REVIEW OF THE BUREAU OF INDIAN AFFAIRS' MANAGEMENT OF THE $1.7 BILLION INDIAN TRUST FUND HEARING BEFORE THE ENVIRONMENT, ENERGY, AND NATURAL RESOURCES SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED FIRST CONGRESS FIRST SESSION OCTOBER 26, 1989 Printed for the use of the Committee on Government Operations U.S. GOVERNMENT PRINTING OFFICE 31-919 WASHINGTON : 1990 For sale by the Superintendent of Documents, Congressional Sales Office U.S. Government Printing Office, Washington, DC 20402 COMMITTEE ON GOVERNMENT OPERATIONS JOHN CONYERS, JR., Michigan, Chairman CARDISS COLLINS, Illinois FRANK HORTON, New York GLENN ENGLISH, Oklahoma WILLIAM F. CLINGER, JR., Pennsylvania HENRY A. WAXMAN, California AL McCANDLESS, California TED WEISS, New York HOWARD C. NIELSON, Utah MIKE SYNAR, Oklahoma RICHARD K. ARMEY, Texas STEPHEN L. NEAL, North Carolina DONALD E. "BUZ" LUKENS, Ohio DOUG BARNARD, JR., Georgia J. DENNIS HASTERT, Illinois BARNEY FRANK, Massachusetts JON L. KYL, Arizona TOM LANTOS, California CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, JR., West Virginia PETER SMITH, Vermont BARBARA BOXER, California STEVEN SCHIFF, New Mexico MAJOR R. OWENS, New York CHUCK DOUGLAS, New Hampshire EDOLPHUS TOWNS, New York C. CHRISTOPHER COX, California JOHN M. SPRATT, JR., South Carolina CRAIG THOMAS, Wyoming JOE KOLTER, Pennsylvania BEN ERDREICH, Alabama GERALD D. KLECZKA, Wisconsin ALBERT G. BUSTAMANTE, Texas MATTHEW G. MARTINEZ, California NANCY PELOSI, California DONALD M. PAYNE, New Jersey JIM BATES, California GARY A. CONDIT, California JULIAN EPSTEIN, Staff Director DONALD W. UPSON, Minority Staff Director ENVIRONMENT, ENERGY, AND NATURAL RESOURCES SUBCOMMITTEE MIKE SYNAR, Oklahoma, Chairman EDOLPHUS TOWNS, New York WILLIAM F. CLINGER, JR., Pennsylvania ALBERT G. BUSTAMANTE, Texas CHUCK DOUGLAS, New Hampshire JOE KOLTER, Pennsylvania CRAIG THOMAS, Wyoming HENRY A. WAXMAN, California Ex OFFICIO JOHN CONYERS, JR., Michigan FRANK HORTON, New York SANDRA Z. HARRIS, Staff Director STEVE RICHARDSON, Professional Staff Member MICHELE ETTINGER, Assistant Clerk KIRK ESHERICK, Minority Professional Staff (II) CONTENTS Page Hearing held on October 26, 1989 1 Statement of: Brown, Eddie F., Assistant Secretary of Indian Affairs, U.S. Department of the Interior, accompanied by Walter Mills, Deputy, Operations; Linda Richardson, Assistant Director for Administration, Financial Management; William P. Ragsdale, Acting Assistant Secretary, Bureau of Indian Affairs; Ron Crammer, contracting officer; Betty Wilkinson, division chief, accounting management; Arlene Brown, trust fund con- tract project leader; Joseph Weller, chief, division of trust funds man­ agement; Fred Kellerup, investments officer; and George T. Skibine, attorney, Division of Indian Affairs, Solicitor's Office 138 Gentry, Jo Lynn, Navajo Tribe, policy specialist, on behalf of First Na­ tions Financial Project, accompanied by Marcella Giles, Creek Tribe, research director 64 Hunter, Robert, associate general counsel, Office of the General Counsel, U.S. General Accounting Office, accompanied by Alan Belkin, and John Carter, senior attorneys; and Jerold D. Cohen, assistant general counsel 9 Richards, James R., inspector general, U.S. Department of the Interior 27 Synar, Hon. Mike, a Representative in Congress from the State of Okla­ homa, and chairman, Environment, Energy, and Natural Resources Subcommittee: Opening statement 1 Tallchief, George E., principal chief, Osage Tribe of Oklahoma Indians, and president, National Tribal Chairmen's Association, accompanied by Clarence W. Skye, executive director, United Sioux Tribes of South Dakota Development Corp 44 Letters, statements, etc., submitted for the record: Brown, Arlene, trust fund contract project leader, Bureau of Indian Af­ fairs: Material relevent to the hearing 395-404 Memorandum to the Solicitor, Indian Affairs, regarding eligibility of repurchase agreements and Government agency money market ac­ count 456-457 STIF fund requirements regarding Security Pacific National Bank 455 Tribal recommended changes concerning request for proposals [RFP].. 170-393 Brown, Eddie F., Assistant Secretary of Indian Affairs, U.S. Department of the Interior: Prepared statement 141-150 Clinger, Hon. William F., Jr., a Representative in Congress from the State of Pennsylvania: Opening statement 7-8 Gentry, Jo Lynn, Navajo Tribe, policy specialist, on behalf of First Na­ tions Financial Project: Prepared statement 66-76 Giles, Marcella, Creek Tribe, research director, on behalf of First Nations Financial Project: Material pertinent to the record 88-137 Hunter, Robert, associate general counsel, Office of the General Counsel, U.S. General Accounting Office: Prepared statement 12-21 Jourdain, Roger A., chairman, Red Lake Band of Chippewa Indians: Prepared statement 78-84 Richards, James R., inspector general, U.S. Department of the Interior: Prepared statement 29-33 Synar, Hon. Mike, a Representative in Congress from the State of Okla­ homa, and chairman, Environment, Energy, and Natural Resources Subcommittee: Exhibit 1 151-158 Exhibit 2 163-167 Exhibit 3 424-428 (III) IV Page Letters, statements, etc., submitted for the record—Continued Synar, Hon. Mike, a Representative in Congress from the State of Okla­ homa, and chairman, Environment, Energy, and Natural Resources Subcommittee—Continued Exhibits 4 and 5 433-445 Tallchief, George E., principal chief, Osage Tribe of Oklahoma Indians, and president, National Tribal Chairmen's Association: Prepared state­ ment 47-63 Yates, Hon. Sidney R., a Representative in Congress from the State of Illinois: Prepared statement 3-5 APPENDIX Material submitted for the record 463 REVIEW OF THE BUREAU OF INDIAN AFFAIRS' MANAGEMENT OF THE $1.7 BILLION INDIAN TRUST FUND THURSDAY, OCTOBER 26, 1989 HOUSE OF REPRESENTATIVES, ENVIRONMENT, ENERGY, AND NATURAL RESOURCES SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS, Washington, DC. The subcommittee met, pursuant to notice, at 9:30 a.m., in room 2247, Rayburn House Office Building, Hon. Mike Synar (chairman of the subcommittee) presiding. Present: Representatives Mike Synar, Albert G. Bustamante, and Craig Thomas. Also present: Sandra Z. Harris, staff director; Steve Richardson, professional staff member; Michele Ettinger, assistant clerk; Kirk Esherick, minority professional staff, Committee on Government Operations, and Tony Csicseri, GAO detailee. OPENING STATEMENT OF CHAIRMAN SYNAR Mr. SYNAR. The subcommittee will come to order. Today the Subcommittee on Environment, Energy, and Natural Resources will review the Bureau of Indian Affairs management and supervision of the $1.7 billion Indian Trust Fund. We will look at the Bureau's continued failure to properly ac­ count for the funds in the 300,000 individual and tribal accounts and its recent efforts to contract for certain financial management services for the trust moneys. The system of trusteeship and Federal management of our Indian funds is deeply rooted in U.S. history. Treaties were the first, and probably most important means by which trust funds were created for the benefit of individuals or tribes. While the earliest treaties did not specify that the United States retain funds in trust for the tribes, in 1820 the Federal Govern­ ment adopted the policy of holding tribal funds in trust. Indeed, President Andrew Jackson may have been the first Federal trustee of Indian moneys. Later, the role of trustee was delegated to the Secretary of the Interior. The Federal Government is obligated to accurately and fully ac­ count for Indian trust funds, to properly discharge all of its fiduci­ ary responsibilities, and to maximize the trust income by prudent investment and management. Yet, year after year, report after (1) report has disclosed an appalling array of management and ac­ countability failures in this program. Since 1982, the Interior Department's inspector general has issued 31 separate reports detailing numerous deficiencies in the Bureau's administration of Indian trust funds. Sadly, the most recent of these reports documented multimillion dollar account shortages, investment and interest losses, and a total absence of basic financial controls. Unfortunately, a recent audit by Arthur Andersen & Co. revealed similar widespread accounting and man­ agement failures by BIA. A trustee in the private sector could not possibly continue such mismanagement and hope to get away with it for very long. Despite its continued unwillingness to reform its management or to begin to properly oversee and balance these trust accounts, the BIA is now in the process of turning many of the Government's fi­ nancial responsibilities over to a third party. I am concerned, as are a number of other Members and many tribes, that the Bureau is simply passing off the unbalanced books to someone else. And the subcommittee is concerned that the BIA appears to be proceeding with implementation of this financial services contract despite repeated and explicit congressional directives that the Bureau audit and reconcile the trust accounts. Furthermore, many aspects of the contract itself, including the Bureau's procurement procedures and its implementation of the agreement, raise serious concerns about the agency's supervision, management and control of the trust fund. The subcommittee intends to explore whether BIA's continuing efforts to contract out many of its trust fund responsibilities are within the scope of the agency's authority. We want to know whether this effort is compatible with