock	4 898 750	4 898 750
	Mortgage backed securities	98 360 181		98 360 181
	Total investments	2 391 886 757	52 029 453	2 443 916 210
	Total assets	$2 408 053 219	$51 995 311	$2 460 048 530
	TRUST FUND BALANCES, held for Indian
	Tribes and Other Special
	Trust Funds (Note 7)         $2 408 053 219	$51,995,311
$2 460 048 530

Market Value Information Only

	ASSETS
	Cash (Note 4)	      16 166 462	$ (34 142)	$ 16 132,320
	Investments (Notes 1C 4 and 5):
	Overnight investments	270,574,963	2,838,883	273,413,846
	U.S.Treasury and Agency securities 2,223,933,612 50 959,006
2,274,892,618
	Certificates of deposit	607,865		607,86S
	Equity securities - TVA preferred stock	5,131 035	5 131 035
	Mortgage backed securities	    103 687 933	   	103 687,933
	Total investments	2 603 935 408	53 797 889	2 657,733 297
	Total assets	$2 620 101 870	$53 763 747	$2 673 865,617
	TRUST FUND BALANCES, held for Indian
	Tribes and Other Special
	Trust Funds (Note 7)	$2 620 101 870	$53,763,747
$2,673,865,617

The accompanying notes are an integral part of these schedules.


SUPPLEMENTARY COMBINING
SCHEDULE OF CHANGES IN TRUST FUND BALANCES - CASH BASIS
FOR THE YEAR ENDED SEPTEMBER 30, 1998

		                	Tribal	Other Special	Combined
		                	Trust	Trust Funds	    Total
	RECEIPTS:
	Interest and dividends earned
	on invested funds. (Note 2B	129,201,374	$ 3,312,345	
$132,513,719
	Net gain; (loss) on disposition
	of inveatments		12,344,716	2,620,342	14,965,058
	Other receipts (Notes 2C and 9)	373,768,830	477,932
374,246,762
			         515,314,920	6,410,619	521,725,539

	DISBURSEMENTS:
	Payments to and on behalf of
	Indian Tribes and Other
	Special Trust Funda and
	Withdrawal of trust funds by
	Tribes (Note 2D)	465,151,31 	247,049 	465,398,361

	Receipts in excess of disbursements		50,163,608	6,163,570
56,327,178

	TRUST FUND BALANCE8, beginning of year	2,357,889,611
45,831,741	2,403,721,352
	TRUST FUND BALANCES, end of
	year (Note 7) $2,408,053,219 $ 51,995,311	$2,460,048,530

Market Value Information Only

TRUST FUND BALANCES, beginning of year

	at Market Value 	$2,505,416,721	$ 48,183,840
$2,553,600,561
	Receipts in excess of disbursements	50,163,608		6,163,570
56,327,178
	Unrealized gain (loss)	64,521,541		(583,663)
63,937,878
	TRUST FUND BALANCES, end of year
	at Market Value (Note 7)	$2,620,101,870		$ 53,763,747
$2,673,865,617

The accompanying notes are an integral part of these schedules.


INDIVIDUAL INDIAN MONIES TRUST FUNDS
MANAGED BY THE
OFFICE OF TRUST FUNDS MANAGEMENT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENTS

To the U.S. Department of the Interior
Office of the Special Trustee for American Indians:

We have audited the accompanying Statements of Assets and Trust
Fund Balances and the related Statements of Changes in Trust Fund
Balances for the Individual Indian Monies trust funds managed by
the U.S. Department of the Interior Office of the Special Trustee
for American Indians (the "OST") Office of Trust Funds Management
(the "OTFM") as of and for the years ended September 30, 1998 and
1997. These financial statements are the responsibility of
management of the OTFM. Our responsibility is to express an
opinion on these financial statements based on our audits. As
discussed in Note 1, the OTFM used the cash basis of accounting
with certain modifications to prepare these financial statements,
which is a comprehensive bests of accounting other than generally
accepted accounting principles.

Except as discussed in the following paragraph, we conducted our
audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
ex=~;ning, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

As discussed further in the Notes to the Financial Statements,
(1) cash balances reï¿½1ected in the accompanying financial
statements are materially greater than balances reported by the
U.S. Treasury, (2) inadequacies in various Department of the
Interior ("DOI") Indian Trust Fund historical accounting systems
and subsystems, controls and records caused the systems to be
unreliable, (3) various Tribal organizations and classes of
Individual Indians for whom the OTFM holds assets in trust do not
agree with certain OTFM accountings and balances recorded by the
OTFM; and certain of these parties have filed, or are expected to
file, claim against the OTFM. This may result in a potential
liability to the U.S. Federal Government that is not reasonably
estimable. Because of these matters, it was not practicable to
extend our auditing procedures to enable us to express an opinion
regarding the basis on which cash and Trust Fund balances in the
Statements of Assets and Trust Fund Balances and individual
categories within the Statements of Changes in Trust Fund
Balances are stated.

In our opinion, except for the effect on the financial statements
of adjustments that might have been determined had we been able
to perform adequate audit procedures to verify the financial
elements described in the preceding paragraph, the financial
statements referred to above present fairly, in all material
respects, the financial position and change in Trust Fund
balances of the Individual Indian Monies trust funds managed by
the U.S. Department of the Interior Office of the Special Trustee
for American Indians Office of Trust Funds Management as of
September 30, 1998 and 1997, and for the years then ended in
conformity with the comprehensive basis of accounting described
in paragraph one above.

We have also issued separate reports dated January 22, 1999, on
the OTFM's internal control structure and on its compliance with
laws and regulations.

Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The information in
the Overview Section is not a required part of the basic
financial statements, but is supplementary information. We did
not audit this information, and because of the exceptions set
forth above, we do not express an opinion on such information.

GRIFFIN L ASSOCIATES, P. C.
Certified Public Accountants

Boulder, Colorado
January 22, 1999



INDIVIDUAL INDIAN MONIES TRUST FUNDS
MANAGED BY THE OFFICE OF TRUST FUNDS MANAGEMENT
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

STATEMENTS OF ASSETS AND TRUST FUND BALANCES - MODIFIED CASH
BASIS SEPTEMBER 30,


                              ASSETS	 1998	      1997

	Investments (Note 4 and 5):
	Overnight investments	$ 20,792,747	$ 36,971,217
	U.S.Treasury and Agency securities	354,518,379  366,466,565
	Certificates of deposit		96,000
	Equity securities _- TVA preferred stock	5,000,000
5,000,000

	Mortgage backed securities	108,782,284		111,072,484
	Total investments	        489,093,410	    519,606,266
	Accrued interest receivable	5,218,272		5,766,870

	Total assets	          $ 494,311,682   $ 525,373,136

	TRUST FUND BALANCES, held for Individual
	Indiana (Note 7):	        479,188,172 	519,707,284
	Cash overdraft with U.S. Treasury (Note 4):	15,123,510
5,665,852

	Total trust fund balances and
	cash overdraft	           $ 494,311,682	$ 525,373,136

The accompanying notes are an integral part of these statements.



STATEMENTS OF CHANGES IN TRUST FUND BALANCES - MODIFIED CASH
BASIS FOR THE YEARS ENDED SEPTEMBER 30,

	                                   	1998	      1997

	RECEIPTS:
	Interest and dividends earned
	on invested funds (Note 2B)		29,016,120	$ 34,777,373
	Net gain on disposition of investments		1,905,314
3,817,144
	Other receipts (Note 2C)	282,678,594 	239,059,378
			                    313,600,028 	277,653,895

	DISBURSEMENTS:
	Payments to and on behalf of
	account holders		         354.119.140	274,708,295
	Receipts in excess of disbursements		(40,519,112)
2,945,600

	TRUST FUND BALANCES, beginning of year		519.707.284
516,761,684

    TRUST FUND BALANCES, end of
	year (Note 7)		     479,188,172		519,707,284

The accompanying notes are an integral part of these statements.




NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

NOTE 1 -- BACKGROUND AND DESCRIPTION OF THE ORGANIZATION

A. Overview of Trust Funds, the Office of the Special Trustee for
American Indians ("OST") ant the Office of Trust Funda Management
("OTFM")

Formation of the Trust Funds ï¿½ The legislation, which authorizes
the Secretary of the Interior ("the Secretary") to manage the
Individual Indian Monies ("TIM") Trust Funda ("Truat Funda"),
recognizes the unique trust relationship that exists between the
Individual Indianï¿½, Indian Tribeï¿½ and thï¿½ U.S. Federal
Government. Agreements between the U.g. Federal Government and
the various Indian Tribes, many of these in the form of treaties,
recognize the sovereignty of tribes. During the course of the
Nation' a history and the U.S. Federal Governmentia varying
policies toward Indiana and Indian Tribes, the treat relationship
has retained characteri~tica based upon tribal sovereignty.

The balances that have accumulated in the Trust Funda have
generally resulted from payments of claims by the U.S. Federal
Government, land use agreements, oil, Gas and mineral extraction
and investment income.

The Secretary has been designated by the U.S. Congress as the
primary U.S. Federal Government trustee on behalf of the account
holders of the Trust Funds. Through February 8, 1996, the
Secretary, in turn, delegated authority for management of the
Trust Funds, including accounting and financial reporting, to the
Assistant Secretary ï¿½ Indian Affairs, who carried out the
management of the Trust Funds through the Bureau of Indian
Affairs ("BIA"). The American Indian Trust Fund Management Reform
Act of 1994 (P.L. 103-412") provided for the establishment of the
OST. On February 9, 1996, Secretarial Order 3197 ("the Order")
redelegated this authority to OST and transferred the OTFM, and
financial trust services performed at BIA Area and Agency
Officea, from the BIA to the OST.

Organization of the OST - Trust assets are managed under the
delegated authority of the OST and the BIA.

Agency and Field Office - The OST and BIA maintain Agency and
Field Officea located throughout the United States. Generally,
Agency and Field Officea are physically located near the Tribes
served. The Agency and Field Offices may play a significant role
in Tribal affairs through assistance in financial planning,
financial operations and policy and program development. OST
personnel located at moat of the Agency offices perform various
functions related to trust funds activities.

Area Office - Each of the Agency and Field Officea is organized
under one of the Area Officea. The Area Officea provide
administrative and operational support for their respective
Agency and Field Officea.

Office of Trust Funds Management - The OTFM, established October
26, 1989, and located in Albuquerque, New Mexico, has management
responsibility over all Indian Trust Funds. The OTFM carries out
its responsibilities through the following Divisions and Staff
Offices:



NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

0 Division of Trust Funds Quality Assurance - This division
plans, develops, and implements the OST-wide operational review,
evaluation, policies and regulatory management programs. The
division advises OST/OTFM management on the efficiency, economy,
legality and effectiveness of operations and compliance with all
mandated laws and regulations at the program, field and tribal
level where appropriate. It identifies, develops, and coordinates
the preparation of trust fund management policies and operational
procedures.

O Division of Trust Funds Systems - This division provides daily
technical support for trust funds financial accounting systems to
end users, including OST, BIA, and tribal employees. The division
coordinates OST's ADP and related information management
activities and provides support in such areas as acquisition
aasiatance and management, technology assessment, and technical
support for office automation hardware, software, and training.

O Division of Trust Funds Accounting - This division processes
and controls accounting activities which record and report funds
collected, disbursed, invested, and held in trust. It plans,
develops, and recommends policies and procedures governing
collection of Trust Funds, as well as monitoring collection. and
recording of funds. It is also responsible for investment
accounting activities and for providing custodial services for
investment activities.

0 Division of Trust Funds Services - This division plans,
develops, operates, and controls the buying, selling, and trading
of investments in accordance with applicable laws, regulations,
and policies. It provides technical advice and assiata~nce to
Area Offices, Agency Offices, and Indian Tribes in developing
financial plane and investment strategies for Trust Funds.

0 Division of Trust Funds Reporting/Reconciliation - This
division is responsible for reconciling subsidiary accounts and
monitoring Trust Fund activities. The Division prepares certain
financial and accounting reports for use within the U.S. Federal
Government and for inclusion in various OTFM-wide reports.

O Division of Field Operations - This division coordinates the
a~miniatrative and technical execution of financial trust
programs conducted at subordinate offices; providing or obtaining
adequate technical service to guide and support field operations;
and evaluating the performance of field level organizations. The
division, through its subordinate offices, is also responsible
for the work processes related to receiving, recording, and
disbursing general trust and judgement funds collected by the
BIA, belonging to Individual Indian adults, minors, legal
incompetents, deceased beneficiaries; examining, verifying, and
maintaining accounts and accounting data for IIM accounts; and
preparing, maintaining, and reconciling records. It also responds
to IIM account holders' questions concerning the status of
accounts, receipts, or other related matters.

B. Description of the Trust Funds 

The Trust Funds are managed by the OTFM and VIA on behalf of IIM
account holders. Certain of the IIM funds described below are
Subject to legal, regulatory, budgetary, court ordered or other
restrictions.

The IIM Fund i. primarily a deposit fund for Individuals, who may
have a fiduciary interest in the Truat Funda. IIM account holders
realize receipts primarily from royalties on natural resource
depletion, land use agreements, enterprises having a direct
relationship to Truat Fund resources and investment income. In
addition, the IIM Fund contains special deposit accounts for
certain Tribal entities. Approximately 286,000 and 285,000
accounts are held for participants and Tribal enterprises in the
IIM Fund as of September 30, 1998 and 1997 respectively.
Approximately 508 of the trust fund balances within the IIM
system are held at two Area Offices as of September 30, 1998 and
1997 respectively.

C Investment of Trust Fund Assets

Authorizing legislation and a substantial body of case law
specify how the Indian Truat Fund assets should be managed and
which financial instruments constitute appropriate investments
for Indian Trust Funda. Trust fund assets are directly invested
in U.S. Federal Government securities, including U.S. Treasury
and U.S. Federal Government Agency issues, as well as certain
other securities that are guaranteed by the U.S. Federal
Government. A portion of Indian Trust Funds assets as of
September 30, 1997 were invested with financial institutions at
which such deposits were covered by Federal depository insurance.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Accounting

The OTFM uses the cash basis of accounting with certain
modifications for the Individual Indian Monies. Accrual
adjustments were recorded in the accompanying financial
atatï¿½~ï¿½nts as of September 30, 1998 and 1997, to reflect interest
and dividends earned, but not received, and to record any
applicable accretion of discount/amortization of premium over the
terms of the investments. This is a comprehensive basis of
accounting other than generally accepted accounting principles.
Investments are atated at amortized historical cost. Interest
receipts reported in the Statement of Changes in Trust Fund
Balances reflect the net of interest earned and amortization
expense or accretion income recognized during the fiscal year.
Investments have not been adjusted to reflect changes in market
value, because it is the OTFM'a intent and ability to generally
hold these investments until maturity.

The Indian Trust Funds account for assets held for others in a
trust capacity and do not involve measurement of operations.
Receipts, other than interest on invested funds, are recorded
when received, because it is not practicable to measure the
majority of such items prior to receipt. Accordingly,
receivables, other than accrued interest and dividends, are not
reflected in the accompanying financial statements. The
accompanying financial statements include only the balances held
in trust by the OST and OTTO for others and do not include (1)
the account balances of the OST and OTTO (general appropriations,
personnel and occupancy coats, etc.), or (2) the values of Indian
lands, buildings or other nonmonetary assets regardleea of the
source of funding (Tribal monies, Congressional appropriations,
Indian Trust Fund resources, etc.).

B. Interest Receipts

IN Trust Funds are pooled and invested. Interest is received in
two ways: (1) directly from investment securitioa in which the
Trust Funds are placed, such as certificates of deposit at
financial institutions or U.S. Treasury, Agency or U.S. Federal
Government sponsored aecuritioa, or (2) from a U.S. Treasury
overnight investment ("overnighter"), which earns a rate
comparable to "Fed Funds" rates. Interest receipts as reflected
in the Statement of Changes in Trust Fund Balances are net of
amortization expen~e/accretion income for the fiscal year. The
interest on the overnighter investments is calculated daily,
compounded, accumulated separately for participating accounts and
posted to the separate accounts monthly.

C. Other Receipts

Other trust receipts are generated from a variety of assets that
are held in trust by the U.q. government and managed by the
various Agencies and the BIA on behalf of Individual Indians.
Such amounts include receipts from various leasing activities,
mineral royalties, and sales of extracted minerals, timber and
forest products, fees and fines, and the granting of easements.
Other receipts also contain payments, claims and judgment awards
to Individual Indians by the U.S., State and local governments,
and private entities and individuals.

D. Disbursements

Payments disbursed to and on behalf of Individual Indians consist
of investment income, per capita payments, as well as funds from
various income-producing activities such as leasing, royalty
payments, mineral extraction and timber and forest product
azalea.

E. Significant Estimates

The preparation of financial atatements requires management to
make estimates and assumptions that affect certain reported
amounts and disclosure. Accordingly, actual results could differ
from those estimates. Management considers the market value of
investments one such significant estimate.




NOTE 3 -- ACCOUNTING SYSTEMS AND MATERIAL INTERNAL CONTROL
WEAKNESSES

The accounting systems, subsystems and internal control
procedures used by the OTFM have historically suffered from a
variety of system and procedural internal control weaknesses.
Some of these weaknesses along with their improvements are as
follows:

A. There were and still are some gaps of consistency in the
application of accounting and related procedures being utilized
OTFM-wide, which cause accounting errors in the Indian Trust
Funds. Standardized documented policies and procedures are in
various stages of development to address all significant
accounting processes.

B. There is inadequate segregation for many key duties,
particularly in the accounting processes performed at the Area
and Agency Offices. Efforts have been implemented to centralize
the accounting input functions to the central office, which is
expected to address the segregation of conflicting duties issue.

C. Records management is inconsistent and inadequate to ensure
the proper filing and safekeeping of Trust Fund records to
support trust financial activity, however, a mandatory documents
policy has been adapted and verification of these mandatory
documents will be checked in the centralized accounting
preï¿½poating review procedures.

D. Prior to October 1998, internal interim financial statements
were not being prepared. The OTFM did compile a Statement of
Assets and Trust Fund Balances and Statement of Changes in Trust
Fund Balances as of and for the month ended October 31, 1998 and
is expected to compile financial abatementï¿½ on a quarterly basis.

E. There is an unreconciled difference of approximately
$35,000,000 between the total cash balances reflected by the OTFM
for Tribal and Other Special Trust Funds, and Individual Indian
Monies and the balance. reported by Treasury as of September 30,
1998 and 1997. Treasury reports reflect balances less than OTFM
balances. Issue papers and proposed action plans for these
differences have been shared with departmental personnel and are
the subject of interdepartmental discussions. 

F. Account balances associated with the TIM class action
litigation need to be resolved before reliance can be placed on
the balances reflected in the Trust Fund accounts.

G. Uncertainties regarding the division of responsibilities
between BIA and OTFM staff resulted in inconsistent
implementation of responsibilities.

H. There is approximately $104,000,000 and $151,000,000 held in
approximately 24,000 and 27,000 Special Deposit Accounts in the
IIM subsidiary ledger as of September 30, 1998 and 1997
respectively. There are inadequate controls and a lack of
management reporting and accountability over the use of these
accounts. OST and BIA have developed a task force of
individuals from the respective organizations to begin discussing
the variouï¿½ issues related to special deposit accounts and to
establish a policy to be implemented in fiscal year 1999 related
to existing and future special deposit accounts.

I. There is an unreconciled net difference of approximately
$21,000,000 between the IIM detailed subsidiary ledger and the
corresponding OMNI control account as of September 30, 1997. The
OMNI control account reflected a balance greater than the IIM
detailed subsidiary ledger. During fiscal year 1998 the OTFM,
with thï¿½ assistance of a contractor, initiated a project to
identify components of this number. Aa of September 30, 1998 the
aggregate of all positive fund balances from the IBM detailed
aubaidiery ledger exceeded the assets by approximately
66,700,000. Issue papers and proposed action plans for these
differences have been shared with departmental peracnnel and are
the subject of interdepartmental discussions.

J. The IIM detailed subsidiary ledger contains certain accounts
with negative balances aggregating approximately S44,000,000.

In an effort to address these pervasive issues, the OTFM wee
placed under the direction of the OST, effective February 9, 1996
with Secretarial Order 3197. The Secretary's decision on system
improvements and data clean up were organized into separate, but
complementing Sub projects, which comprise the Trust Management
Improvement Project ("TMIP"). The High Level Implementation Plan
("HLIP") for the TRIP provides information on and describes each
of the 13 Sub projects, responsible Bureaus and Offices,
supporting tasks, critical milestones, work plans, resource
eatimatea, and accountable officials.

NOTE 4 -- CASH AND OVERNIGHT INVESTMENTS

Cash balances consist of cash deposits to Treasury between the
cut-off time for overnight investment, 1:00 p.m. (MST/MDT), and
the end of the business day. Amounts on hand at the Area and
Agency Offices waiting for deposit to Treasury are not included
in the financial statements.

Overnight investments consist of available cash invested with
Treasury. As of September 30, 1998 and 1997 respectively, the
investment in overnight investments exceeded the available cash
by $15,123,510 and S5,665,852, which resulted in the cash
overdraft with U.S. Treasury. The interest collected by the OTFM
for the over-investment wee subsequently returned to the U.S.
Treasury. No account holders were affected by the accounting
transaction.

NOTE 5 -- INVESTMENTS

Investments are recorded at cost adjusted for accumulated
amortization of premiums and accretion of discounts utilizing the
effective interest method.

The Trust Fund aasets have a concentration of credit risk in U.S.
Government securities, as mandated by 25 USC 162.

Certificates of Deposit

All Certificates of Deposits as of September 30, 1997 were
covered by depository insurance. The IIM trust funds held no
certificates of deposit as of September 30, 1998.



NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

Maturities

Investments with scheduled maturities at September 30, 1998 and
1997 are as follows:

Amortized Cost		      1998			         1997
				        Fair			                Fair
		Amortized		Market	       Amortized		Market
		  Cost		    Value	         Cost	    	Value
	
U.S. Treasury and
Agency Securities:

Overnight Investment	S	20,792,747	$ 20,792,747	
$ 36,971,217		$ 36,971,217
Less than 1 Year		32,330,413	$ 32,493,420	7,556,052
$ 7,621,390
1 - 5 Years	61,539,959	63,413,569	55,432,551		55,958,413
5 - 10 Years154,855,810	161,105,894	185,036,859		183,388,095
Greater than 10 Years 105,792,197	122,537,226 	118,441,103
119,045,566
		375,311,126  400,342,856	 403,437,782	402,984,681

Certificates of Deposit:
Less than 1 Year				96,000		96,000

Equities with no
	scheduled
	maturities	5,000,000	5,262,600	5,000,000		5,262,600
Mortgage backed
	securities with
	varying maturities		108,782,284	113,221,487	111,072,484
113,847,191

		$ 489,093,410		$ 518,826,943	$ 519,606,266	
$ 522,190,472


NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

The original cost, net accumulated amortization and accretion,
amortized cost and market value of the investments held at
September 30, 1998 and 1997 are as follows:

			                    Net
			                 Accumulated
	     	                (Amortization)/	 Amortized	 Market
Investment Class		Cost	Accretion	    Cost     Value
September 30, 1998:

Overnight
investment	20,792,747	$   	$ 20,792,747	$ 20,792,747

U.S. Treasury and
Agency securities	341,137,808 	13,380,571	     354,518,379
379,550,109

Equity securities	5,000,000	$      $5,000,000	5,262,600

Mortgage backed
securities		106,205,194 	2,577,090	108,782,284
113,221,487

	          $ 473,135,749		$ 15,957,661	S	489,093,410
$ 518,826,943
	
September 30, 1997:

Overnight
Investment		36,971,217	    $     	 $ 36,971,217	
$ 36,971,217

U.S. Treasury and
Agency securities	351,854,494		14,612,071     366,466,565
366,013,464

Certificates of
Deposit		  96,000          $         $96,000	       96,000

Equity securities	5,000,000   $	    $5,000,000  5,262,600
	
Mortgage backed
securities		112,048,628		(976,144)       111,072,484
113,847,191

	$ 505,970,339	$ 13,635,927	$ 519,606,266	$ 522,190,472




NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

NOTE 6 -- COMMITMENTS AND CONTINGENCIES

The Secretary has been designated by U.S. Congress as the primary
fiduciary with responsibility for monetary resources held in
trust, collecting all monies due from outside
individuals/organizationa for the use of Indian lands and the
extraction of natural resources from Indian lands, and disbursing
such monies collected to the appropriate beneficiaries.

Classes of Indian individuals have filed various claims against
the United States for failure to fulfill ita fiduciary
responsibilities and for related charges. Neither the OTFM nor
the Office of the Solicitor for the U.S. Department of the
Interior can presently determine the outcome of these actions or
the total amount, responsibility and funding source of the
potential liability.

Any actual liabilities resulting from adverse outcomes of the
contingencies described above are generally expected to be
satisfied with U.S. Federal Government funds, and not assets of
the Trust Fund. No amounts have been accrued in the accompanying
Trust Fund financial "tatementa for potential claims receivable
from the U.S. Federal Government.

NOTE 7 -- TRUST FUND BALANCES

Truat Fund balances are the aggregation of monetary asset. held
in trust and represent the amounts owed to beneficiarioa as of
September 30, 1998 and 1997, for which the OTFM has a fiduciary
responsibility.

A portion of such account balances reprcacnt prepayments or
deposits on production type leases for which certain Tribes hold
an interest (see note 9). Any deposits in excess of production
are returned to the depositor. Such account balances as of
September 30, 1998 and 1997 have not been quantified.

Classes of Indian individuals have filed various claims against
the United States for failure to fulfill its fiduciary
responsibilities and for related charges. Neither the OTFM nor
the Office of the Solicitor for the U.S. Department of the
Interior can presently determine the outcome of these actions or
the total amount, responsibility and funding source of the
potential liability.

Any actual liabilities resulting from adverse outcomes of the
contingencies described above are generally expected to be
satisfied with U.S. Federal Government funds, and not assets of
the Trust Fund. No amounts have been accrued in the accompanying
Trust Fund financial statements for potential claims receivable
from the U.S. Federal Government.

Unallocated Balances, Net

The net unallocated balances for the TIN Trust Fund balances,
consisting of cumulative differences between OmniTrust the
general ledger control account and subsidiary detail of account
holders' balances and activity ("IRKS System") totaled
approximately $21,000,000 as of September 30, 1997, with the OMNI
trust system balance being greater. During fiscal year 1998 the
OTFN, with the assistance of a contractor, initiated a project to
identify components of this number. As of September 30, 1998 the
aggregate of all positive fund balances from the IIM detailed
subsidiary ledger exceeded the assets by approximately
$6,700,000.

A portion of the Special Deposit Account monioa held in the IIM
Trust Fund have not been distributed to the beneficiaries because
the ultimate disposition of the funds has not been determined.

NOTE 8 -- SIGNIFICANT TRANSACTIONS WITH OTHER U.S. GOVERNMENT
ORGANIZATIONS

Debt Arrangements

The BIA is a party to various note payable agreements. These
agreements are primarily between the Indian Tribes and the U.S.
Department of Agriculture Farmers Home Administration ("FmHA") or
the U.S. Department of Commerce Economic Development
Administration ("ADA"). The proceeds of the FmHA loans are used
by Indian Tribe. to repurchase fractional ownership interests in
allotted lands from individual Indians.

Thï¿½ receipts from the acquired ownership interests are deposited
into "Special Deposit" accounts in the IIM Trust Fund, and
principal and interest payments are made from these accounts. EDA
loans are utilized for construction of Tribal facilities
(governmental/a~ministrative buildings, and facilitioa for
enterprise activities such as manufacturing, hotel/motel
facilities, etc.). Individual Tribes are liable for repayment of
these loans; however, Trust Funda may be utilized for payment of
these loans.

Minerals Management Services

The OTFM receives royalty payments from the U.S. Department of
the Interior Minerals Management Service ("MMS") on behalf of
Indian Tribes and Individual Indians holding mineral rights. MMS
generally transfers the royalty payments to the OTFM upon
receipt. At the time the royalty payments are received, MMS doe.
not provide the OTFM with lease information for IIM account
holders until several weeks after the related royalty payments
are received. Accordingly, the OTFM holds the royalty receipts in
an interest bearing account until it receives the lease
information on how the royalties are to be distributed.
Generally, upon receipt of the lease information data from MMS,
the royalty receipts are distributed through the Royalty
Distribution Reporting System ("ODES"). IIM account royalty
payments are then either paid by check or held in IIM accounts.
MMS and the Bureau of Land Management both perform verification
and other monitoring procedures of mineral assets.

Oil and gas companies sometimes make overpayments to MMS. These
are first paid to the OTFM on behalf of individuals, and then
disbursed by the OTFM to the beneficiaries. The overpayments
generally result from payments being made based on estimated
mineral production, in order to comply with the Federal Oil and
Gas Royalty Management Act of 1982 which requires timely
distribution of royalties. Typically, the oil and gas companies
recover such overpayments by adjusting future payments. IIM
account overdrafts are created as a result of netting payments
and collections at the lease level and rounding differences. The
amount of such overpayments if any as of September 30, 1998 and
1997, are not readily determinable and has not been quantified in
these financial atatements.

Other

As discussed in Note 4, the Treasury holds cash and overnight
investments. As discussed in Note 6, the DOI Office of the
Solicitor serves as legal counsel for the OST and OTFM.

NOTE 9 -- TRANSFERS

The OTFM receives monioa into IIM special deposit accounts for
both Tribal and IIM beneficiarioa. These accounts are to be used
as suspense accounts to which funds are posted when the
allocation is not immediately clear. Funds are subsequently
transferred from the IIM system to the appropriate Tribal account
when the proper allocations Are determined by BZA. These
transfers Amounted to approximately $49,000,000 and $43,000,000
during the fiscal years ended September 30, 1998 and 1997
respectively. The payments to and on behalf of account holders
category of the Statement of Changes in Trust Fund Balances
includes these net transfers. The amount of monies yet to be
transferred has not been quantified in these Individual Indian
Monies financial statements.

NOTE 10 -- CHANGE IN HIERARCHY OF ACCOUNTING PRINCIPLES

In prior year audits tfiscal year ended September 30, 1995 and
September 30, 1996), thï¿½ audit coverage was intended to meet the
requirements of the Chief Financial Officers Act of 1990 ("CFO
Act"). However, following management's consultations with the
Department of the Interior and officials of the Office of
Management and Budget ("OMB"), the consensus is to account for
Tribal and Other Special Trust Funda on a cash basis and IIM
Trust Funds on modified cash basis, both of which are an other
comprehensive bests of accounting. The basis for this position is
that the majority of assets held in trust for American Indian.
are owned by the account holders and are not Federal assets. This
method of financial statement presentation is consistent with
periodic account statements provided to account holders.

The Federal Accounting Standards Advisory Board issued
Interpretation Number 1 which indicated that the Indian trust
funds were not federal monies, and therefore, superseded the
hierarchy Or accounting principles, for the Indian trust funds,
that were approved by the Secretary of the U.S. Treasury, The
Director of the ORB and the U.S. Comptroller General for use by
U.S. Federal Government entities. This interpretation no longer
required the Indian trust funds to use the reporting requirements
as outlined in ORB Bulletins No. 94-01 and 97-01 (Form and
Content of Agency Financial Statements). Previous Indian trust
fund financial statements (fiscal years ended September 30, 1995
and 1996) were prepared under the requirements of OMB Bulletins
No. 94-01 and 97-01.




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON INTERNAL CONTROLS
SEPTEMBER 30, 1998


SUMMARY OF ISSUES
September 30, 1998

Reported		                                 Unresolved and
in		                                            Currently
Fiscal                                             Reported as
Year	     Description	Issue #    Resolved	  Issue Number

1995	Cash - Tribal and IIM	1         No            1
1995	Investments         	2	      Yes          N/A
1995	Trust Fund Balances - Tribal and IN	
                                3         No            3
1995	Area and Agency Offices - Tribal and IIM
                                4         No           31
1995	Cash - Tribal        	5         No            5
1995	Investments Records Management
                            	6         Yes         N/A
1995	IIM Special Deposit - IIM
                            	7         No           24
1995	Ownership Records       8         No            8
1995	Policies and Procedures - Tribal and IIM
                            	9         Yes         N/A
1995	Accounts Receivable System
                            	10        No           10
1995	Cash Reconciliation Process	11		Yes		N/A
1995	Disaster Recovery - IIM		12		No 			42
1995	Password Controls - IIM		13		No 			42
1995	Application Change Controls - IIM
                                	14  	Yes 	   N/A
1995	Conversion to OmniTrust		15		Yes		   N/A
1995	1099 Interest Reporting - IIM16		No          16
1996	Inadequate Internal Financial	17	No 			17
Reporting - Tribal and IIM
1996	Area and Agency Offices ï¿½ Unauthorized	18	No   18
Transactions - Tribal and IIM
1996	Ineffective Implementation of Policies	19	No   31
		and Procedures - Tribal and IIM
1996	Cash - Failure to Analyze Suspense	20  	No   20
		Accounts - Tribal and IIM
1996	Cash - Lack of Supporting Documentation	21	Yes N/A
		Prior to Recording Transactions


1996	Investments -Lack of Reliable IIM	22    No	22

Balance Available for Investing - IIM

1996	Investments - Accounting System		23	Yes    N/A
		Calculation Errors
1996	Special Deposit Accounts - Lack of	 24  No     24
		Policies and Procedures and
		Inconsistent Practices - IIM
1996	IIM Interest Earnings - Inadequate	25	Yes	   N/A
		System, Policies and Procedures ï¿½
		IIM
1996	Negative IIM Account Balances		26	No     	26
		Included in Invested Balance -
		IIM
1996	IIM Amortization/Accretion of		27	Yes 	N/A
		Mortgage Backed Securities
1996	Trust Fund Balance Transfers		28	Yes	    N/A
		Recorded Inconsistently - Tribal
		and IIM
1996	Earnings on Overnight Investments	29	Yes     N/A
1996	Investment/Bolt II System			30	Yes		N/A
		Implementation
1997	Ineffective Implementation of		31	No		31
		Policies and Procedures -
		Tribal and IIM
1997	Missing and/or Incomplete			32	No		32
		Documents - Tribal and IIM
1997	Improper Transaction Coding -		33	No		33
		Tribal and IIM
1997	Missing and/or Incomplete			34	No		34
		Documents - Tribal and IIM
1997	Cash and Overnighter Investments -	35	Yes		N/A
		Lack of Transfer Transaction
		Procedures - Tribal and IIM


1997	Investments - Lack of Manual		36	No 		36
		Adj Procedures & Lack of Carry Value
		Reconciliation - Tribal and IIM
1997	Investments - Inadequate Procedures	37	No		 37
		Relating to Market Pricing and Stated
		Market Values - Tribal and IIM
1997	Inconsistent Practices regarding	 38	Yes     N/A
		Disbursements from Tribal Account. 
		Tribal
1997	Investments - Lack of Contract		39	No 		39
		Compliance - Custodial Reconciliation
		ï¿½ Tribal and IIM
1997	Fund Balance ï¿½ Accepting Non - Trust40	No		 40
		Beneficiaries and Non- Trust Funds 
		Tribal and IIM
1997	Area and Agency - Bureau of Indian	41	No       41
		Affairs Trust Responsibilities -
		Tribal and IIM
1998	Trust Systems	                    42	No       42



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON INTERNAL CONTROL
STRUCTURE

To the U.S. Department of the Interior

Office of the Special Trustee for American Indians:

We have audited the Statements of Assets and Trust Fund Balances
and the related Statements of Changes in Trust Fund Balances for
Tribal and Other Special Trust Funds, and Individual Indian
Monies trust funds ("IIM) managed by the U.S. Department of the
Interior Office of the Special Trustee for American Indiana
("OST") Office of Trust Funda Management ("OTR") a. of and for
the years ended September 30, 1998 and 1997, and have issued our
report thereon dated January 22, 1999.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.

The management of the OTFM is responsible for establishing and
maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are
required to assess the expected benefits and related costs of
internal control structure policies and procedures. The
objectives of an internal control structure are to provide
management with reasonable, but not absolute, assurance that
assets are safeguarded against loss from unauthorized use or
disposition, that transactions are executed in accordance with
management's authorization and recorded properly to permit the
preparation of financial statements in accordance with the cash
basis of accounting used to prepare the Tribal and Other Special
Trust Funds financial statements, and the modified cash basis of
accounting used to prepare the Individual Indian Monies Trust
Funds financial statements. Also, projection of any evaluation of
the internal control structure to future periods is subject to
the risk that procedures may become inadequate because of changes
in conditions or that the effectiveness of the design and
operation of policies and procedures may deteriorate.

In planning and performing our audits of the Statement of Assets
and Trust Fund Balances and the related Statement of Change. in
Trust Fund Balances for the Tribal and Other Special Trust Funds,
and Individual Indian Monies managed by the OTFM as of and for
the years ended September 30, 1998 and 1997, we obtained an
understanding of the internal control structure. With respect to
the internal control structure, we obtained an understanding of
the design of relevant policies and procedures and whether they
have been placed in operation, and we assessed control risk in
order to determine our auditing procedures for the purpose of
expressing an opinion on the Statement of Assets and Trust Fund
Balances and the related Statement of Changes in Trust Fund
Balances and not to provide an opinion on the internal control
structure. Accordingly, we do not express such an opinion. Also,
for those significant internal control structure policies and
procedures that were properly designed and placed in operation,
we performed tests to determine whether such policies and
procedures were operating effectively at September 30, 1998 and
1997.

We noted certain matters involving the internal control structure
and its operation that we consider to be reportable conditions
under standards established by the

American Institute of Certified Public Accountants. These matters
are described in the "Reportable Conditions" section of this
report. Reportable conditions involve matters coming to our
attention relating to significant deficiencies in the design or
operation of internal control structure that, in our judgment,
could adversely affect OTFM'a ability to record, process,
summarize and report financial data consistent with the
assertions of management in the financial statements.

A material weakness is a reportable condition in which the design
or operation of one or more of the internal control structure
elements does not reduce to a relatively low level the risk that
errors or irregularities in amount. that would be material in
relation to the financial statements being audited may occur and
not be detected within a timely period by employees in the normal
course of performing their assigned functions. These matters are
described in the "Material Weakness" section of this report.

We also noted other matters involving the internal control
structure and its operation as well as certain other advisory
comments, which we did not consider to be reportable conditions.
These comments are set forth in the "Other Advisory Comments"
section of this report.

In the Report. of Independent Public Accountant. on Internal
Control Structure for the years ended September 30, 1997, 1996
and 1995, we noted matters involving the internal control
structure and its operation that we considered to be material
weaknesses, reportable conditions and other advisory comï¿½m~nta.
The disposition of these matters is set forth in the "Scary of
Iï¿½sues" section of the report.

GENERAL-TRIBAL AND IIM

The accounting systems and internal control procedures used by
the OTFM have historically suffered from a variety of system and
procedural internal control weaknesses. In addition, current
management is burdened with the ongoing impact of decades of
accumulated errors in the accounting records. These factors place
significant limitations on management's ability to effectively
manage the trust funds entrusted to the OTFM.

In an effort to address these pervasive issues, the OTFM was
placed under the direction of the OST, effective February 9, 1996
with Secretarial Order 3197. The Secretary's decision on system
improvements and data clean up were organized into separate, but
complementing Sub projects, which comprise the Trust Management
Improvement Project ("TRIP"). The High Level Implementation Plan
(the "Plan") for the TRIP provides information on and describes
each of the 13 Sub projects, responsible Bureaus and Officeï¿½,
supporting tasks, critical milestones, work plans, resource
estimates, and accountable officials.

The following are excerpts from the High Level Implementation
Plan prepared by the U.S. Department of the Interior, Trust
Management Improvement Project, dated July 1998.

"Concern about the management of Indian Trust funds is a
longstanding issue. As early an 1928, the U.S. General Accounting
Office (GAO) - the investigative research arm of Congress -
issued reports documenting weak accounting practices and other
problems in BIA's trust funds management. Since then, there have
been numerous reports highlighting weaknesses in management and
accounting practices from such overseeing entities an the
Congressional Committees, the Office of Management and Budget
(OMB), the Inspector General and Department Bureau reviews as
well as outside contractor reports."

"In 1994, Congress passed the American Indian Trust Find
Management reform Act of 1994, 25 United States Code (U.S.C.)
Secs. 4001-4061, which established the OST>. Under this
legislation, the Special Trustee, "who reports to the Secretary
of the Interior, is responsible for oversight, reform, and
coordination of the policies, procedures, Systems and practice.
used by various Departmental agencies in managing Indian trust
assets. Specifically, the Special Trustee was charged with
preparing and submitting a comprehensive strategic plan for a ~
phases of the trust management business cycle that would ensure
the proper and efficient discharge of the Secretary trust
responsibilities to Indian Tribes and individual Indiana in
compliance with the Act. The Act also defined the following, as
positive actions required of the Secretary necessary to properly
discharge the trust responsibilities of the United States:

		Providing adequate systems for accounting for and
reporting trust fund balances;
		Providing adequate controls over receipts and
disbursements;
		Providing periodic, timely reconciliations to assure the
accuracy of accounts;

		"Preparing and supplying account holders with periodic
statements of their account performance and with balances of
their account which shall be available on a daily basis;

		Establishing consistent, written policies and procedures
for trust fund management and accounting;

		Providing adequate staffing, supervision, and training
for trust Fund management and accounting; 

		"Properly accounting for and investing, as well as
maximizing, in a manner consistent with the statutory
restrictions imposed on the Secretary's investment options, the
return on the investment of all trust fund monies;

		Preparing accurate and timely reports to account holders
(and others, as reguired) on a periodic basin regarding all
collections, disbursements, investments, and return on
investments related to their trust accounts;

In April 1997 the Special Trustee submitted his Strategic Plan to
Implement the Reforms. required by the American Indian Trust Fund
Management Reform Act of 1994.

Notwithstanding the Secretary's reservaticus about certain
aspects of the Plan, the Secretary agreed that the trust system
improvements and data clean up efforts in the Plan could and
should proceed as soon an possible within the organizational
structure of the Department.

The Secretary's decision on system improvements and data clean up
were organized into separate, but complementing Sub projects,
which comprise the Trust Management Implementation Plan (TMIP)

The approach selected to implement the Secretary and Special
Trustee's agreements on portions of the Special Trustee's
Strategic Plan is centered on 13 major Sub projects. These Sub
projects were identified and designed to assure coverage of not
only the data clean up and systems improvements directed by the
Secretary, but also to address the long standing deficiencioa
cited by external oversight groups with regard to the support
Systems - records management, training, policy and procedures,
and internal controls."

The Sub projects that the OTFM significantly contributes to are:

		OST Financial Date Clean Up - In this Sub project, OST
will standardize and verify IIM system data for trust resource
records, and correct and establish an inventory of hard copy
records for each trust fund account.

		Trust Funds Accounting System - This Sub project will
acquire, install and pilot, using a service bureau approach, a
proven commercial off the shelf trust accounting system to
replace the present BIA TIM accounting module.

		Records Management - Under this Sub project, a joint
Records Management solution for Interior trust records will be
developed and implemented, involving OST, BIA, MESS, BLM, OHA and
other relevant DOI Offices. The scope includes Indian trust
records management, storage, access, control and disposition, and
contemplates electronic record keeping, including imaging
technology.

		Policy and Procedures - DOI trust policies and procedures
will be inventoried, reviewed and, where appropriate, revised or
established. This Sub project specifically involves and includes
representatives of OST, BIA, MMS, BLM, OVA and other Departmental
Offices involved in Indian trust management.

		Training - The Training Sub project will plan and deliver
both trust management and employee skills training relevant to
delivery of Interior's trust fiduciary responsibilities to
American Indians. Training will be provided across the Interior
trust workforce and include Tribes and participating contractors.

		Internal Controls - The Sub project will systematically
address documented internal control deficiencies in Indian trust
management, item by item, that have been identified through
internal and external audit, Congressional oversight and outside
reviews. Corrective actions will be validated and/or designed to
assure resolution of all internal control weakness.

The other Sub projects are:

		BIA Resources Data Clean Up
		BIA Probate Backlog
		Trust Asset and Accounting Management System
		OHA Probate Backlog
		BIA Appraisal Program
		LRIS Enhancements
		Minerals Management Service (MMS) System Reengineering


Current Year - September 30, 1998
OTHER ADVISORY COMMENTS
Trust Systems {42)

Note: Issues 12 and 13 address Trust systems. They have been
combined and are currently being reported as issue number 42.

System Security (BIA)

As part of our audit related to electronic data processing
("EDP"), we reviewed system security. Based upon our review we
noted:

Periodic reviews of system reports were not being performed.

Specific, clearly defined information security policies and
procedures for system security monitoring do not exist.

Adequate audit trails should exist and be reviewed so that
adverse activity on general support systems can be prevented or
detected. By not reviewing securityï¿½related reports, there is an
increased risk that computer resources may be altered without
authorization and without detection through normal operating
controls.

Physical Access to the Operations Service Center ("OSC") at BIA

As part of our audit related to EDP, we reviewed physical access
to the computer room, which houses the IRMS system and other
critical Trust Systems equipment and documents. At present there
are 103 active access cards. Based upon our review we noted:

Not all cards are assigned to specific individuals
Certain individual. are in possession of multiple cards
A number of contractors with limited need are in possession of
access cards

A number of OSC personnel whose job function should not require
access to the computer room are in possession of access cards

Two individuals from the Division of Accounting Management are in
possession of access cards

Control measures to protect Trust systems from unintentional
damage and data from unauthorized disclosure or modification and
access to sensitive areas must be strengthened.

Documentation

Per our review of access to the IIM system ("IRMS"), we noted
that the access request forms, which document assigned user codes
and passwords are not stored in a secure location at the OTFM.

Without strong controls to safeguard against unauthorized access
to assigned user code. and passwords, the risk of unauthorized
modifications to trust data is increased.

Password Controls (BIA)
Per our review of access to IRMS, we noted that there are
inadequate controls of user codes and passwords including:

User codes are not routinely removed for terminated or
transferred employees
Passwords are not changed on a regular basis
Complete documentation does not exist to readily identify the
owner of each user code
Without strong controls related to the access to sensitive Trust
systems, the risk of unauthorized modifications to trust data is
increased. Additionally, any unintended modifications may be
difficult to detect and correct without an adequate audit trail.

Disaster Recovery Plan (BIA)
In the event of a disaster, an agreement exists to perform remote
processing of IIM applications in Scottsdale, Arizona. However,
the disaster recovery plan has not been tested since the
conversion of the Unisys A17 to the Unisys NX Clearpath Server.
It has been almost two years since the last test was performed.
Without a proven recovery plan, the possibility exists that Trust
operations would not resume within a reasonable period of time in
the event of a disaster.

Recommendation (42): Management should develop and implement
written policies and procedures defining appropriate system
security, physical access, documentation standards, password
controls and disaster recover plans including, but not limited
to the following:
a) System generated security reports are periodically run and
reviewed for unusual activity.
b) Immediate revocation of access upon termination, retirement or
transfer of an employee (Should be part of employee check out
procedure).
c) Periodic review of issued cards and access levels for staff
changes.
d) Granting access only to those individuals whose job function
requires access on a routine basis.
e) Documentation that discloses trust system user codes and
passwords be in a secured location at all times.
f) Passwords be periodically changed.
g) Every user code be readily identified to a specific user.
h) A full test of the disaster recovery plan should be performed
as soon as possible.

CLIENT RESPONSE (42): The OTFM has no control over the security
procedures for the IIM application of the IRMS, physical access
controls to the Operations Service Center nor password controls
for IRMS. These functions are either under the control of the BIA
or are located at BIA officeï¿½.

Beginning in the fiscal year 1999 the Division of Trust Funds
Systems stores the access request forms in a locked area. The
Branch of Internal Review will verify this during their periodic
reviews.

The OSC is scheduled to conduct a disaster recovery test during
the third quarter of fiscal year 1999.

The conversion of both OmniTrust and IRMS systems to Trust Funds
Accounting Systems ("TFAS""), scheduled to be completed in fiscal
year 2000, is expected to resolve the EDP issues. The Branch of
Internal Review will conduct periodic reviews of the security
application process for TFAS. Passwords on TFAS will be changed
every thirty days. TFAS has an internal memory feature that
prohibits use of the same password on a repeat basis. A database
of user ID' a containing name, location and telephone number of
each user is maintained by the OTFM. The Division of Trust Funds
Systems is now notified when employees are terminated or
transferred. A disaster recovery test of TFAS is scheduled for
the first quarter of fiscal year 2000.


Prior Year - September, 30 1997

OST has made considerable efforts towards improving the
accounting systems and internal controls in place within the
OTFM. We have considered this as ongoing reform efforts, and have
adjusted certain past "Material Weaknesses to "Reportable
Conditions and certain past "Reportable Conditions" to "Other
Advisory Comments" based on the progress made to date and the
expectation that these items will soon be resolved due to the
initiatives and centralization efforts that are in place. We will
continue to monitor the progress of the past items and report on
them appropriately to OTFM management.

The following issues are repeated from the prior years' (1995,
1996 and 1997) Report on Internal Controls. In an effort to
consolidate similar issues, we have combined certain items into
one issue and have prefaced each issue with a note to the reader
detailing the number. of the item. combined. For a complete
listing of all issues and its current status, please see the 
Summary of Issues" within this report.

MATERIAL WEAKNESSES
Missing and/or Incomplete Documents - Tribal and IIM (32)

As part of our audit related to disbursement testing, critical
documentation was determined to be either missing or contained
errors. We noted instances for which we were unable to obtain the
appropriate documentation authorizing IIM accounts as
automatically disbursing.

During our 1998 field visits, and in our substantive and
compliance testing, we noted three items lacking appropriate
documentation authorizing IIM accounts as automatically
disbursing. This portion of the reportable condition remains
unresolved as of September 30, 1998.

During our 1997 field visits, and in our substantive and
compliance testing, we noted instances where we were unable to
obtain support for a minor reaching the age of majority. We noted
no such instances in the 1998 audit, and consider this part of
the 1997 material weakness resolved.

Improper Transaction Coding - Tribal and IIM (33):

We noted numerous receipts and disbursements encoded with
improper reference codes within the IIM system, particularly, the
use of the "miscellaneous" reference code, or "payment other"
although the items represented agriculture leasing, land sales,
etc., for which there is specific reference codes available. We
also noted improper transaction code errors in the OmniTrust
system, where lease payments are coded as land sales, or
transfers between or within appropriations were erroneously
recorded. As a result, the OTFM cannot provide reasonable
assurances as to the nature or amount. represented, as individual
categoric of trust receipts and disbursements.

The sample selected during the September 30, 1998 audit disclosed
reference code exceptions.

This condition remains unresolved as of September 30, 1998.

REPORTABLE CONDITIONS
Ineffective Implementation of Policies and Procedures - TRIBAL
and IIM (31)

Note: Issues 4, 19, and 31 all addressed ineffective
implimentation of policies and procedures. They have all been
combined and are currently being reported as issue number 31.

As part of our audit related to compliance with internal control.
as they relate to standard operating procedures, we mailed two
different types of questionnaires (i.e., Collection Officers and
IBM Accounting Technician) to each Area office and asked the ATA
to have all respective personnel complete and return the
questionnaires to us as soon as possible. Upon receipt we
reviewed the questionnaire responses, conducted telephone
interviews with Area and Agency field personnel and visited
certain Area and Agency offices to clarify the response.
presented. It should be noted that while authority to supervise
financial trust accounting personnel we. delegated to the OTFM in
February 1996 under the Secretarial Order 3197, particular trust
functions, are performed by non-OTFM staff (i.e., BIA and Tribal)
over which the OTFM has no control nor line authority. As a
result, there is an inability to implement existing policies and
procedures pertaining to non-OTFM personnel/individuals.

While the OTFM continues to work towards providing improved
regulatory guidance and policies and procedures, consistent
implementation of existing guidelines has not been achieved due
to the decentralized nature of OTFM field accounting operations,
lack of personnel at certain locations, lack of line authority
over certain trust functions that impact OTFM operations and
inadequate information systems. The following item. represent
reportable conditions as of September 30, 1998, and should be
addressed by the OTFM:

Segregation of duties
In certain instances OTFM staff are performing collection officer
duties and performing account encoding functions.

Training
Collection officers and/or IIM Accounting Technicians do not have
trained alternates to perform the function in their absence
(BIA).

Safeguarding of assets
Collection officers are often the only individual with the
combination to the safe.
Combinations are not located in a sealed envelope with a third
party.
Combinations are not changed when an employee with knowledge of
the combination to the safe leaves his/her position (BIA).
Cash receipts are being stored in file drawers rather than in a
safe or vault.

Work environments
Collection officers work in an open, unsecured environment in
field offices. This type of work environment lends itself to the
possibility of sensitive account holder information being exposed
to non-account holders. This environment also does not prohibit
terminated employees from re-accessing their old workstations.

Supervisory process reviews
Reviews of the collection and disbursing processes are not being
performed. IIM accounts on hold status are not being reviewed
periodically.

Posting of Tribal funds into the IRMS System
IIM accounting technicians are currently posting funds that are
known to be tribal owned accounts into the IIM system.

IIM account status changes
IIM accounting technicians do not submit address changes, status
(hold) changes, new account ret ups, etc., to a supervisor for
approval prior to processing, and no supervisory review of the
change to the master record subsequently occurs.

Implementation and enforcement of policies and procedures
OTFM Division of Field Operation's staff are not complying with
minimum documentation standards for IIM transactions as
identified in POL98-012.
OTFM Division of Quality Assurance is currently not reviewing the
operations of the Division of Trust Fund Accounting and/or
Division of Field Operation.

Policies and procedures
OTFM personnel do not have a comprehensive set of standard
operating procedures manuals in which to understand their job
responsibilities and duties. They are expected to perform their
duties by utilizing the Desk Operating Procedure Manual and/or
OTFM issued numbered policies and procedures. These sources of
information should be combined into a comprehensive set of
operating manuals.

The above conditions remain unresolved as of September 30, 1998.
OTFM has advised that an action plan is in process which should
resolve the above issues by March 31, 2000.

The following items reported under issue #31 were resolved as of
September 30, 1998.

An accounting technician processed disbursements from beneficiary
accounts that were on a credit hold status prior to receiving
proper authorization and documentation to remove the hold. In
this instance, the beneficiary accounts affected were individuals
of close personal relationship to the accounting technician.

An IIM accounting technician allowed the Authorized Collector
access to the IRMS system under the clerk/Teller's password, and
allowed the Authorized Collector to process transactions.

The inventorying of the blank check stock is not always performed
by an individual independent of the disbursing function or is not
performed at regular intervals.


Funds Accepted into Trust without Supporting Documentation -
Tribal and IIM (34)

We noted several Tribal timber-related collections posted to the
IIM system which originated with the Tribe and for which there
was no supporting documentation. The amounts totaled
approximately $365,000.

Without supporting documentation, the OTFM has no way to
ascertain that the funds it is receiving into trust are actually
trust funds. The Tribes are entitled to receive the royalty
payments or other proceeds of labor income directly and later
submit all or some of the revenue to the OTFM for deposit into
trust. As administrator, the OTFM needs, and should be able to
obtain, supporting documentation and reasonable assurances from
the Tribe regarding the nature of the funds it is receiving into
trust.

Presently, BIA is involved in the collection process. The OTFM
can exercise no control over their collection officers. This
condition was shared with the BIA as it relates to fiscal year
1997.

The condition remains unresolved as of September 30, 1998.

Investments - Inadequate Procedures relating to Market Pricing
and Stated Market Values - Tribal and IIM (37)

In reviewing the process by which the Branch of Investments
obtain. information to manually price securities, we determined
there is no documented procedure for updating and documenting the
source of information for manually priced securities.

This condition remains unresolved at September 30, 1998.

OTHER ADVISORY COMMENTS
Investments - Lack of Manual Adjustment Procedures - Tribal and
IIM (36)

We were unable to locate documented procedures for performing
manual adjustments (correcting entries) in the OmniTrust system.
These procedures should include a review of the transaction
before and after the posting to ensure accuracy. In our testing
of investment activity, which included several principal pay down
transactions, we noted the amount of carry value reduced with a
principal pay down did not correspond to the same par/cost
relationship as indicated in the original broker's confirmation.
In reviewing the history of transactions posted for the security,
it was noted that in the previous fiscal year a manual adjustment
to carry value was made incorrectly, thus altering the par/cost
relationship.

This condition remains unresolved at September 30, 1998.

Investments - Lack of Contract Compliance - Custodial
Reconciliation - Tribal and IIM (39)

Difference. exist between Banker's Trust, OTFM's Custodian, and
information contained on the OmniTrust system. The differences
exist predominately on the Banker's Trust system and include
maturity dates, interest rates and differences in par value.
Although the OTFM has identified and communicated the differences
to the contractor, some differences have aged significantly
without resolution. The differences may lead to difficulties in
proper settlement when securities mature or are sold if the
appropriate party does not resolve them.

This condition remains unresolved at September 30, 1998.

Fund Balance - Accepting Non-trust Beneficiaries and Non-trust
Funds - Tribal and IIM (40)

It appears that accounts may be established and maintained for
non-trust beneficiaries and non-trust money may be accepted into
these accounts. It does not appear that definitive regulation or
legislation exists which specifically addresses the nature of the
allowable collections into trust or whether the OTFM may provide
trust and/or banking services to organizations other than Tribes
or Individual Indians.

During our 1998 field visits, and in our substantive and
compliance testing, we noted eight counts that appear to be
maintained in the IRMS system for various BIA program related
activities.

By accepting these moneys into the trust funds, the OTFM accepts
the fiduciary responsibility for maintaining the balances and
investing the funds. The OTFM may not be delegated those
responsibilities and may be inappropriately utilizing government
resources to manage and account for the funds. Additionally,
without proper supporting documentation, it would be impossible
to determine the nature of the funds collected as being
appropriate. Voluntary deposits are generally prohibited under 25
CAR 115.6.

These practices noted above may expose the OTFM to unnecessary
risk, as in the case of receipt and disbursement of loan payments
to third parties without documented beneficiary approval.

Currently, IIM accounts are established at 62 field locations.
Under the existing level of field staffing, resources and
technology, the OTFM does not have the capability to provide a
supervisory review and approval of source documents and new
account setï¿½ups in the IRMS system.

This condition regains unresolved at September 30, 1998.


Area and Agency - Bureau of Indian Affairs Trust Responsibilities
- Tribal and IIM (41)

As part of our field visits and substantive and compliance
testing, we reviewed the collection process along with supporting
documentation for collections posted to IIM and Tribal accounts.
In so doing, we noted the following internal control issues and
instances of non-compliance as they relate to the trust
responsibilities of the BIA:

  Unauthorized disbursements from trust accounts occur. We also
noted that disbursements from IIM accounts with Social Services
holds were "recommended" by a rubber-stamped facsimile of the
Superintendent's signature.

  Our testing of lease income revealed that interest is not
always collected on late payments. We noted instances where the
lessee paid an incorrect amount that was less than the lease
amount due. We also noted the Agency was making no attempt at
collection of past due amounts.

  The lessee did not execute one lease selected in our upstream
sample. We also observed instances of lease payments receipted
"pending approval of the lease". The lessee has had use of the
land.

  The Agency holds checks in excess of the 24 hour Treasury
Fiscal Requirement.

  Files containing original documents were not stored in a
locked, secure location.

  Some allotted lands are not being advertised for lease.

  There is a lack of segregation of duties when the Agency
Authorized Collector simultaneously acts as the Authorized Mail
Clerk.

  There is no backup for the Collections officer, or the
alternate Collection officer has not had an opportunity to
process collections, which may mean they are no longer familiar
with the process.

  The Agency accepts personal checks as a form of payment. On
occasion personal checks were not honored by the issuing bank,
and overdrafts to IIM accounts occurred as a result of the delay
between the time the item was returned to the Agency and the
distribution to the account holder.

These conditions were shared with the BIA as they related to
fiscal year 1996 but is considered unresolved as of the date of
this report.

The following sections contain the comments from the September
30, 1996, Report on Internal Controls.


Prior Year - September 30, 1996

MATERIAL WEAKNESSES
Inadequate Internal Financial Reporting ï¿½ Tribal and IIM (17)

In performing our tests related to the trust fund balances, we
noted that the OTFM could not produce a ready analysis of the
changes in cumulative trust fund balances. The resulting
Statement of Changes in Trust Fund Balances for IIM is a
compilation of information derived from three different sources,
including OmniT Nest data, IIM system data, and manually prepared
investment amortization and accretion schedules.

The OTFM does not produce internal combined trust fund financial
reports or statements in accordance with the appropriate basis of
accounting. Financial reporting prepared for management's review
contained no Statement of Assets and Trust Fund Balances or
Statement of Changes in Trust Fund Balances other than those
produced as a part of the annual audited financial statements.

The Statement of Changes in Trust Fund Balances is a generally
accepted financial report that provides an analysis of periodic
receipt and disbursement activity by source, and, in essence,
represents a summary reconciliation of beneficiary accounts at
the highest consolidated level.

This condition wee unresolved as of September 30, 1998.

This condition was concurred and implementation is underway at
September 30, 1998. The OTFM did compile a Statement of Assets
and Trust Fund Balances and Statement of Changes in Trust Fund
Balances as of and for the month ended October 31, 1998. The OTFM
will continue to compile the financial statements on a quarterly
basis.

Area and Agency Offices - Unauthorized Transactions - Tribal and
IIM (18)

As part of our receipts and disbursements testing, we reviewed
disbursement transactions for proper approvals, in accordance
with 25 Code of Federal Regulations ("CFR"), Secretarial Order
3177, and Secretarial Order 3197 (for transactions subsequent to
February 9, 1996).

In our sample, we noted that BIA personnel did not approve three
Tribal disbursement transactions from the IIM subsidiary system
totaling $850,000. These were disbursed prior to the February 9,
1996 Secretarial Order 3177 which changed policies and procedures
relating to disbursement approvals. Also, for two transactions
totaling 370,640, documentation supporting beneficiary approval
of disbursements to third parties was not provided.

OTFM and BIA policies and procedures require an appropriate
approval be obtained prior to funding tribal disbur~ementa.
Without proper approvals, the OTFM may be inappropriately
disbursing trust assets. An approval signature indicate. that a
disbursement has been reviewed and is appropriate based on
supporting documentation. Lack of documented approval indicates
that these steps may or may not have occurred. Inadequate
documentation of approvals may also expose the OTFM to a
potential breach of fiduciary responsibility.

The condition was shared with the BIA as related to fiscal year
1996. However, our testing of disbursement transactions for the
fiscal year 1997 revealed several instances of unauthorized
disbursements from both Tribal and Individual Indian Money
accounts. This condition i. unresolved at September 30, 1998.

Area and Agency Offices - Ineffective implementation of Policies
& Procedures - Tribal and IIM (19)

Note: Issues 4, 19 and 31 all addressed ineffective
implementation of policies and procedures. They have all been
combined and are currently being reported as issue number 31.


REPORTABLE CONDITIONS
Cash - Failure to Analyze Suspense Accounts - Tribal and IIM (20)

An analysis of the items that comprise several U.S. Treasury
("the Treasury") suspense and budget clearing accounts has not
been completed. Therefore, the OTFM's current procedures for
researching and proposing adjustments to the cash out of balance
condition do not consider whether an offset may already exist
within one of these account balances. Funds to cover the
adjustments may be in a Treasury suspense or budget clearing
account because the original transaction may not have been
reported to Treasury, and a Statement of Difference was created.
If the Statement of Difference was not resolved, the transaction
amount was transferred to one of the Treasury suspense or budget
clearing accounts. The Treasury suspense and budget clearing
account balances at September 30, 1997, were approximately
$100,S00, ($3,378,000), $5,957,000 and ($3,310,000).

The Treasury suspense and budget clearing account balances at
September 30, 1998, were approximately $102,700, ($3,378,000),
$5,957,000 and ($3,310,000).

As a result, the resolution of reconciling items between the U.S.
Treasury and the OTFM may be incorrect without consideration
given to the items that comprise prior period suspense balances.

The condition was concurred but remains unresolved at September
30, 1998.


Investments - Lack of Reliable IIM Balance Available for
Investing - IIM (22)


The amount invested on behalf of IIM account holders is based on
the OmniTrust system IIM control account balance. The balance per
OmniTrust does not agree to the balance per the IIM subsidiary
ledger. The OmniTrust control account for IIM exceeds the IIM
subsidiary ledger by approximately $29,000,000. At this point in
time, it can not be determined which system has an accurate
balance. Consequently, the OTFM may be over or underï¿½investing,
because the underlying balance is unreliable.

During the year ended September 30, 1998 the OTFM, with the
assistance of a contractor, initiated a project to identify
components of this number. As of September 30, 1998 the aggregate
of all positive fund balances from the IIM Detailed subsidiary
ledger exceeded the assets by approximately $6,700,000.

The condition was concurred but remains unresolved at September
30, 1998


Special Deposit - Lack of Policies and Procedures and
Inconsistent Practices - IIM (24)

Note: Issues 7 and 24 addressed Special Deposit Accounts. They
have been combined and are currently being reported as issue
number 24.

Per 25 CFR, "Special Deposit" accounts are to be used as suspense
accounts to which funds are posted when allocation of funds is
not immediately clear. These accounts are maintained within the
IIM subsidiary system. The funds are then transferred to the
account holder when the proper allocations are determined. For
receipt and disbursement transactions specifically related to
Special Deposit accounts, we noted a number of practices which
are inconsistent with management's defined use of Special Deposit
accounts, as well as inadequate policies and procedures governing
the use of these accounts.

Among the issues noted were:

  Loan payments to third party financial institutions accumulate
in a Special Deposit account, and lump sum payments are made on
behalf of beneficiaries. The amount. paid do not equal the
amounts contributed by beneficiaries, and it is not known how the
payments by individuals were reconciled to the lump sum payments.
Further, we were unable to obtain documentation to support
approval by the beneficiaries of these payments made to third
parties.

  A Tribal credit program is using a Special Deposit account to
withdraw funds as necessary to make loans to Tribal members. The
source of the deposits to this particular Special Deposit account
may be loan repayments, which are not considered proper receipts
from trust activities.

  Past errors that had not been resolved were posted to Special
Deposit accounts. These include canceled check claims, payments
to an incorrect individual for per capita distribution, and
historical conversion errors (from manual to automated system in
1977).

  Special deposit accounts contain judgment award funds.

  Special Deposit Accounts are not reviewed periodically to
ensure that they are used for their intended purpose and that
balances are current. The OTFM should work with BIA to determine
the proper distribution.

The practices noted above may expose the OTFM to unnecessary
risk, as in the case of receipt and disbursement of loan payment"
or payment. to third parties without documented beneficiary
approval.

Lack of standardized procedures and adequate resources to
identify and allocate these monies is the primary historical
cause of aged Special Deposit account balances.

This condition was concurred but remains unresolved at September
30, 1998.

We have been advised by the OTFM that this issue is currently
being addressed by a Task Force consisting of BIA, OST, Policy
Management and Budget, Solicitors and Office of Audit and
Evaluation.


Negative IIM Account Balances Included in Invested Balance - IIM
(26)

The IIM subsidiary ledger contains negative account balances
approximating $44,000,000. The OmniTrust control account for IIM
is supposed to represent the aggregate net balance of the IIM
subsidiary system. However, this is difficult to determine
because of the $20,000,000 out of balance condition between
OmniTrust and the IIM subsidiary ledger that is noted in a
separate reportable condition. The invested balance for IIM
account holders is equal to the OmniTrust balance. If the
negative balances are included in both ledgers, IIM account
holders with positive balances are being penalized by lower
earnings due to the IIM investment pool being reduced by the
amount of the negative balances.

In addition to individual overdraft accounts, a large portion of
the negative balances are due to negative undistributed interest
account balances.

During the year ended September 30, 1998 the OTFM, with the
assistance of a contractor initiated a project to identify
component. of this number. As of September 30, 1998 the aggregate
of all positive fund balances from the IIM Detailed subsidiary
ledger exceeded the assets by approximately $6,700,000.

This condition was concurred but remains unresolved at September
30, 1998.


Prior Year - September 30, 1995

MATERIAL weaknesses
Cash - Tribal and IIM (1)

Cash balances converted as of March 31, 1995 from the prior
general ledger to OmniTrust were approximately $27,000,000 higher
than the balance as reported to the U.S. Treasury. Cash
reconciliation procedures only reconcile current activity from
OmniTrust to Treasury and do not address the unreconciled
beginning balance. The composition of the difference i. not known
and no reliance has been obtained that either the OTFM balance or
the balance as reported to Treasury balance is accurate.

This condition was concurred but remains unresolved at September
30, 1998. Further, the $27,000,000 difference is now reflected at
approximately $35,000,000 as of September 30, 1998. The out of
balance condition changes as reconciling items are identified and
cleared.


Trust Fund Balances - Tribal and IIM (3)

An "Undistributed Interest Account from TFMS" exists on OmniTrust
balances of approximately 51~800~000 and $2,100,000 at September
30, 1995 and September 30, 1998, respectively.

This condition was concurred but remains unresolved at September
30,1998.

The balances are likely to remain intact until the U.S. Federal
Government and the beneficiaries reach a resolution regarding
past activities and balances.

Area and Agency Office. - Tribal and IIM (4)

Note: Issues 4, 19 and 31 all addressed ineffective
implementation of policies and procedhree. They have all been
combined and are currently being reported an issue nether 31.


REPORTABLE CONDITIONS
Cash - Tribal (5)
Negative Cash Balances

There are thirteen (13) cash accounts on OmniTrust with negative
balances totaling approximately $742,000 and 726,000 as of
September 30, 1995 and 199 8, respectively.

This condition was concurred but remains unresolved at September
30, 1998. The current balances, however, are likely to remain
intact until the U.S. Federal Government and the beneficiaries
reach a resolution regarding past activities and balances.

IIM Special Deposit Accounts - IIM (7)

Note: Insure 7 and 24 addressed Special Deposit Accounts. They
have been combined and are currently being reported as issue
number 24,

Ownership Records - Tribal and IIM (8)

Ownership records at the Area and Agency offices are not updated
in a timely manner. This results in the potential for inaccurate
distributions of lease income to IIM account holders. Lack of
resource. to process the significant number of changes causes
this backlog.

This condition was concurred, but remains unresolved at September
30, 1998. This condition has been shared with the BIA.

Accounts Receivable System - Tribal and IIM (10)

The BIA does not have an accounts receivable system in place for
trust assets. The GAO, in its report dated April 25, 1994,
(GAO/AIMD-94-110R) recommended that the BIA develop an accounts
receivable system. Currently, the BIA has no assurance that all
lease revenues are billed and subsequently collected.

Such a system should provide reasonable assurance that earned
revenues are billed, collected and posted to the appropriate
beneficiary's account.

This condition was concurred but r mains unresolved at September
30, 1998. This comment has been shared with the BIA.


OTHER ADVISORY COMMENTS
Electronic Data Processing
Disaster Recovery - IIM (12)

Note: Issues 12 and 13 addressing Treat Systems have been
combined and are currently being reported as issue number 42.

Password Controls - IIM (13)

Note: Issues 12 and 13 addressing Trust System have been combined
and are currently being reported as issue number 42.

1099 Interest Reporting - IIM (16)

Currently, there are individuals with no known social security
number receiving interest income on trust investments. Because
the social security number is unknown, the OTFM reports the
interest earnings to the Internal Revenue Service ("IRS") with no
recipient social security number. The OTFM does not withhold
taxes prior to the interest distribution. Of the approximately
260,000 accounts on the IIM system held by individuals,
approximately half, or 130,000, have no social security number as
of September 30, 1995.

Of the approximately 286,000 accounts on the IIM system held by
individuals, approximately 106,000 have no social security number
as of September 30, 1998.

This condition was concurred but has not been resolved at
September 30, 1998. However, significant efforts are currently
underway internally and by a contractor to identify missing
account holders and missing social security numbers.

Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control
structure that might be reportable conditions and, accordingly,
would not necessarily disclose all reportable conditions that are
also considered to be material weaknesses as defined above.

This report is intended for the information of the Inspector
General, The Office of Special Trustee for American Indians of
the U.S. Department of Interior and management of OTFM and is not
intended for any other purpose. However, this report is a matter
of public record and its distribution is not limited.


GRIFFIN & ASSOCIATES, P. C.
Certified Public Accountants
Boulder, Colorado
January 22, 1999




U.S. DEPARTMENT OF THE INTERIOR
OFFICE OF THE SPECIAL TRUSTEE FOR AMERICAN INDIANS
TRIBAL AND OTHER SPECIAL TRUST FUNDS,
AND INDIVIDUAL INDIAN MONIES TRUST FUNDS
MANAGED BY THE
OFFICE OF TRUST FUNDS MANAGEMENT

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON COMPLIANCE WITH
LAWS AND REGULATIONS
SEPTEMBER 30, 1998

To the U.S. Department of the Interior Office of the Special
Trustee for American Indiana:

We have audited the Statements of Assets and Trust Fund Balance.
and the related Statements of Changes in Trust Fund Balances for
the Tribal and Other Special Trust Funds, and Individual Indian
Monica trust funds ("IIM") managed by the U.S. Department of the
Interior Office of the Special Trustee for American Indians
("OST") Office of Trust Funds Management ("OTFM") as of and for
the years ended September 30, 1998 and 1997, and have issued our
reports thereon dated January 22, 1999.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.

Compliance with laws and regulations applicable to the OTFM is
the responsibility of the management of the OTFM. As part of
obtaining reasonable assurance about whether the statements
referred to above are free of material misstatement, we performed
tests of OTFM's compliance with certain provisions of laws and
regulations. However, the objective of our audit. was not to
provide an opinion on overall compliance with such provisions.
Accordingly, we do not express such an opinion.

Material instances of noncompliance are failures to follow
requirements, or violations of prohibitions, contained in law or
regulations that cause us to conclude that the aggregation of the
misstatements resulting from those failures or violations is
material to the Statements of Assets and Trust Fund Balances and
the Statements of Changes in Trust Fund Balances, or that the
sensitivity warrants disclosure thereof.

The results of our tests disclosed material instances of
noncompliance. As communicated to us by the Office of the
Solicitor ("Solicitor") for the Department of the Interior,
tribal organizations and classes of Indian individuals have filed
various claim against the U.S. Federal Government for failure of
the U.S. Federal Government to fulfill its fiduciary
responsibilities and related charges.


Current Year - September 30, 1998

IMMATERIAL NONCOMPLIANCE
Noncompliance with 25 CFR 115.6 - IIM (C1)

25 CFR 115.6 states "As a general rule, voluntary deposits shall
not be accepted. Indians who require banking services shall be
encouraged to utilize commercial facilities". As indicated within
the "Report of Independent Public Accountants on Internal
Controls September 30, 1998", we noted several instances in which
the OTFM accepted voluntary deposits to Individual Indian Money
accounts.

OTHER NONCOMPLIANCE

The OTFM represented to the Department of the Interior via its
"Management Representation Letter" dated December 18, 1998 for
fiscal year 1998 unaudited financial statement. the following:

"We have not assessed the effectiveness of OTFM's internal
control structure over safeguarding the assets against
unauthorized acquisition, use, or disposition, compliance with
laws and regulations, and financial reporting based upon control
criteria established under the Federal Managers' Financial
Integrity Act of 1982 (FMFIA) and the OMB Circular A-123
subsequent to September 30, 1995. Note: the Special Trustee for
American Indians, in his Annual Assurance Statement of Management
Controls for Fiscal Year 1997 concludes that the OST systems of
management, administrative and financial controls do not provide
reasonable assurance that the objectives of the FMFIA have been
achieved."

We do concur with the Special Trustee in his Annual Assurance
Statement of Management Controls for Fiscal Year 1997 "that the
OST systems of management, administrative and financial controls
do not provide reasonable assurance that the objectives of the
FMFIA have been achieved." However, we believe that the OST and
the OTFM are taking the appropriate steps in developing and
implementing the "Trust Management Improvement Project High Level
Implementation Plan" dated July 1998.

Prior Year - September 30, 1996

OTHER NONCOMPLIANCE

Non-compliance with DOA098-005 (OTFM Delegation of Authority for
Disbursements) (C2)

We reviewed disbursement transactions for proper approvals, in
accordance with 25 Code of Federal Regulations ("CFR") and
Secretarial Order 3177 or Secretarial Order 3197. According to
numerous sections of 25 CFR, and Secretarial Order 3177,
disbursements from tribal trust accounts require the approval of
the Secretary of the Interior or his delegate. This authority was
subsequently reï¿½delegated to Agency superintendents for
transactions prior to February 9, 1996. On February 9, 1996,
Secretarial Order 3197 established the Office of the Special
Trustee for American Indians within the Department of the
Interior and moved the Office of Trust Funds Management from the
BIA to the OST. The Secretarial Order issued all delegations of
authority for financial trust services to the Special Trustee for
American Indians, and rescinded all such delegations to the
Assistant Secretary - Indian Affairs. Pursuant to that Order, on
February 9, 1996, the Special Trustee for American Indians
delegated all program and administrative authorities necessary to
perform financial trust services to the Director, OTFM, with the
exception to approve withdrawals of tribal funds from trust. This
delegation was published as 210 DM 14, Release 3053. The Director
of OTFM, attempted to reï¿½delegate administrative authority within
the jurisdiction set forth in 210 DO 14, Release 3053, to OTFM
field accounting personnel and BIA Agency Superintendents. This
redelegation was not approved. Subsequent to this, the Director
reï¿½delegated her authority to the Area Trust Accountants ("ATA")
via Delegation of Authority ``D0A98-005" which became effective
February 12, 1998. However, during our testing of disbursement
transactions we noted exceptions due to improper authorization.
(i.e., Superintendents and/or individuals other than the Director
or her assignee had authorized the disbursement).

This noncompliance issue is the result of the OTFM and BIA having
not reached an operating agreement or executed a Memorandum of
Understanding that would define the authorities and
responsibilities of various OTFM and BIA personnel in performing
financial trust services on behalf of Tribes and individual
Indians and specifically as these responsibilities relate to
disbursement authorizations. Uncertainties regarding the ultimate
placement of OTFM field staff upon termination of the Special
Trustee's Office has resulted in inconsistent implementation of
responsibilities.

This condition was concurred but remains unresolved at September
30, 1998.


IMMATERIAL NON-COMPLIANCE
Treasury Fiscal Requirement (C3)

It was noted that Agency offices are in violation of the Treasury
Fiscal Requirements whereby funds had been accumulated in excess
of $5,000 and a timely deposit was not made.

The condition was concurred but remains unresolved at September
30, 1998. The OTFM's lockbox initiative should address the delays
in the deposit of funds.

Except as described above, the results of our tests of compliance
indicate that, with respect to the items tested, the OTFM
complied with the provisions referred to in the third paragraph
of this report, and with respect to items not tested, nothing
came to our attention to cause us to believe the OTFM had not
complied, in all material respects, with those provisions.

Additionally, the objective of our audit of the financial
statements was not to determine whether OTFM's systems are Year
2000 compliant. OTFM's management is solely responsible for Year
2000 compliance for its systems and any other systems that impact
OTFM's operations, such as those of OTFM's vendors, service
providers or other third parties. Accordingly, we have no
responsibility to determine, and provide no assurance on, whether
OTFM has addressed or will be able to address the affected
systems on a timely basis.

This report is intended for the information of the Inspector
General, the Assistant Secretary for Indian Affairs, and the
Office of Special Trustee for American Indians of the U.S.
Department of Interior and management of OTFM and is not intended
for any other purpose. However, this report is a matter of public
record and its distribution is not limited.

GRIFFIN & ASSOCIATES, P.C.
Certified Public Accountants
Boulder, Colorado
January 22, 1999



APPENDIX 1
Page 1 of 3

     United States Department of the Interior

	        OFFICE OF THE SECRETARY
	       	Washington, D.C. 20240

MAR 17 2000

Memorandum

     To:	Assistant Inspector General for Audits

   From:	Assistant Secretary ï¿½ Indian Affa~

Subject:	Draft Audit Report on the Financial Statements for
            Fiscal Years 1998 and 1997 of the Tribal, Individual
            Indian Monies, and Other special Trust Funds Managed
            by the Office of the Special Trustee for American
            Indians (Assignment No. C-IN-BIA-003-99-R)

Subsequent to your memorandum of February 29, 2000, the Director,
Office of Audit and Evaluation met with the Director, Office of
Financial Management and the Director of Financial Audits to
discuss the assignment of findings from the trust funds audit. As
a result of that meeting, the number of audit findings assigned
to the Bureau of Indian Affairs (BIA) was reduced from eight to
four. Our response to those four findings is provided below:

Finding No. 8: Ownership records at the Area and Agency Offices
are not updated in a timely manner. This results in the potential
for inaccurate distributions of lease income to the IIM account
holders. Lack of resources to process the significant number of
changes causes this backlog.

Response: The BIA agrees that there is a significant backlog in
updating land ownership records. Plans to address this deficiency
are included in three subprojects in the Trust Management
Improvement Plan: BIA Data Cleanup and Management, Probate
Backlog, and Trust Asset and Accounting System (TMMS). Attached
are copies of the approved plans for each of these subprojects
(Attachments 1 ï¿½ 3). Further, in response to the U.S. District
Court's decision that the Department of the Interior (Department)
had breached its trust responsibilities in four specific
instances, a Workforce Planning document has been prepared that
will be used to determine the appropriate level of staffing for
all statutory trust activities. This plan will be coordinated and
managed under the guidance of the Director of the Department's
Office of Personnel Policy. A brief description of that plan and
the target milestone dates is provided (Attachment 4).

Finding No. 10: BIA does not have an accounts receivable system
in place for trust assets. The GAO, in its report dated April 25,
1954, (GAO/AIMDï¿½94ï¿½11 OR) recommended that the BIA develop an
accounts receivable system. Currently, BIA has no assurance that
all lease revenues are billed and subsequently collected.

Response: The BIA agrees that there is not an accounts receivable
system for trust assets. TMMS includes an accounts receivable and
billing and collection system. Please refer to Attachment 3 for
the TMMS implementation schedule.


Page 2 of 3

Finding No. 41: This finding was included in the FY 1997 audit
report and was referred by the OIG to the Office of Financial
Management for fcilowï¿½up. A copy of my March 3, 2000, memorandum
to the Director, PFM has been provided to your office under
separate cover.

Finding No. 42: Management should develop and implement written
policies and procedures defining appropriate system security,
physical access, documentation standards, password controls and
disaster recovery plans including, but not limited to the
following:

	a.	System-generated security reports are periodically run
and reviewed for unusual activity.

	b.	Immediate revocation of access upon termination,
retirement or transfer of an employee.

	c.	Periodic review of issued cards and access levels for
staff changes.
	d.	Granting access only to these individuals whose job
function requires access on a routine basis.

	e.	Documentation that discloses trust system user codes and
passwords be in a secured location at all time.

	f.	Passwords be periodically changed.
	g.	Every user code be readily identified to a specific user.
	h.	A full test of the disaster recovery plan should be
performed as soon as possible.

Response: The BIA declared the deficiencies in general controls
over automated information systems to be a material weakness in
the FY 1999 annual assurance statement that was submitted
pursuant to the Federal Managers Financial Integrity Act. During
1999, a full disaster recovery test was conducted and a
continuity of operations plan was developed. The corrective
action plan developed to address the material weakness includes:

 Development of an information technology security plan.

 Development of a strategic plan for the Division of Information
Resources Management.

 Development and issuance of formal policies, standards, and
procedures for computer operations.

With respect to this specific audit, however, the corrective
actions involve moving all trust systems to contractor operated
and maintained systems. In March 2000, the Office of Trust Funds
Management is scheduled to complete conversion of the remaining
three BIA regions from the legacy accounting system to the Trust
Funds Accounting System (TEAS). The BIA will replace its legacy
systems, the Land Records Information System and the Integrated
Records Management System, with TAAMS. These efforts will be
supported and reinforced by preparation and implementation of the
Computer and Business Systems Architecture Framework Plan
(Framework Plan).


Page 3 of 3

The Department's Chief Information Officer will chair the Trust
Management Technical Oversight Committee that will approve the
overall business and computer systems architecture for trust
management activities. For these reasons, resolution of Audit
Finding No. 42 should be tracked underTFAS, TAAMS, and the
Framework Plan rather than under the material weakness corrective
action plan.

Attachments

cc: Special Trustee for American Indians
Chief Information Officer, Department of the Interior



APPENDIX 2


STATUS OF RECOMMENDATIONS
IN AUDIT REPORT 98-I-206

-----------------------------------------------------------
Recommendation                                Action
Reference              Status                Required        
 -----------------------------------------------------------
 1, 3, 4            Resolved; not      No response to the
(renumbered as      implemented.       Office of Inspector
31), 5, 7                              General is
(renumbered as                         required.  The
  24), 8, 10, 12                         recommendations
(renumbered as                         have been referred
42), 13                                to the Assistant
(renumbered as                         Secretary for
42), 16, 17, 18,                       Policy, Management
19 (renumbered as                      and Budget for
31), 20, 22, 24,                       tracking of
26, 31, 32, 33,                        implementation.
34, 36, 37, 39,
40, and 41
-----------------------------------------------------------
2, 6, 9, 11, 14,    Implemented.       No further action
15, 21, 23, 25,                        is required.
27, 28, 29, 30,
35, and 38
-----------------------------------------------------------



APPENDIX 3

STATUS OF AUDIT REPORT RECOMMENDATION

Recommendation
Reference              Status               Action Required 

      42            Resolved; not     No response to the Office
                     implemented.     of Inspector General is
                                      required. The
                                      recommendation has been 
                                      referred to the Assistant
                                      Secretary for Policy,
                                      Management and Budget for
                                      tracking of implementation.




ILLEGAL OR WASTEFUL ACTIVITIES

SHOULD BE REPORTED TO

THE OFFICE OF INSPECTOR GENERAL 


Internet/E-Mail Address
www.oig.doi.gov



Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street, N.W.                  
Mail Stop 5341
Washington, D.C. 20240 


Our 24-hour
Telephone HOTLINE
1-800-424-5081 or
(202) 208-5300


TDD for hearing impaired
(202) 208-2420  



Outside the Continental United States


Caribbean Region

U.S. Department of the Interior 
Office of Inspector General
Eastern Division - Investigations
4040 Fairfax Drive
Suite 303
Arlington, Virginia 22203

(703) 235-9221



Pacific Region

U.S. Department of the Interior 
Office of Inspector General
Guam Field Office 
415 Chalan San Antonio
Baltej Pavilion, Suite 306
Tamuning, Guam 96911

(671) 647-6060