The Long Trail

The government's tallying of Indian trust money may well be the most ambitious accounting project in U.S. history. It's also the most controversial.

October, 2007
from CFO Magazine

Deep underneath an industrial park in Lenexa, Kansas — not far from Shawnee Mission Lake and Arapaho Park — the work goes on. In a vast underground warehouse, historians and archivists carefully unpack endless rows of boxes. The cartons, sent from far-flung federal warehouses and obscure outposts on Indian reservations, contain financial records collected over the years by government agencies.

Some of the items date to the late 19th century, back to the days of Indian chiefs Looking Glass, Red Cloud, and Gall. Once indexed, the documents — mostly leases and bills — are coded and entered into a government computer system. To date, workers in Lenexa have gone through some 160,000 boxes, processing nearly 40 million coded pages.

Those pages, sometimes little more than bits of paper, are pieces of a puzzle — a puzzle that the Department of the Interior (DoI) dubs The Historical Accounting Project for Individual Indian Money (IIM) Accounts. The purpose of the massive project is to reconcile, for the first time, individual trust accounts managed for decades and decades by the federal government on behalf of Native Americans.

By the time the project is completed in 2011, the accounting will have consumed $274 million over eight years. That dwarfs audits of large publicly traded companies, which tend to cost about $10 million. It is, noted former Secretary of the Interior Gale Norton, "an accounting project of unprecedented proportions."

It is also wildly controversial. Elouise Cobell, a former treasurer of the Blackfeet Nation who has sued the DoI to force this historical reckoning of the individual Indian trusts (Cobell v. Kempthorne), claims that more than $100 billion may be missing from the individual accounts. But Ross Swimmer, who heads up the Interior Department agency overseeing the project (as special trustee at the Office of the Special Trustee for American Indians, or OST), believes the amount owed to individual Indians is far less — more likely in the millions than billions.

The assertion has not gone over well in Indian country. Some tribal leaders claim the Historical Accounting Project has nothing to do with history or accounting. By their lights, the Interior Department is gaming the system, intent on producing a low figure — one that will cow litigants into settling on the cheap. "This accounting was intended to give trustees a chance to assess their claims," says Keith Harper, class counsel for the Cobell litigants. "It's not supposed to be for limiting liability."

Things turned ugly in March. That's when the White House offered to pay $7 billion over 10 years to settle individual and tribal claims. The money would also help pay for a DoI computer-security upgrade, extinguish the Cobell class-action suit and 108 tribal suits, and prohibit any future trust-fund litigation. "The offer was seen by all tribes as an insult," notes Michael Marchand, chairman of the business council of the Confederated Tribes of the Colville (Washington) Reservation. "It was a clear signal that the Administration has no interest in settling anything."

Takeover Strategy
Native Americans have seen this movie before. Administration after Administration has pledged to resolve the trust issue — with few tangible results. The difficulty in settling the ledger lies in the peculiar nature of the accounts themselves.

Typically, those 320,000 or so accounts (from 1938 to 2000) contain payments from oil companies or ranching concerns — businesses that must negotiate with the government to gain access to the 10 million acres of individually owned Indian allotments. (Tribes hold 46 million acres.) Some documents related to the accounts go back to the 1887 law that empowered the federal government to seize Indian lands and then act as trustee for individual Native Americans (see "Divide and Conquer" at the end of this article). "There is nothing comparable in U.S. history, where one sovereign took complete control of the assets of another group," says Melody McCoy, an attorney at the Native American Rights Fund. "This isn't a pension fund. Tribes didn't voluntarily contribute to it."

In 1989, at the prodding of the U.S. Congress, the government hired Arthur Andersen to perform a full historical accounting of both individual Indian and tribal trust-fund accounts. Five years and $21 million later, the firm reported that, due to missing records and the lack of an audit trail in the Bureau of Indian Affairs (BIA) systems, it could reconcile only tribal accounts — and even then, only those opened after 1972.

The Andersen report did not exactly stun longtime BIA watchers. The agency, part of Interior, has long been criticized for its handling of Native American trusts. The Government Accountability Office has repeatedly slammed the bureau's reporting systems. In 1991, Interior itself characterized the entire BIA as a material internal-control weakness.

In 1994, Congress passed the American Indian Trust Fund Management Reform Act, mandating a tallying of the tribal and individual accounts. But it took a federal court order six years later to jump-start the project, and the judge on that case has since been removed at the behest of the Justice Department.

Meanwhile, pressure is mounting on Indian litigants to settle. Tribal leaders say if the Cobell lawsuit drags on much longer, many elderly beneficiaries will die before seeing any money. The board of the United Southern and Eastern Tribes also claims that the DoI is offsetting some of the costs arising from the Cobell litigation by diverting funds earmarked for basic services on Indian reservations. Sen. John McCain (R–Ariz.) introduced a bill that would settle all individual accounts for $8 billion (with no ban on future suits). The legislation, supported by many tribes, was suddenly withdrawn from committee consideration in August, after Interior indicated it wanted to help craft legislation that would be acceptable to Indian litigants. But as John Dossett, general counsel for the National Congress of American Indians, points out, it's hard for Native Americans to agree to an amount if they're not sure what they're owed. "How do you know if you're getting a good deal or a bad one?" he asks.

Accountants have issued qualified opinions on audits of the Indian trust funds every year since 1996, citing, among other things, weaknesses in controls and processes. And while lax internal controls are not unheard of at federal agencies, few departments have been skewered like the BIA — and fewer serve as trustees. Even Swimmer, a former principal chief of the Cherokee Nation of Oklahoma, acknowledges that previous systems "were not appropriate for the work that needed to be done for the majority of the time of the trusts."

Nevertheless, officials at the DoI say the historical accounting is uncovering few mistakes. They claim that less than one percent of all transactions reconciled to date have been in error. Swimmer says he's not surprised by the results. "It was a manual system," he notes, "but it worked." He adds that the weak link in the old system was the agency's reliance on BIA field offices to handle lease proceeds flowing into the system. "Accountants found risk," he grants, "but not losses."

Critics contend that the department hasn't found losses because it isn't looking for them. The Office of the Special Trustee, for example, has yet to tackle most transactions dating from the agency's "paper era" — that is, before Interior moved to an electronic ledger system in 1985. The agency also appears to be stacking the deck in its favor when calculating error rates. It notes that the absence of sufficient supporting documentation for a transaction does not imply an error — and "it does not plan to include such occurrences in the calculated national error rates.

Read the full article including chart, here.

John Goff is a senior editor at CFO.

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