[Audit Report on Agricultural Leasing and Grazing Activities, Fort Berthold Agency, Bureau of Indian Affairs]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 99-i-102
Title: Audit Report on Agricultural Leasing and Grazing Activities,
Fort Berthold Agency, Bureau of Indian Affairs
Date: November 25, 1998
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U.S. Department of the Interior
Office of Inspector General
AUDIT REPORT
AGRICULTURAL LEASING AND GRAZING
ACTIVITIES, FORT BERTHOLD AGENCY,
BUREAU OF INDIAN AFFAIRS
REPORT NO. 99-I-102
NOVEMBER 1998
MEMORANDUM
TO: The Secretary
FROM: Eljay B. Bowron
Inspector General
SUBJECT SUMMARY: Final Audit Report -
"Agricultural Leasing and Grazing
Activities, Fort Berthold Agency, Bureau
of Indian Affairs" (No. 99-i-102)
Attached for your information is a copy of the subject final
audit report. The objective of the audit was to determine
whether the Fort Berthold Agency adequately managed
agricultural leases and grazing permits for the Three
Affiliated Tribes of the Fort Berthold Reservation and
individual Indian landowners in accordance with regulatory,
lease, and permit requirements and whether agricultural and
grazing revenues in special deposit (suspense) accounts had
been distributed.
We found that agricultural leases and grazing permits were
not adequately managed and agricultural lease rents and
grazing fees and related interest were not distributed from
special deposit accounts. Specifically, (1) agricultural
leases were not approved in a timely manner, (2) interest
applicable to late grazing fee payments was not assessed or
collected, (3) lease rent and grazing fee payments were not
forwarded to the Aberdeen Area Office for deposit in a
timely manner, and (4) lease rents and grazing fees were not
distributed to landowners in a timely manner. Consequently,
we determined that (1) agricultural lease rents for 1997 of
approximately $165,000 and grazing fees for 1996 and 1997 of
about $489,000 were not paid timely, (2) interest of about
$4,800 relative to late grazing fee payments was not
assessed or collected, and (3) interest of about $2,000
relative to untimely deposits of lease rents and grazing fee
payments was not realized. In addition, agricultural lease
rent payments for 1997 of at least $110,000 had not been
distributed to landowners. Furthermore, at December 31,
1996, the Agency had 293 special deposit accounts, with
balances totaling about $671,000, that consisted of
undistributed agricultural lease rents and grazing fees
which were received in calendar year 1996 and prior years.
In its response to the draft report, the Bureau agreed with
four of the draft report's eight recommendations to address
these issues. In its response, the Office of the Special
Trustee for American Indians agreed with the two
recommendations addressed to the Special Trustee.
Based on the responses, we considered four recommendations
resolved and implemented and revised one recommendation and
requested that the Bureau respond to the revised
recommendation. Also, based on the Bureau's response to
three recommendations in our draft report, which related to
grazing rates, and subsequent discussions with Bureau
officials, we have deleted the recommendations from the
final report. We will address grazing rates in a separate
advisory letter.
If you have any questions concerning this matter, please
contact me at (202) 208-5745 or Mr. Robert J. Williams,
Assistant Inspector General for Audits, at (202) 208-4252.
Attachment
C-IN-BIA-002-97(C)
Memorandum
To: Assistant Secretary for Indian Affairs
Special Trustee for American Indians
From: Robert J. Williams
Assistant Inspector General for Audits
Subject: Audit Report on Agricultural Leasing
and Grazing Activities, Fort Berthold Agency,
Bureau of Indian Affairs (No. 99-i-102)
This report presents the results of our audit of
agricultural and grazing activities of the Bureau of
Indian Affairs Fort Berthold Agency. The objective of
the audit was to determine whether the Agency
adequately managed agricultural leases and grazing
permits for the Three Affiliated Tribes of the Fort
Berthold Reservation and individual Indian landowners.
We found that agricultural leases and grazing permits
were not adequately managed and agricultural lease
rents and grazing fees and related interest were not
distributed from special deposit accounts.
Specifically, (1) agricultural leases were not
approved in a timely manner, (2) interest applicable
to late grazing fee payments was not assessed or
collected, (3) lease rent and grazing fee payments
were not forwarded to the Aberdeen Area Office for
deposit in a timely manner, and (4) lease rents and
grazing fees were not distributed to landowners in a
timely manner. Consequently, we determined that (1)
agricultural lease rents for 1997 of approximately
$165,000 and grazing fees for 1996 and 1997 of about
$489,000 were not paid timely, (2) interest of about
$4,800 relative to late grazing fee payments was not
assessed or collected, and (3) interest of about
$2,000 relative to untimely deposits of lease rents
and grazing fee payments was not realized. In
addition, agricultural lease rent payments for 1997 of
at least $110,000 had not been distributed to
landowners.
Furthermore, at December 31, 1996, the Agency had 293
special deposit accounts, with balances totaling about
$671,000, that consisted of undistributed agricultural
lease rents and grazing fees which were received in
calendar year 1996 and prior years.
In our draft report we made eight recommendations for
the Bureau to improve the agricultural leasing and
grazing activities at the Agency. In its response
(Appendix 1) to the draft report, the Bureau concurred
with Recommendations 1, 3, 4, and 5 and nonconcurred
with Recommendation 2. In its response (Appendix 2),
the Office of the Special Trustee for American Indians
concurred with Recommendations 4 and 5. Based on the
responses, we consider Recommendations 1, 3, 4, and 5
resolved and implemented and have revised
Recommendation 2 and request that the Bureau respond
to the revised recommendation (see Appendix 3). Also,
based on the Bureau's response to Recommendations 6,
7, and 8 in our draft report, which related to grazing
rates, and subsequent discussions with Bureau
officials, we have deleted the recommendations from
the final report. We will address the issue of grazing
rates in a separate advisory letter.
In accordance with the Departmental Manual (360 DM
5.3), we are requesting a written response from the
Assistant Secretary for Indian Affairs to this report
by December 31, 1998. The response should provide the
information requested in Appendix 3.
The legislation, as amended, creating the Office of
Inspector General requires semiannual reporting to the
Congress on all audit reports issued, actions taken to
implement audit recommendations, and identification of
each significant recommendation on which corrective
action has not been taken.
We appreciate the assistance of Bureau and Office
personnel in the conduct of our audit.
CONTENTS
Page
INTRODUCTION..............................................1
BACKGROUND.............................................1
OBJECTIVE AND SCOPE....................................3
PRIOR AUDIT COVERAGE...................................4
FINDINGS AND RECOMMENDATIONS...........................5
A.LEASE AND GRAZING PERMIT MANAGEMENT..................5
B.SPECIAL DEPOSIT ACCOUNTS............................14
APPENDICES
1.RESPONSE FROM THE BUREAU OF INDIAN AFFAIRS .........16
2.RESPONSE FROM THE OFFICE OF THE SPECIAL TRUSTEE
FOR AMERICAN INDIANS .............................21
3.STATUS OF AUDIT REPORT RECOMMENDATIONS .............23
INTRODUCTION
BACKGROUND
According to the Code of Federal Regulations (25 CFR 162 for
leasing and 25 CFR 166 for grazing), the Bureau of Indian
Affairs is responsible for approving leases and grazing
permits for individually owned land[1] and tribal land held
in trust that is negotiated by the landowners or their
representatives. The Bureau may also approve leases or issue
permits on individually owned land on behalf of incompetent
persons, orphaned minors, undetermined heirs of estates,
landowners who have not been able to agree upon a lease or
permit,
landowners who have given the Secretary of the Interior
written authority to execute leases or permits, and
landowners whose whereabouts are unknown. The Code of
Federal Regulations also states that leases and permits may
be executed either through negotiation or advertisement and
that annual rents should provide for a fair annual return.
Specifically, the Code states that (1) agricultural leases
are not to exceed 5 years for dry-farming land and 10 years
for irrigable land but that when lessees are required to
make substantial improvement to the land for the production
of specialized crops, leases can be approved for 25 years
and (2) grazing permits are not to exceed 5 years except
when substantial development or improvement is required, in
which case the maximum period "shall be" 10 years.
To improve the management, productivity, and use of Indian
agricultural lands and resources, the Congress enacted the
American Indian Agricultural Resource Management Act in
December 1993. The Act states that the Secretary is to
manage Indian agricultural lands to achieve the following
objectives: (1) protect and maintain the highest productive
potential on the lands, (2) increase production and expand
diversity on the lands, (3) manage lands consistent with
integrated resource management plans, (4) enable Indians to
maximize the potential benefits available to them by
providing technical assistance, (5) develop Indian
agricultural lands to promote self-sustaining communities,
and (6) assist trust and restricted Indian landowners in
leasing their land for a reasonable annual return consistent
with prudent management and conservation practices. To meet
these objectives, the Act requires that 10-year Indian
agricultural resource management and monitoring plans be
prepared and implemented for Indian agricultural lands
"within three years of the initiation of activity to
establish the plan."
The Act stipulates that the management and monitoring plans
be developed by tribes under self-determination contracts or
self-governance compacts or by the Bureau if tribes choose
not to contract or compact for the plans. The Act also
requires that the Bureau, by June 1994, contract with a
non-Federal entity to conduct an independent assessment of
Indian agricultural land management and practices, which was
to include a comprehensive assessment of the improvement,
funding, and development needs for all Indian agricultural
lands. However, the Bureau had not contracted for the
assessment as of August 1997. In addition, the Act requires
that the Bureau issue final regulations to implement the Act
by December 1995. In June 1996, the Bureau issued proposed
regulations; however, the regulations had not been finalized
as of August 1997. Further, the Act changed many of the
requirements specified in the Code of Federal Regulations.
For example, the Act (1) authorizes the leasing of
agricultural lands to the highest bidder at rates below the
appraisal amount after "satisfactorily" advertising the
leases when such action would be in the best interest of the
landowner, (2) provides preference to Indian operators of
agricultural leases when authorized by tribal resolution and
when the landowner received fair market value, (3) waives
the requirement for bonds when authorized by tribal
resolution and when other collateral is posted in lieu of
bonds, and (4) extends the maximum lease term for
dry-farming land from 5 to 10 years.
The Fort Berthold Agency of the Bureau's Aberdeen Area
Office is responsible for leasing and grazing activities for
the Three Affiliated Tribes (Arikara, Hidatsa, and Mandan)
and individual Indian landowners on the Fort Berthold
Indian Reservation. The Reservation encompasses about
454,700 acres in western North Dakota, which consists of
about 337,300 acres of individually owned land, about 83,700
acres of tribal land, and about 33,700 acres of Government
land. The ownership interests in the individually owned
land are severely fractionated.[2] As of December 31, 1996,
the Agency administered 401 agricultural leases that
encompassed about 29,800 acres of farm and pasture lands
which had annual lease rents totaling about $781,000 and
administered 94 grazing permits that encompassed about
221,000 acres of pasture lands with annual grazing fees
totaling about $440,000.
The Fort Berthold Agency had six individuals assigned to the
real estate services program and four individuals assigned
to the land operations program. However, at the time of our
review in May 1997, the Realty Officer position was vacant.
The work load of realty and land operations staff included
the following administrative duties: (1) approving leases
and issuing permits; (2) collecting, forwarding collections
for deposit, and distributing lease rents and permit fees;
(3) ensuring compliance with the terms of the leases and
permits; (4) processing land acquisitions and disposals; and
(5) processing probates. The fiscal year 1997 budget for
the Agency's real estate services was $258,000 and for the
land operations programs was $227,000.
The Secretary of the Interior has been designated as the
trustee of funds held in trust by the Government for the
benefit of Indian tribes and individual Indians. The
Secretary's authority for the management of trust funds was
delegated to the Assistant Secretary for Indian Affairs in
the Departmental Manual (109 DM 8) and was redelegated to
the Bureau's Aberdeen Area Director in the Bureau of Indian
Affairs Manual (10 BIAM, Bulletin 13). On October 26, 1989,
Secretarial Order No. 3137 was issued to establish the
Office of Trust Funds Management within the Bureau of Indian
Affairs. The Office of Trust Funds Management was
responsible for providing oversight of some of the financial
trust service functions, which included collecting,
investing, distributing, and accounting for the trust funds.
However, the Office of the Special Trustee for American
Indians was authorized by the American Indian Trust Fund
Management Reform Act of 1994 to provide more effective
management of and accountability for the proper discharge of
the Secretary's trust responsibilities to Indian tribes and
individual Indians. Further, on February 9, 1996,
Secretarial Order No. 3197 was issued to establish the
Office of the Special Trustee for American Indians and to
transfer the Bureau's Office of Trust Funds Management and
other financial trust service functions to the Office of the
Special Trustee.
OBJECTIVE AND SCOPE
The objective of the audit was to determine whether the Fort
Berthold Agency adequately managed agricultural leases and
grazing permits on the Fort Berthold Reservation in
accordance with regulatory, lease, and permit requirements.
The audit was performed at the Fort Berthold Agency in
Newtown, North Dakota. During the audit, we also contacted
Bureau officials from the Division of Real Estate Services
in Washington, D.C., and the Aberdeen Area Office. Our
audit focused on agricultural leasing and grazing permit
activities that occurred in calendar years 1996 and 1997;
however, we expanded the scope of our review to include
revenues in special deposit (suspense) accounts to determine
whether agricultural lease rents and grazing fees were
distributed to landowners. In addition, in testing the
timeliness of disbursements made to landowners, we did not
attempt to validate or test any specific disbursement
transactions to determine whether funds were paid to the
proper landowners because of long-standing problems
associated with the Bureau's land title records system and
the Bureau's Integrated Records Management System land
ownership subsystem.
Our audit was conducted in accordance with the "Government
Auditing Standards," issued by the Comptroller General of
the United States. Accordingly, we included such tests of
records and other auditing procedures that were considered
necessary under the circumstances. As part of our review,
we assessed the Bureau's system of internal controls and
found weaknesses related to approving expired leases,
assessing and collecting interest on delinquent grazing
permit payments, collecting and depositing lease rent and
grazing fee payments in a timely manner, distributing rent
and fee collections timely, and clearing special deposit
accounts. These weaknesses are addressed in the Findings
and Recommendations section of this report. Our
recommendations, if implemented, should improve the internal
controls in these areas.
We also reviewed the Department's Accountability Report for
fiscal years 1996 and 1997 to determine whether any of the
reported weaknesses were directly related to the objective
and scope of our audit. The Report cited long-standing
material weaknesses in the Bureau's (1) management of trust
funds, the responsibility for which has been transferred to
the Office of the Special Trustee for American Indians; (2)
debt collection practices; and (3) land records management.
These weaknesses were considered in planning and conducting
our review.
PRIOR AUDIT COVERAGE
Neither the Office of Inspector General nor the General
Accounting Office has issued an audit report during the past
5 years on agricultural leases and grazing permits managed
by the Fort Berthold Agency. However, in January 1998, the
Office of Inspector General issued the audit report
"Financial Statements for Fiscal Year 1996 for the Office of
the Special Trustee for American Indians Tribal, Individual
Indian Monies, and Other Special Trust Funds Managed by the
Office of Trust Funds Management" (No. 98-I-206). The
report presented the results of the audit of the Statement
of Assets and Trust Fund Balances and the Statement of
Changes in Trust Fund Balances for Tribal, Individual Indian
Monies, and Other Special Trust Funds as of and for the year
ended September 30, 1996, performed by an independent
certified public accounting firm. The report on internal
controls states that "the OTFM [Office of Trust Funds
Management] and the Bureau continue to be hampered by a lack
of adequate information systems to support various
trust-related activities, including land inventory systems,
lease management systems, ownership systems, accounts
receivable and an adequate trust accounting system for IIM
[Individual Indian Money." The report identified six
reportable conditions that impacted the scope of our audit:
(1) receipts were not mailed to the area office for deposit
on a daily basis; (2) collection and disbursement functions
were performed by the same individuals; (3) suspense
accounts were not analyzed; (4) the accounts receivable
system contained inaccuracies; (5) policies and procedures
regarding special deposit accounts were lacking and
practices regarding these accounts were inconsistent; and
(6) the system of policies and procedures for determining
interest earnings for Individual Indian Monies accounts was
inadequate, which adversely impacted the complete and timely
distribution of funds to account holders. These conditions
identified and the resultant recommendations were considered
in the preparation of our current report.
**FOOTNOTES**
[1]:"Individually owned land" as used in the Code of Federal
Regulations (25 CFR 162 for leasing and 25 CFR 166 for grazing)
is defined as "land or any interest therein held in trust by the
United States for the benefit of individual Indians and land or
any interest therein held by individual Indians subject to
Federal restrictions against alienation or encumbrance."
[2]:Fractionated ownership has resulted because many Indians
died without wills. As a result, over a period of generations,
many allotments became jointly owned by hundreds of heirs.
FINDINGS AND RECOMMENDATIONS
A. LEASE AND GRAZING PERMIT MANAGEMENT
Agricultural leases and grazing permits of the Fort Berthold
Indian Reservation were not managed adequately.
Specifically, the Agency did not (1) approve agricultural
leases timely, (2) assess or collect interest on late
grazing fee payments, (3) deposit agricultural lease rent
and grazing fee collections timely, and (4) distribute
agricultural lease rents and grazing fees to landowners
timely. The American Indian Agricultural Resources
Management Act requires the Bureau (1) to assist Indian
landowners in leasing their agricultural lands for a
reasonable annual return and (2) provide a preference to
Indian operators in the issuance and renewal of agricultural
leases and permits so long as the landowners receive fair
market value for their property. The standard agricultural
lease and grazing permit provisions provide for the payment
of rents and fees. The Treasury Financial Manual (TFM 6-
8000) contains the billing and collection procedures
relating to delinquent debts and the deposit procedures
which ensure that revenues collected are deposited in a
timely manner. However, the Agency had not effectively
managed its work load to ensure that realty and land
operations staffs complied with all regulatory, leasing, and
permitting requirements in a timely manner. As a result,
Reservation lands were farmed without leases, landowners did
not receive agricultural lease rent ($165,000) and grazing
fee ($489,000) payments timely, interest on late grazing fee
payments ($4,800) was not assessed or collected, interest of
about ($2,000) related to untimely deposits of lease rents
and grazing fees was not realized, and 1997 agricultural
lease rent ($110,000) payments for 1997 had not been
distributed.
Expired Leases
The Agency did not approve agricultural leases in a timely
manner.[3] Specifically, we found that of the 118
agricultural leases which expired on December 31, 1996, only
18 were approved by the effective date of the new lease; 10
parcels offered for lease had received no bids or bids that
were below the minimum acceptable level; 52 leases had been
approved an average of 123 days after the effective date of
the new lease, with a range of 3 to 191 days; and 38 leases
had not been approved as of July 31, 1997 (212 days), even
though lessees farmed the land pending approval of the
leases. We believe that because the Agency was not able to
approve leases timely, the potential risk was increased for
landowners not to receive rents for lands farmed without
having an approved lease agreement. The lack of timely
approval of new leases delayed the collection of rents from
successful bidders and the distribution of rents to
landowners until the leases were approved. For example,
rents totaling about $165,000 for 73 leases were collected 1
to 7 months after the advertised effective date for the new
leases.
New agricultural leases for leases that expired on December
31, 1996, were not approved timely because the Agency did
not start the leasing process until January 1997 and did not
issue a competitive advertisement for parcels of land that
were available for lease until February 19, 1997 (50 days
after the leases expired). The advertisement specified that
bids were to be received at the Agency by March 19, 1997,
and the rent payment for the first year was to accompany the
bid. The leasing process was also delayed because
successful bidders had not provided bonds and/or signed
lease contracts timely. We found that agencies which were
successful in approving new leases before the old leases
expired started the leasing process approximately 1 year
before the leases expired.[4]
Collection of Grazing Fees and Lease Rents
The Agency did not assess or collect interest on late
payments of grazing fees. The grazing permit provisions
specify that fees are due on December 1 of each year;
however, the provisions do not specify a grace period or
specify that interest is to be assessed on late payments.
In December 1994, at the beginning of the current 5-year
grazing permit period, the Tribes passed a resolution
requiring all grazing fees to be due on December 1 and
interest to be assessed on all delinquent payments.
However, the Agency did not include a provision for
assessing interest on late payments in the grazing permits.
Of grazing fees totaling $841,000 that were received by the
Agency for 1996 and 1997, fees of about $489,000 relative to
97 payments were paid an average of 72 days, with a range of
32 to 154 days, after the December 1 due date. By using the
interest rates specified in the Tribes' resolution, we
estimated that interest of about $4,800 could have been
collected had the Agency included a provision for assessing
interest on grazing fees that were paid late.
In contrast, according to lease provisions, agricultural
lease rents are due on January 1 of each year, and the
lessee is required to pay rents without any formal
notification from the Agency. The lease provisions
(1) allow a 30-day grace period from the date the rent is
due before interest on late payments is to be assessed and
(2) specify that interest assessed retroactively to the
January 1 payment due date must be based on the average
prime rate in effect on the last day of each month plus 3
percent. However, we were not able to determine whether the
Agency assessed and collected interest on late agricultural
lease rent payments because the automated database that
contained lease payment information was destroyed in January
1997 by water from a broken pipe in the building that houses
the Agency Office. Agency realty personnel were
reconstructing the automated database at the time of our
site visit to the Agency in May 1997 because the database
had not been maintained or backed up (copied) since June
1996.
We also noted a weakness in the internal controls for
grazing fee and lease rent collections. Specifically, we
found that the Agency's realty clerk and its range clerk
were individually collecting lease rents and grazing fees
made by permittees and lessees in person at the Agency
Office, forwarding the collections for deposit, recording
the receipts in the accounting system, and distributing the
fees to the owners. The American Indian Trust Funds Reform
Act of 1994 states that the Secretary's trust
responsibilities include providing adequate systems for
accounting and reporting trust funds balances to include
adequate controls over receipts. Since the Act was passed,
the Secretary established the Office of the Special Trustee
in February 1996. Under this reorganization, we noted that
supervisory responsibilities for an accounting technician
position which is located at the Agency to account for trust
funds in Individual Indian Money accounts were transferred
from the Bureau's Agency Superintendent to the Office of the
Special Trustee. However, the Bureau, in coordination with
the Office of the Special Trustee, had not established
(1) adequate administrative controls over receipts at the
agency level that provide for sufficient separation of
duties and (2) written policies and procedures for the
receipt and deposit of trust funds. Because of this lack of
separation of duties, an internal control weakness existed.
Although we did not find any instances of misuse by
collection personnel, the lack of the separation of duties
increases the risk for fee and rent payments to be
misappropriated.
The January 1998 Office of Inspector General report (see the
Prior Audit Coverage section) identified internal control
weaknesses that existed between the area and agency offices
because of ineffective implementation of policies and
procedures. In that regard, we also identified two
deficiencies that were similar to the weaknesses included in
that report: (1) collection and disbursing functions were
performed by the same individuals, and (2) receipts were not
mailed to the Area Office for deposit on a daily basis. To
correct these deficiencies, the January 1998 report
recommended that the Office of Trust Funds Management
consider alternatives such as restructuring trust accounting
responsibilities at the Agency offices which do not maintain
Office of Trust Funds Management staff positions by
centralizing and streamlining transaction processing within
area or agency offices with sufficient Office of Trust Funds
Management personnel. However, the report did not suggest
that the Office of Trust Funds Management eliminate
accounting technicians at the agency offices because these
individuals perform valuable services for account holders.
In addition, the recommendation stated that the use of
either a centralized or a decentralized lockbox would
eliminate some of the more serious control deficiencies by
eliminating the handling of cash receipts at the agency
offices.
In its response to the recommendation, the Office of Trust
Funds Management stated that it had initiated a plan for
implementation of a nationwide lockbox program for the
collection of tribal and individual Indian trust funds.[5]
The Office of Trust Funds Management also specified that the
timely implementation of a nationwide lockbox program would
depend upon the availability of appropriated funds to
implement the program. The Office stated that a nationwide
lockbox program could be fully operational by the end of
fiscal year 1998 if sufficient funding was available. If
the nationwide lockbox program is implemented, we believe
that it will eliminate the issues dealing with the lack of
separation of duties at the Agency and the problem of
timeliness of deposit, as discussed in the section "Deposit
of Lease Rents and Grazing Fees." Given these
circumstances, we have not made any recommendations with
respect to these deficiencies.
Deposit of Lease Rents and Grazing Fees
The Agency did not deposit agricultural lease rents and
grazing fees in a timely manner. The Bureau of Indian
Affairs Manual (42 BIAM Supplement 3) specifies that field
collections are to be transmitted to a depositing
collections officer (at the Aberdeen Area Office) within 24
hours of receipt. Section 8030.20 ("Timeliness of
Deposits") of the Treasury Financial Manual states that
"[a]gencies will deposit or mail receipts for deposit
totaling $5,000 or more on the same day received prior to a
depositary cutoff time. Collections totaling less than
$5,000 may be accumulated and deposited when the total
reaches $5,000, but will be made by Thursday of each week ,
regardless of the amount." Collections of lease rents and
grazing fees were not transmitted to the Area Office timely
because of inadequate staffing and because an existing
automated database was not maintained or used by the
Agency's realty staff to identify the sources of lease
collections. We reviewed 71 payments of agricultural lease
rents and grazing fees totaling about $231,000 that were
received by the Agency in 1996 and 1997 and found that none
of the 71 payments were transmitted to the Area Office
within 24 hours of receipt. Specifically, 32 payments,
totaling about $160,000, were transmitted from 14 to 49 days
after they were received in 1996, and 39 payments, totaling
about $71,000, were transmitted from 9 to 56 days after they
were received in 1997. Consequently, Indian landowners did
not earn and receive an estimated $2,000 in interest[6] on
the 71 payments of agricultural lease rents and grazing fees
from the date of receipt to the date of deposit.
Distributions
The Agency did not distribute agricultural lease rents and
grazing fees to landowners in a timely manner.
Specifically, we found that the Agency did not timely
distribute rents and fees collected during 1997 (information
related to 1996 distributions was not readily available for
analysis) as follows:
- Based on our review of payments from 44 lessees, we
found that rents of $110,000 out of $191,000 paid for
agricultural leases had not been distributed as of April 30,
1997. The Agency took an average of 57 days, with a range of
7 to 83 days, to distribute the remaining $81,000 in rent
payments.
- Based on our review of grazing fee payments for 93 of
the 94 range units, we found that the Agency took an average
of 37 days, with a range of 6 to 156 days, to collect and
distribute fees totaling $441,000. (Payment information for
the remaining permit was not available when we analyzed the
information in the automated database.)
We found that lease rents and grazing fees were not
distributed timely for the following reasons:
- Agency realty personnel had to manually research
lease files and distribute rents to landowners because the
automated database for leases was destroyed in January 1997
and Agency realty personnel had not backed up (copied) the
lease automated database files since June 1996 (see section
"Collection of Grazing Fees and Lease Rents").
- The realty clerk and the range clerk, who were
responsible for administering leases and grazing permits,
including distributing lease rent and grazing fee payments,
stated that they spent about 45 percent of their time
performing the additional duties of a collection officer,
which reduced the amount of time available for their full-
time duties.
- Agency officials said that they did not distribute
partial payments because they might have to cancel the lease
or permit for nonpayment and refund the partial payment.
- Some Individual Indian Money accounts that were to
receive rent and fee distributions had been closed by other
agencies.
Although Bureau regulations do not prescribe a time frame
for distributing these revenues to landowners, the
Government Performance Results Act requires that agencies
establish performance measures. As such, we believe that
the Bureau, in coordination with the Office of the Special
Trustee, should establish a time frame for distributing
lease rents and grazing fees to landowners.
Recommendations
We recommend that the Assistant Secretary for Indian Affairs
ensure that the Fort Berthold Agency:
1. Initiates the lease renewal process in sufficient
time to complete the process before leases expire on
December 31.
We recommend that the Assistant Secretary for
Indian Affairs:
2. Include a provision in all new grazing permits which
requires permittees to pay interest on grazing fees
that are paid after the due date.
We recommend that the Assistant Secretary for Indian
Affairs ensure that the Fort Berthold Agency:
3. Maintains the realty automated database used for the
collection and distribution of lease rents and
establishes procedures for the timely recovery
(periodic backups) of the database to preclude future
loss during a catastrophic event.
We recommend that the Assistant Secretary for Indian
Affairs and the Special Trustee for American Indians
coordinate actions to:
4. Assess and collect interest on late payments.
5. Establish a time frame for distributing lease rents
and grazing fees to landowners in a timely manner.
Bureau of Indian Affairs and Office of the Special
Trustee for American Indians Responses and Office of
Inspector General Reply
In the September 11, 1998, response (Appendix 1) to the
draft report from the Assistant Secretary for Indian
Affairs, the Bureau concurred with Recommendations 1,
3, 4, and 5 and nonconcurred with Recommendation 2. In
the September 25, 1998, response (Appendix 2) from the
Special Trustee for American Indians, the Office of the
Special Trustee concurred with Recommendations 4 and 5.
Based on both responses, we consider Recommendations 1,
3, 4, and 5 resolved and implemented, and based on the
Bureau's response, we have revised Recommendation 2 and
request that the Bureau respond to the revised
recommendation (see Appendix 3).
Also, in response to Recommendations 6, 7, and 8
included in our draft report, which related to grazing
rates, the Bureau requested that this issue be included
in an other matters section of the report because of
the "acknowledged limitations on the scope of the
appraisal review" and because, as stated in our draft
report, that "`a more in-depth review of the methods
and techniques used to establish grazing rates
Bureau-wide may disclose different results.'" The
Bureau also stated that the "General Accounting Office
has initiated a thorough review of the Bureau's
appraisal process" at the request of the Senate
Committee on Appropriations and that the Trust
Management Improvement Project "includes a subproject
relating solely to" the Bureau's appraisal program.
Based on the response, subsequent discussions with
Bureau officials, and the actions cited, we have
deleted the discussion of grazing fees and
Recommendations 6, 7, and 8 from the final report. We
plan to address the grazing rates issue in a separate
advisory letter.
Recommendation 2. Nonconcurrence stated.
Bureau of Indian Affairs Response. The Bureau
nonconcurred with the recommendation, stating, "With no
statutory requirement to assess and collect interest on
late payments on grazing permits, we consider the
revokable authority provided in 25 CFR 166.15(b)
adequate to ensure prompt payment." Additionally, the
Bureau stated, "Grazing fees are assessed through a
permit process which is unlike the lease process common
to agricultural lands in that grazing agreements
(permits) are revokable on 30-days written notice
pursuant to 25 CFR 166.15(b)." According to the
Bureau, "The tribal resolution mentioned in the report,
is not sufficient in and of itself to require the
assessment of interest: it would be necessary for the
tribe to enact a grazing ordinance which has not been
done."
Office of Inspector General Reply. As discussed in the
report (page 6), we found that more than 58 percent
($489,000 of $841,000) of the grazing fee payments
which were received by the Agency for 1996 and 1997
were paid an average of 72 days, with a range of 32 to
154 days, after the December 1 due date. Therefore, we
concluded that use of the revokable authority provided
in the Code (25 CFR 166.15(b)) to ensure the prompt
payment of grazing fees has not been effective.
Further, we believe that it is a prudent business
practice to assess and collect interest on late
payments, whether from agricultural leases or from
grazing permits. The Chief of the Division of Real
Estate Services said that there is "no statutory
requirement" to assess and collect interest on
agricultural leases but that the Bureau did include
such a provision in the agricultural leases because it
has the discretionary authority to ensure compliance
with the lease terms. Also, the Chief indicated that
there was no reason why such a provision could not be
implemented for grazing permits. By including a
provision that requires permittees to pay interest on
late grazing fees in grazing permits, we believe that
the Bureau would be protecting the financial interests
of the Indian landowners. In addition, by including
the assessment of interest as a permit provision, a
formal notice would not be required by the Agency
because the permit would specify that interest is
assessed from the due date on late payments. We have
revised the recommendation to a Bureauwide action
because we believe that interest on late grazing fee
payments should be applicable to all grazing permits
issued by the Bureau and not just the Fort Berthold
Agency. Accordingly, the Bureau is requested to
respond to the revised recommendation.
In regard to whether the tribal resolution mentioned in
the report or a tribal ordinance would be necessary for
the Bureau to assess interest on late grazing fee
payments, as discussed previously, the Chief of the
Division of Real Estate Services indicated that there
was no reason why such a provision could not be
implemented for grazing permits.
Additional Comments
In its response, the Bureau provided additional
comments on the finding as follows:
- General Comments. The Bureau disagreed with the our
use of the words "issuing" and "reissuing" when we
referred to agricultural leases rather than "granting"
or "approval," which it said were the terms used in the
statutes and regulations. However, the Bureau said
that the terms "issuing" and "reissuing" are accurate
when "used in conjunction with grazing permits." We
have revised the report as appropriate.
Regarding the reservation minimum acceptable grazing
rate, the Bureau stated:
"Fair annual return" can be defined as the
amount which, in a competitive market, a
well-informed and willing permittee would pay
and a well-informed and willing land owner
would accept for the temporary use of the
property. "Fair annual return" should not be
confused with the 25 CFR 116.13 requirement
that the Bureau establish a "reservation
minimum acceptable grazing rental rate" which
establishes a base amount for lease rates, as
opposed to an average or a ceiling.
We eliminated the discussion in the draft report on
whether the Area Director's minimum acceptable grazing
rates provide a "fair annual return" to the landowner
from the final report. In that regard, the Code of
Federal Regulation (25 CFR 116.13(b)) states that the
"Area Director shall establish a reservation minimum
acceptable grazing rental rate" that "shall provide a
fair annual return to the land owners." This could be
interpreted as equating the rental rate to fair annual
return. However, the Bureau states, "`Fair annual
return' should not be confused with the 25 CFR 116.13
requirement that the Bureau establish a `reservation
minimum acceptable grazing rental rate,'" which could
be interpreted to mean that there is a difference
between the minimum acceptable rate and fair annual
return. Further, Section 101 (a)(6) of the American
Indian Agricultural Resources Management Act states
that the Bureau is to assist landowners in leasing
their agricultural lands for a "reasonable annual
return," whereas Section 105 (b)(1) states that the
lessor (landowner) should receive "fair market value"
for his property. The terms "minimum acceptable,"
"reasonable," and "fair" are not defined or
interrelated in the regulations, statutes, or Bureau
guidance. As such, we believe that the issue of what
the rate represents needs to be better defined .
Regarding the Bureau's comment that a "reservation
minimum acceptable grazing rental rate" establishes a
base amount for lease rates as opposed to an average or
a ceiling, we noted, as discussed in the draft report,
that the Aberdeen Area Office appraiser had determined
the Director's grazing reservation minimum acceptable
rates for range units on the Reservation based on the
"average" of the previous year's available market
grazing rates charged for 6-month seasonal grazing
periods. This supports our belief that the Bureau
needs to better define how to determine grazing rates.
- Expired Leases. The Bureau stated that the report
"indicates that there should be a new lease in place
upon the expiration of a current lease" and that
"there is no prescribed time frame or legal deadline by
which lands must be advertised or leases granted."
Additionally, the Bureau stated, "There are no
statutory or regulatory time frames for the lease
approval process." According to the Bureau, "An
earlier start to the lease process would result in
granting leases at an earlier date for those parcels on
which bids are actually received." However, the Bureau
further stated, "Even with early initiation of the
leasing process, there are other circumstances which
affect the timing of the lease, some of which are
beyond the Bureau's control." Although Bureau
regulations do not prescribe a specific time frame for
approving agricultural leases, the Government
Performance Results Act requires that agencies conduct
processes in a businesslike manner. Regarding the
"various reasons" as to why a new lease may not be in
place when a current lease expires and the reasons that
are "beyond the Bureau's control," we believe that some
matters may be beyond the Bureau's control but that
some processes take longer to complete than the Fort
Berthold Agency has allowed for in its leasing
procedures. In that regard, we believe that the Bureau
and the Agency should determine the amount of time
necessary to complete the leasing process, establish an
effective date for leases based on Agency-related
conditions for beginning farming operations, and
initiate the renewal process allowing sufficient time
to complete actions by the effective date. Although
the Bureau indicated reasons for not starting the
process earlier, the Agency initiated the leasing
process on July 28, 1998, for leases expiring on
December 31, 1998. We believe that the Agency should
review this year's process and determine whether the
earlier start improved the timeliness of the lease
approval process. If it did not, the Agency should
allow more time next year.
The Bureau stated that our report "states that `the
lack of timely approval of new leases delayed the
collection of rents from successful bidders and the
distribution of rents to landowners until the leases
were approved.'" The Bureau requested that this
sentence "be revised" because "[t]he landowners are
not due any rents until a lease has been approved" and
stated that "[t]here is no statutory or regulatory
deadline for approval of a lease." However, we noted
that Agency agricultural leases which expired on
December 31, 1996, were not approved timely because the
Agency did not begin the leasing process until January
1997 and did not issue a competitive advertisement for
parcels of land that were available for lease until
February 19, 1997 (50 days after the leases expired).
We believe that the Bureau should complete the leasing
process as expeditiously as possible. The Bureau
should ensure that it initiates the leasing process so
that it has the opportunity to complete the process by
the effective date of the new lease, thus maximizing
returns to landowners, and to distribute rents in a
timely manner. As discussed in the report (page 6),
agencies that were successful in approving new leases
before the old leases expired began the leasing process
approximately 1 year before the leases expired. Our
report (No. 97-I-1100) on the Colorado River Indian
Tribes' management of agricultural leasing showed that
the Tribes "initiated actions in a timely manner to
ensure that expiring leases were reissued [approved]
without a loss of revenue to the landowners."
The Bureau also requested that the report's statement
regarding increased risk for landowners be revised
because the "Realty Specialist at the Agency cannot
recall any situations during his 13-year tenure when
landowners were not compensated for use of their land."
According to the Bureau, there were "instances where
potential lessees farmed land prior to completion of
the lease process" but that these are "isolated
instances." As discussed in the report (page 5), we
noted that of the 108 agricultural leases which expired
on December 31, 1996, and for which there were adequate
bids, only 18 leases (17 percent) were approved by the
effective date of the new lease. Of the remaining 90
leases, 52 leases (48 percent) were approved an average
of about 4 months after the effective date of the new
lease, and 38 leases (35 percent) had not been approved
as of July 31, 1997 (7 months), even though lessees
farmed the land pending approval of the leases.
Therefore, we do not believe that these instances are
"isolated." Accordingly, we believe that there is an
increased risk for landowners not to receive rents for
lands farmed when a lease agreement is not approved
timely.
**FOOTNOTES**
[3]:Agricultural leases typically have a term of 5
years and expire on December 31 of the last year
of the lease term. Subsequent leases granted
and approved by the Bureau typically become effective
on January 1 of the first year of the new lease term.
[4]:This conclusion is based on our reviews of
agricultural lease operations at the Colorado River
Agency and the Rosebud Agency.
[5]:A lockbox is a service offered by a financial
institution. Payments are sent directly to the
lockbox at the financial institution, which processes
the receipt and deposit of the payment to the
appropriate account on a daily basis. Information
regarding the payment received would be sent to the
account holder.
[6]:Interest was estimated based on the average interest
rate applicable to special deposit account balances
during the periods the collections were retained at
the Agency Office.
B. SPECIAL DEPOSIT ACCOUNTS
The Fort Berthold Agency did not distribute all
revenues and related interest earnings from
agricultural lease rents and grazing fees that had been
deposited into special deposit accounts.[7] The Code
of Federal Regulations (25 CFR 114) specifies that
special deposit accounts are to be used for the
temporary deposit of funds which cannot be credited to
specific accounts or readily distributed. The Code
further states that the interest earned on principal in
special deposit accounts is to be distributed with the
related principal. At December 31, 1996, the Agency
had 293 special deposit accounts, with balances
totaling about $671,000, that consisted of
undistributed agricultural lease rents and grazing fees
and accrued interest. Based on our analysis of 66
special deposit accounts, with balances totaling about
$290,000, we found that the rents and fees and related
interest had not been distributed to landowners as
follows:
---------------------------
| Year |Amounts
|Deposited | Not
| |Distributed
---------------------------
1996 $101,744
---------------------------
1995 27,840
---------------------------
1994 10,118
---------------------------
Prior to 1994 150,050
---------------------------
Total| |$289,752
---------------------------
The Agency's realty and land operations staff were
responsible for ensuring that funds in the special deposit
accounts, including interest earned, were distributed to
landowners. However, the Agency did not have procedures to
ensure that funds in special deposit accounts were analyzed
and distributed, and the Agency did not dedicate sufficient
personnel resources to analyze special deposit account
balances and land ownership records in order to distribute
these funds. Consequently, landowners were not provided the
funds to which they were legally entitled.
The January 1998 Office of Inspector General audit report on
the Office of the Special Trustee's financial statements for
fiscal year 1996 identified significant deficiencies
relating to "reportable conditions" for special deposit
accounts.[8] The report made four recommendations to
correct special deposit account deficiencies similar to
those that we identified during our current review. These
recommendations included performing an analysis of accounts
(Recommendation 20); establishing policies and procedures
for using special deposit accounts (Recommendation 24);
establishing an adequate system, policies, and procedures
for determining interest earned for Individual Indian Money
account holders (Recommendation 25); and establishing
controls to verify that items are cleared (Recommendation
7). We considered these recommendation resolved but not
implemented. We believe that implementation of these
recommendations will correct the deficiencies in the special
deposit accounts that we identified during our current
review. In addition, the deficiencies identified in the
January 1998 report have been incorporated into subproject
plans of the High Level Implementation Plan for the Trust
Management Improvement Project approved by the Secretary of
the Interior on July 31, 1998. Implementation of the Plan
will be monitored by the Assistant Secretary for Policy,
Management and Budget. Therefore, we have made no
recommendations in our current report with respect to these
issues.
**FOOTNOTES**
[7]:The Bureau is responsible for administering leases
and permits on tribal and individually owned land. However,
the Department's Office of the Special Trustee for American
Indians is responsible for establishing proper controls
for managing trust funds, including trust funds
deposited in the Individual Indian Money accounts system,
which includes special deposit accounts.
[8]:The report defined a "reportable condition" as a matter
relating to significant deficiencies in the design or
operation of the internal control structure that, in
the auditors' judgment, could adversely affect the
Office of Trust Funds Management's ability to record,
process, summarize, and report financial data consistent
with the assertions of management in the financial statements.
STATUS OF AUDIT REPORT RECOMMENDATIONS
-----------------------------------------------------------------
Finding/
Recommendation
Reference Status Action Required
-----------------------------------------------------------------
1, 3, 4, Implemented. No further action is required.
and 5
-----------------------------------------------------------------
2 Unresolved. Provide a response to the revised recommendation.
If
concurrence is indicated, provide a plan identifying actions
to be taken, including the target date and the title of the
official responsible for implementation.
If nonconcurrence
is indicated, provide specific reasons for the
nonconcurrence.
-----------------------------------------------------------------
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