Indian Trust Funds
Tribal Account Balances Gao ID: GAO-02-420T February 7, 2002Congress established an Indian trust fund account reconciliation requirement in 1987 in response to tribes' concerns that the Department of the Interior had not consistently provided them with statements on their account balances, their trust fund accounts had never been reconciled, and Interior planned to contract with a third party to manage the accounts. Congress required that the accounts be audited and reconciled before the Bureau of Indian Affairs transferred funds to a third party. Interior's fiscal year 1990 appropriations act added a requirement that the accounts be reconciled to the earliest possible date and that Interior obtain an independent certification of the reconciliation work. The American Indian Trust Fund Management Reform Act of 1994 required Interior to provide tribes with reconciled account statements as of September 30, 1995. To fulfill these requirements, Interior contracted with two major independent public accounting firms, one to reconcile the trust accounts and the other to do an independent certification of the reconciliation. When Interior's reconciliation project was completed in January 1996, each tribe was provided a report that included unreconciled account statements with schedules of proposed adjustments based on results for each year of the five-year reconciliation. Later that year, GAO reported shortcomings in Interior's reconciliation project. As of May 1997, Interior had provided reconciliation reports to 310 tribes, 51 of which disputed the reconciliation results, and 41 of which accepted the results. Of the remaining 218 tribes, 47 had requested more time to consider the results, and 171 had not responded to the reconciliation results. Although Interior made a massive effort to reconcile tribal accounts during its reconciliation project, missing records and systems limitations made a full reconciliation impossible.
GAO-02-420T, Indian Trust Funds: Tribal Account Balances
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United States General Accounting Office:
GAO:
Testimony:
Before the Committee on Indian Affairs, U.S. Senate:
For Release on Delivery:
Expected at 10:00 a.m.
Thursday, February 7, 2002:
Indian Trust Funds:
Tribal Account Balances:
Statement of McCoy Williams,
Acting Director, Financial Management and Assurance:
GAO-02-420T:
Mr. Chairmen and Members of the Committee:
I am pleased to be here today to summarize observations from our past
work regarding Indian tribal trust fund accounts.
In a June 1993 letter to this committee, we noted that the
appropriations acts for the Department of the Interior had for many
years contained a provision that tolled the statute of limitations on
claims for losses to, or mismanagement of, tribal trust funds until
the tribe had been furnished with an accounting of its funds from
which the tribe could determine whether there had been a loss. We also
noted that the parties envisioned that such an accounting would result
from Interior's then-ongoing reconciliation and audit of the tribal
trust fund accounts, which the congress had mandated.
At that time, we expressed our view that until there was a mutually
acceptable basis for determining account balances and any associated
losses, it would be premature to allow the statute of limitations to
run. We observed that tolling the statute of limitations until
reconciliation and audit of an account was completed, or until some
mutually acceptable agreement was reached as to the account balance,
had two overall purposes. First, it provided all interested parties,
including accountholders, Interior, and the Congress, an opportunity
to examine and evaluate all pertinent account information. Second, it
permitted interested parties to attempt to resolve all claims arising
from Interior's management of the accounts rather than addressing
specific claims in a piecemeal fashion.
The Congress first established an Indian trust fund account
reconciliation requirement in the Supplemental Appropriations Act of
1987. The requirement was in response to tribes' concerns that
Interior had not consistently provided them with statements on their
account balances, their trust fund accounts had never been reconciled,
and Interior planned to contract with a third party for management of
trust fund accounts.
The original provision required that the accounts be audited and
reconciled before the Bureau of Indian Affairs (BIA) transferred funds
to a third party. A provision in Interior's fiscal year 1990
appropriations act added a requirement that the accounts be reconciled
to the earliest possible date and that Interior obtain an independent
certification of the reconciliation work. In 1994, the Congress,
through the American Indian Trust Fund Management Reform Act of 1994
(Pub. L. 103-412, 108 Stat. 4239; Oct. 25, 1994), required the
Secretary of the Interior to provide tribes with reconciled account
statements as of September 30, 1995.
To fulfill these requirements, Interior contracted with two major
independent public accounting firms, one to reconcile the trust
accounts and the other to do an independent certification to indicate
that the reconciliation resulted in the most complete reconciliation
possible. Following a preliminary assessment in March 1992 by
Interior's reconciliation contractor, Interior decided to have the
contractor reconcile the tribal accounts for fiscal years 1973 through
1992. Subsequent to this decision, Interior had BIA reconcile the
tribal accounts for fiscal years 1993 through 1995 to comply with the
1994 act's requirement that Interior provide tribes with reconciled
account statements as of September 30, 1995.
Interior's Indian trust fund account reconciliation project was
completed in January 1996. During the reconciliation project, Interior
spent about $21 million for contract costs over a 5-year period in a
massive effort to locate supporting documentation and reconstruct
historical trust transactions, as well as to perform other
reconciliation procedures, in its attempt to validate tribal account
balances. In January 1996, Interior began providing to each tribe a
report package containing the tribe's reconciliation results. Each
package included unreconciled account statements with schedules of
proposed adjustments based on reconciliation project results for each
year covered by the reconciliation, and a transmittal letter that
described the information provided.
During a February 1996 meeting at which Interior officials and the
reconciliation contractor summarized the reconciliation project
results, tribes raised questions about the adequacy and reliability of
the reconciliations results. In May 1996, we reported on shortcomings
of Interior's reconciliation project.[Footnote 1] The shortcomings
consisted of procedures that were not completed due to missing
records, systems limitations, or time and cost considerations.
Attachment I to my statement describes the major shortcomings presented
in our 1996 report.
From 1992 through 1997, we monitored and reported on various aspects
of Interior's planning, execution, and reporting of results for the
reconciliation project. In May 1997, we reported[Footnote 2] to this
committee that as of May 6, 1997, Interior had provided reconciliation
reports to 310 tribes, 51 of those tribes had disputed the
reconciliation results, and 41 had accepted the results. Of the
remaining 218 tribes, 47 had requested more time to consider the
results, and 171 had not responded to the reconciliation results.
Attachment II is a list of GAO products issued between 1992 and 1997
on various aspects of Interior's Indian trust fund reconciliation
project.
In summary, although Interior made a massive attempt to reconcile
tribal accounts during its reconciliation project, missing records and
systems limitations made a full reconciliation impossible.
I would be pleased to respond to any questions that you or other
members of the committee may have.
[End of section]
Attachment I: Reconciliation Project Shortcomings:
Basic (Noninvestment) Transaction Reconciliation Procedure: The basic
transaction reconciliation segment of the project included tracing
251,432 noninvestment transactions that had been recorded in the
general ledger to source documents such as deposit tickets and
disbursement vouchers. The total value of these receipt and
disbursement transactions was $17.7 billion. Due to missing records,
32,901 of the transactions, with a total value of $2.4 billion (14
percent of the total value of the transactions), could not be
reconciled. In addition to the limitation related to the unreconciled
transactions, this segment focused only on transactions that had
already been recorded in the general ledger, and no reconciliation
procedure was performed to address the completeness of the general
ledger itself.
Investment Transaction Reconciliation Procedure: The reconciliation
contractor also did individual testing of $21.3 billion, or 16
percent, of the recorded investment transactions. However, to achieve
efficiencies, Interior and the contractor substituted a review of
tribal account investment yields for individual transaction testing
for the remaining investment transactions.
Fill the Gap (Leases) Procedure: Another segment of the project
reconciled collections for certain tribes with a sample of lease
documents and timber sales contracts. Initially, the contractor was to
review all leases greater than $5,000 and a test sample of 100
additional leases of less than $5,000 on a cross section of tribes.
The reconciliation contractor identified 6,446 surface leases with
annual collections of over $5,000. However, due to time constraints
for completing the reconciliation, only 692 leases-10.7 percent of the
leases originally identified for testing--were tested. In addition,
because of missing records, a number of leases, and sample test months
for timber contracts, were substituted for those in the original
sample.
Systems Reconciliation Procedures: The systems reconciliation was to
include reconciling (1) information in the trust fund investment
system to the General Ledger in the Finance System, (2) the tribal
general ledger in the Finance System to U.S. Treasury records, and (3)
the Integrated Records Management System (IRMS) subsidiary records to
the Finance System general ledger. The latter two reconciliations
could not be performed or completed due to time and funding
limitations, according to Interior officials.
Tribal IIM and Special Deposit Accounts Reconciliation Procedure:
Interior maintained some UM accounts for tribes in the IRMS accounting
system. It also used Special Deposit accounts primarily as clearing
accounts for funds received that had not been distributed to account
holders because the account owners had not been identified. Due to
missing records and the lack of an audit trail through IRMS, tribal
transactions could not be efficiently isolated from individual Indian
transactions. Because of this, tribal UM accounts maintained in IRMS
were not reconciled to source documents, and Special Deposit accounts
were not reconciled with source documents that moved funds to tribes'
general ledger accounts, as had been planned.
Fill the Gap (Minerals Management Service) Reconciliation Procedure:
Interior's Minerals Management Service (MMS) collects and accounts for
oil and gas royalties on Indian leases. The reconciliation project was
to include some procedures to trace collections from the leases,
through MMS, to the general ledger maintained by BIA. However, because
MMS retained records for only 6 years, records for most of the 20-year
reconciliation period were not available, and alternative procedures
at MMS were not performed due to time constraints.
Certification Procedure: Interior's fiscal year 1990 appropriations
act required a separate, independent certification that the accounts
had been reconciled and audited to the earliest possible date and that
the results were the most complete reconciliation possible. However,
BIAs certification contract required that the certification contractor
ensure only that the reconciliation effort was performed in accordance
with the reconciliation contract and no independent assessment of
completeness was required. In addition, because of cost and time
constraints, the certification contract was terminated before the
certification contractor completed its verification that the
procedures in the reconciliation contract were performed. The
certification contractor issued a status letter, which communicated
preliminary results. However, because the certification work was
performed while the reconciliation was in process and the
certification procedures were not completed, the usefulness of the
status letter is limited.
Individual Indian Accounts Reconciliation Procedures: Accounts for
individual Indians were excluded from the reconciliation project due
to the potential lack of supporting documents and the cost and level
of effort that would be needed to include them in the project.
[End of section]
Attachment II: Related GAO Products:
Indian Trust Funds: Tribal Account Holders' Responses to
Reconciliation Results. [hyperlink,
http://www.gao.gov/products/GAO/AIMD-97-102R]. Washington, D.C.: May
23, 1997.
Responses to Questions from June 11, 1996, Hearing. [hyperlink,
http://www.gao.gov/products/GAO/AIMD-96-125R]. Washington, D.C.: June
24, 1996.
Financial Management: Interior's Management of the Indian Trust Funds.
[hyperlink, http://www.gao.gov/products/GAO/T-AIMD-96-111].
Washington, D.C.: June 18, 1996.
Financial Management: Interior's Efforts to Reconcile Indian Trust
Fund Accounts and Implement Management Improvements. [hyperlink,
http://www.gao.gov/products/GAO/TAIMD-96-104]. Washington, D.C.: June
11, 1996.
Financial Management: BIA's Tribal Trust Fund Account Reconciliation
Results. [hyperlink, http://www.gao.gov/products/GAO/AIMD-96-63].
Washington, D.C.: May 3, 1996.
Financial Management: Indian Trust Fund Accounts Cannot Be Fully
Reconciled. [hyperlink, http://www.gao.gov/products/GAO/T-AIMD-95-94].
Washington, D.C.: March 8, 1995.
Responses to Questions from September 26, 1994, Hearing. [hyperlink,
http://www.gao.gov/products/GAO/AIMD95-33R]. Washington, D.C.:
December 2, 1994.
Financial Management: Focused Leadership and Comprehensive Planning
Can Improve Interior's Management of Indian Trust Funds. [hyperlink,
http://www.gao.gov/products/GAO/T-AIMD-94-195]. Washington, D.C.:
September 26, 1994.
Financial Management: Focused Leadership and Comprehensive Planning
Can Improve Interior's Management of Indian Trust Funds. [hyperlink,
http://www.gao.gov/products/GAO/AIMD-94-185]. Washington, D.C.:
September 22, 1994.
Response to Questions on Two Recommendations in April 12, 1994,
Testimony. [hyperlink, http://www.gao.gov/products/GAO/AIMD-94-138R].
Washington, D.C.: June 10, 1994.
Letter on BL4 Trust Fund Reconciliations. [hyperlink,
http://www.gao.gov/products/GAO/AIMD-94-110R]. Washington, D.C.: April
25, 1994.
Financial Management: Status of BIA's Efforts to Reconcile Indian
Trust Fund Accounts and Implement Management Improvements. [hyperlink,
http://www.gao.gov/products/GAO/TAIMD-94-99]. Washington, D.C.: April
12, 1994.
Financial Management: BIA's Management of the Indian Trust Funds.
[hyperlink, http://www.gao.gov/products/GAO/T-AIMD-93-4]. Washington,
D.C.: September 27, 1993.
Response to Request for Views on Freeze of the Statute of Limitations
on Claims against the United States Arising from BIA Management of
Tribal and Individual Trust Funds. [hyperlink,
http://www.gao.gov/products/GAO/AFMD-93-84R]. Washington, D.C.: June
4, 1993.
Financial Management: BIA Has Made Limited Progress in Reconciling
Trust Accounts and Developing a Strategic Plan. [hyperlink,
http://www.gao.gov/products/GAO/AFMD-92-38]. Washington, D.C.: June
18, 1992.
[End of section]
Footnotes:
[1] U.S. General Accounting Office, Financial Management: BIA's Tribal
Trust Fund Account Reconciliation Results. [hyperlink,
http://www.gao.gov/products/GAO/AIMD-96-63]. Washington, D.C.: May 3,
1996.
[2] U.S. General Accounting Office, Indian Trust Funds: Tribal Account
Holders' Responses to Reconciliation Results. [hyperlink,
http://www.gao.gov/products/GAO/AIMD-97-102R]. Washington, D.C.: May
23, 1997.
[End of section]
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