0826
 1                      UNITED STATES DISTRICT COURT
                        FOR THE DISTRICT OF COLUMBIA
 2   
 3     ELOUISE PEPION COBELL,       :  Civil Action 96-1285
       et al.                       :
 4                   Plaintiffs     :
                                    :  Washington, D.C.
 5              v.                  :  Tuesday, October 16, 2007
                                    :
 6     DIRK KEMPTHORNE, Secretary   :
       of the Interior, et al.      :
 7                                  :
                     Defendants     :  AFTERNOON SESSION
 8   
                     TRANSCRIPT OF EVIDENTIARY HEARING
 9                                 DAY 4
                    BEFORE THE HONORABLE JAMES ROBERTSON
10                       UNITED STATES DISTRICT JUDGE
11    APPEARANCES:
12   For the Plaintiffs:          DENNIS GINGOLD, ESQUIRE
                                  LAW OFFICES OF DENNIS GINGOLD
13                                607 14th Street, NW
                                  Ninth Floor
14                                Washington, DC 20005
                                  (202) 824-1448
15   
                                  ELLIOTT H. LEVITAS, ESQUIRE
16                                WILLIAM E. DORRIS, ESQUIRE
                                  KILPATRICK STOCKTON, L.L.P.
17                                1100 Peachtree Street
                                  Suite 2800
18                                Atlanta, Georgia  30309-4530
                                  (404) 815-6450
19   
                                  KEITH HARPER, ESQUIRE
20                                JUSTIN GUILDER, ESQUIRE
                                  KILPATRICK STOCKTON, L.L.P.
21                                607 14th Street, N.W.
                                  Suite 900
22                                Washington, D.C.  20005
                                  (202) 585-0053
23   
                                  DAVID C. SMITH, ESQUIRE
24                                KILPATRICK STOCKTON, L.L.P.
                                  1001 West Fourth Street
25                                Winston-Salem, North Carolina  27101
                                  (336) 607-7392
26   
27                          Bryan A. Wayne, RPR, CRR
                            Official Court Reporter
0827
 1   For the Defendants:          ROBERT E. KIRSCHMAN, JR., ESQUIRE
                                  JOHN WARSHAWSKY, ESQUIRE
 2                                MICHAEL QUINN, ESQUIRE
                                  J. CHRISTOPHER KOHN, ESQUIRE
 3                                JOHN KRESSE, ESQUIRE
                                  U.S. Department of Justice
 4                                1100 L Street, N.W.
                                  Washington, D.C.  20005
 5                                (202) 307-0010
 6                                JOHN STEMPLEWICZ, ESQUIRE
                                  Senior Trial Attorney
 7                                U.S. Department of Justice
                                  Commercial Litigation Branch
 8                                Civil Division
                                  Ben Franklin Station
 9                                P.O. Box 975
                                  Washington, D.C.  20044
10                                (202) 307-1104
11                                GLENN D. GILLETT, ESQUIRE
                                  U.S. Department of Justice
12                                Commercial Litigation Branch
                                  Civil Division
13                                P.O. Box 875
                                  Ben Franklin Station
14                                Washington, D.C.  20044
                                  (202)  514-7162
15   
16   Court Reporter:              Bryan A. Wayne, RPR, CRR
                                  Official Court Reporter
17                                U.S. Courthouse, Room 6714
                                  333 Constitution Avenue, NW
18                                Washington, D.C. 20001
                                  202-354-3186
19   
20   
21   
22   Proceedings reported by machine shorthand, transcript produced
     by computer-aided transcription.
23   
24                          Bryan A. Wayne, RPR, CRR
25                          Official Court Reporter
0828
 1                        P R O C E E D I N G S
 2             THE COURT:  Okay, Mr. Smith, you may continue.
 3        (The witness resumed the stand.)
 4                    CROSS-EXAMINATION (Continued)
 5   BY MR. SMITH:
 6   Q.   Ms. Herman, before the break, we were talking about your
 7   DCV, and we were talking about the balancing test.  And I had
 8   asked you about when you balance those transactions before you
 9   started making changes to it, did you have that data, and you
10   said you had probably that data back in California.
11   A.   I'm sorry, the number of accounts that were out of balance?
12   Q.   Exactly.
13   A.   I would have to compute that.
14   Q.   Okay.
15   A.   It's not a schedule that I have.
16   Q.   Looking at the documents that were provided, it seems I
17   have at least some suggestion of that, and if we could look at
18   document 3-2-11.  And this was the seminar you spoke at on July
19   23, 2003?
20   A.   Yes.
21   Q.   Okay.  And I think this was a document that I was trying to
22   find but I was having difficulty.  If we could look at page
23   3-2-156.  And this is topic 12, which is actually the topic that
24   you spoke on at that seminar; is that correct?
25   A.   I don't know if I spoke on more topics than this, but yes,
0829
 1   this is one that I did.
 2   Q.   And if we could focus on that top of the page there.  It
 3   says "Identify and fill electronic data gaps.  Accounts" -- it
 4   says "were"; I assume that's "where the system does not balance,
 5   not equal the transactional balance, estimated difference."  It
 6   says "To date, KPMG," and I guess at this time you were working
 7   at KPMG?
 8   A.   Yes.
 9   Q.   -- "has performed this validation for accounts that have a
10   balance file in IRMS, 374,443 of 569,927 accounts, and found
11   that 120,812 accounts tested do not agree with the balance file
12   at the first point of comparison.  This represents approximately
13   32 percent of the accounts tested."  Is that correct?
14   A.   That's what this reads, yes.
15   Q.   That's what the data was at this point in time.  I know
16   they hadn't looked at all 569,000, but at this point in time
17   roughly a third of the accounts had discrepancies?
18   A.   One of the things that we learned later is that we hadn't
19   taken into account some of the account number changes, so this
20   number would have been overstated at this point.
21   Q.   Okay.  Good.  When you say "does not agree at the first
22   point of comparison," what does that mean?
23   A.   As I mentioned earlier, if we had multiple balances for a
24   given account, we compare it at each balance point.
25   Q.   Okay.  I'm going to move forward and talk briefly about
0830
 1   your data completeness testing that you did.  You talked about
 2   the Horton Agency and the testing you did there.
 3   A.   That's the --
 4   Q.   I'm sorry, the land-to-dollars testing.
 5   A.   Correct.
 6   Q.   Good.  Had there been earlier land-to-dollars testing in
 7   which you had been involved at other agencies?
 8   A.   This was the first land-to-dollar test for OHTA.
 9   Q.   Okay.  Had you been involved in a land-to-dollar test
10   performed in Alaska in October 2003?
11   A.   I don't recall a land-to-dollar test in Alaska, but I did
12   do work in Alaska.
13   Q.   Okay.  So you don't have any knowledge about that test up
14   in Alaska and what the results might be?
15   A.   As I said, I don't recall a test in Alaska.
16   Q.   Okay.  Then I'll just focus on the Horton test.  The Horton
17   test was a very small sample; is that correct?
18   A.   Yes, it was.
19   Q.   And it was -- the agency that was picked was not picked
20   randomly?
21   A.   That's what the report indicates.
22   Q.   And it was picked because -- tell me if this is correct --
23   out of all the agencies that had -- at which sampling had been
24   done, no sampling had been done at the Horton Agency; is that
25   correct?
0831
 1   A.   I'm not aware of that.  I didn't select the Horton Agency.
 2   Q.   Okay.  By the way, we got a lot of your work papers on the
 3   DCV.  Do you have work papers on the Horton Agency testing as
 4   well?
 5   A.   We've not submitted our final work papers on Horton Agency.
 6   Q.   Okay.  But you do have some work papers in process?
 7   A.   They're in draft, yes.
 8   Q.   Do you have a report on Horton?
 9   A.   I do not, no.
10   Q.   Has FTI prepared a report on the Horton Agency?
11   A.   No, we have not.
12   Q.   And the importance of that testing was because unless you
13   look at the financial transactions, the leases or the land
14   itself, you don't know whether the system is picking up all the
15   transactions; is that correct?
16   A.   This test goes from the land in, not from the financial
17   transactions.
18   Q.   Okay.  It goes from the land in?
19   A.   Correct.
20   Q.   So you're looking at the land, determining what resources
21   are being, or what money's being generated from that land, and
22   making sure it's posted to the IRMS or the TFAS system.
23   A.   We weren't involved in the first step of the process that
24   you mentioned.  Our step started when the leases were provided
25   to us.  We confirmed that there was a posting in the system.
0832
 1   Q.   Okay.  Is it your understanding that based on the Horton
 2   study, it wasn't really large enough to draw any statistical
 3   conclusions at all?
 4   A.   I'm not aware.  I'm not a statistician.
 5   Q.   Okay.  If we could look at 38-1-1.  And I believe this is
 6   the document you were shown yesterday, what is NORC's report of
 7   the land-to-dollar completeness test; is that correct?
 8   A.   Yes, it is.
 9   Q.   Okay.  You're aware there was a choice between looking at
10   leases or looking at actual title records in order to -- to be
11   the focus of that test?
12   A.   No, I'm not aware of that.
13   Q.   Okay.  If we could focus on the last paragraph, the
14   highlighted language, it says, "In order to use documents
15   associated with revenue generation (leases/contracts/permits) as
16   the sampling frame, a complete and accurate inventory of listing
17   of all such documents is required.  Developing a comprehensive
18   list of all leases or contracts or permits that have been issued
19   for the electronic records era, however, is often intractable."
20        Do you know what that means?
21   A.   That's not my document, but I can make a guess if you like.
22   Q.   What is your understanding of what that means?  That
23   they're hard to find?
24   A.   My understanding is that it would be difficult to complete
25   a complete list, to create a complete list of leases.
0833
 1   Q.   So that the test could be based on either the documents,
 2   the leases, or the land; is that correct?
 3   A.   It's my understanding that it's designed to select
 4   allotments, and from those allotments that you create revenue
 5   histories for each one of the allotments, and then you select a
 6   particular period that gets tested.
 7   Q.   And in your testing you identified a number of -- you were
 8   particularly looking at farming and grazing, because this was a
 9   farming and grazing area.
10   A.   As I mentioned, I was provided leases to evaluate.
11   Q.   If we could look at page 3.  Toward the middle of the page,
12   if we could focus on that section.  It says "Two allotments had
13   only subsurface ownership in trust during the 1985-2005 time
14   period, and therefore would not have farming and grazing
15   income."  Were you provided that documentation about the
16   subsurface income?
17   A.   I was not involved in this component of the test.
18   Q.   So you don't know what determination was made as to revenue
19   generated from the subsurface operations?
20   A.   I wasn't involved in this component of the test.
21   Q.   Okay.  So all you did was look at, what was it, 33
22   transactions?
23   A.   I believe it was 33 leases.
24   Q.   Okay.  And during a -- what time period did those 33 leases
25   cover?
0834
 1   A.   It was meant to cover 1985 through 2000.
 2   Q.   Okay.  But you didn't look at that time period for every
 3   one of those leases, did you?
 4   A.   I had specific periods within each one of those leases that
 5   I was evaluating.
 6   Q.   How long were those periods?
 7   A.   It was one year.
 8   Q.   One year for each of the 33?
 9   A.   Yes.
10   Q.   Okay.  For one year for each of those 33 you were able to
11   trace the money to the IRMS account?
12   A.   That's correct.
13   Q.   And you have no knowledge as to what conclusions can be
14   drawn from that; is that fair?
15   A.   That's correct.
16   Q.   Okay.  Briefly, Ms. Herman, you discussed a through-put
17   analysis yesterday.  And is it fair to say that a lot of the
18   information on the chart, the through-put chart that you put
19   together was based on information from either Mr. Angel or NORC?
20   A.   Some of the information in the chart, yes.
21   Q.   Particularly prior to 1972?
22   A.   Yes, that's correct.
23   Q.   And is it fair to say that you're not attesting to the
24   accuracy of that information?
25   A.   That's correct.
0835
 1   Q.   If you could look at 56-2-1, this was a document you
 2   identified yesterday from Mr. Edwards; is that correct?
 3   A.   That's correct.
 4   Q.   And if you could go down and look at where it says
 5   Attachment A, the highlighted area in the center of the page.
 6   It says, "The objective of this study was to determine the
 7   larger slices of revenue.  For example, interest, Osage head
 8   rights related to per capita distributions of that tribe's oil
 9   and gas royalties to its enrolled members.  Sources of data
10   collected are indicated in various colors."  Do you know what
11   Mr. Edwards means by "slices of revenue"?
12   A.   Different categories of revenue.
13   Q.   Okay.  And what he means by "larger slices," are there some
14   things excluded from this?
15   A.   All of the revenue's included in the estimate.
16   Q.   Let's go ahead and look at the chart, which I think is
17   56-2-4.  Now, the gray area on the left-hand side which appears
18   to be 1988 to 1995, that is based on, is it IM500s?
19   A.   I would need to look at the legend, sir.
20   Q.   Let's look at the next page.  It's based on IRMS IM500
21   reports?
22   A.   Yes, that's what the legend indicates.
23   Q.   And these are the reports that you've indicated earlier
24   today had inconsistencies and were more often inconsistent with
25   themselves; is that correct?
0836
 1   A.   Some of the reports did have inconsistencies.  These were
 2   balance numbers, not revenue numbers, though.
 3   Q.   Let's go back to the other page.  And the brown data, 1996
 4   to 2005, that is based on what?
 5   A.   Again, I'd need to look at the legend.
 6   Q.   Okay.  Based on IIM trust fund balances?
 7   A.   Audited reports, yes.
 8   Q.   And specifically what are you referring to there?
 9   A.   All of the reports that we relied on were included in our
10   analysis.
11   Q.   Okay.  It does not include, obviously, because you've not
12   finished your DCV, it does not include your updated numbers,
13   does it?
14   A.   These are balances, not transactions.
15   Q.   Okay.
16   A.   These are the audited balances as recorded.
17   Q.   As recorded by KPMG and the other --
18   A.   There were several different audit firms over time.
19   Q.   Okay.  I believe it was Griffin and Arthur Andersen and
20   KPMG; is that correct?
21   A.   I believe so.  But as I mentioned, all of the reports are
22   included in our report.
23   Q.   Okay.  So those are based solely on the audits and not the
24   DCV work you're doing; is that correct?
25   A.   That's correct.  The balances are.
0837
 1   Q.   Okay.  And let's go back.  Category with interest.
 2   Interest begins in 1972.  Can you tell us what is done with
 3   interest prior to that time?
 4   A.   We did not try to break out interest prior to '72.
 5   Q.   Okay.  So right now there's no calculation for interest
 6   before that time period?
 7   A.   That would be included in the other receipts number.
 8   Q.   Okay.  So interest should be over there in the blue ledger
 9   or purple ledger?
10   A.   Yes.  In the 803, and it appears to be 1,901.1.
11   Q.   So it's your understanding that that includes an interest
12   portion as well?
13   A.   That's my understanding.
14   Q.   Okay.  Now, the Osage Annuity, did I understand that part
15   of the Osage Annuity is in the tribal IIM and part in the --
16   considered individual?  How did you break that out?
17   A.   No.  It's my understanding that it goes into the tribal
18   trust initially, and some component of that is transferred into
19   the IIM system.
20   Q.   Okay.  So you were not involved in breaking out how much
21   was tribal and how much was individual.
22   A.   No, I did do that computation.
23   Q.   Okay.  Now, how much did you determine should go to the
24   individual?
25   A.   The numbers that are reflected in this column are what we
0838
 1   felt came into the IIM trust.  This is IIM, not tribal.
 2   Q.   Okay.  The 83 and the 82 is what you determined came into
 3   the IIM trust?
 4   A.   That's correct.
 5   Q.   Did you determine what initially went into the tribal --
 6   Osage tribal accounts?
 7   A.   This is an estimate, and if you'd like to provide the work
 8   papers, I can show you exactly how it's computed.
 9   Q.   Do you know if money that was intended for individuals
10   initially went into the tribal Osage accounts?
11   A.   It's tribal funds that are then distributed to the owners
12   of the head rights.
13   Q.   Right.  And are they distributed while they are in Treasury
14   or are they distributed directly from the Osage accounts?
15   A.   There are checks from the Osage tribal trust accounts and
16   there are transfers into the IIM trust account, and that's
17   what's reflected in this column.
18   Q.   And the rest of the Osage money, where was that distributed
19   to, to your understanding?
20   A.   The rest of the head rights?
21   Q.   Mm-hmm.
22   A.   I didn't confirm where the funds were distributed to.  It's
23   my understanding that it was via check from the tribal trust
24   account.
25   Q.   And directly to the Osage tribe?
0839
 1   A.   To the owners of the head rights, which would most likely
 2   be members of the tribe.
 3   Q.   Okay.  So if I'm looking at 1909 to 1933, and I've got --
 4   I'm sorry, 1934 to 1971, and I've got, what, 350.1, is that
 5   million?
 6   A.   I'm sorry, I don't know which number you're referring to.
 7   Q.   Sure.  If you look under 1934 to 1971, you've got 82.8 in
 8   the Osage Quarterly Annuity; is that correct?
 9   A.   That's correct.
10   Q.   And now, is some of the Osage Annuity also included in the
11   350.1 tribal?
12   A.   No, it's not.  Those are mutually exclusive numbers.
13   Q.   Okay.  The number you got for 82.8 for the Osage Quarterly
14   Annuity came out of what account?
15   A.   As I mentioned, this is an estimate.  If you would like to
16   provide my work papers, I can explain to you exactly how it's
17   computed.  This is our estimate of how much Osage Quarterly
18   Annuity came into the IIM trust.
19   Q.   Okay.  Can you give me a rough guess as to how much was not
20   included as going into the IIM trust?
21   A.   No, not as I sit here.  But if you'd like to provide those
22   work papers, yes, I can.
23   Q.   Okay.  Do you have any understanding at all as to how much
24   of the Osage Quarterly Annuity is supposed to go to individuals
25   as opposed to the tribe?
0840
 1   A.   As I mentioned, it's distributed to holders of the shares,
 2   and those are most likely tribal members.  The tribe may own
 3   some of those shares as well.  I'm not aware.
 4   Q.   So is it your understanding that all of the Osage Quarterly
 5   Annuity is supposed to eventually go to individual members?
 6             MR. QUINN:  Objection.  Asked and answered,
 7   Your Honor.
 8             THE COURT:  Yeah, I think you've about exhausted her
 9   knowledge on this subject, counsel.
10             MR. SMITH:  Okay.
11             THE COURT:  She's asked you a number of times for her
12   work papers.
13             MR. SMITH:  Yeah, that would be great if you could
14   provide those.
15             THE WITNESS:  You have them.
16             THE COURT:  No, you provide them, you've got them.
17             THE WITNESS:  They've been produced.
18             MR. SMITH:  Your Honor, I haven't seen them, but I'll
19   look for them.
20             THE WITNESS:  They're a component of the
21   administrative record.
22   BY MR. SMITH:
23   Q.   Your analysis begins in 1909, but obviously the trust
24   process began prior to 1909; is that correct?
25   A.   It's my understanding that the allotment process began
0841
 1   before 1909, yes.
 2   Q.   And has any estimate been made of revenue prior to 1909?
 3   A.   Not of which I'm aware.
 4   Q.   Do you know if anybody has been tasked with that job of
 5   determining that?
 6   A.   As I mentioned, not that I'm aware.
 7   Q.   Now, you've broken out between tribal IIM and other
 8   receipts, and basically you've just taken a 15 percent number;
 9   is that correct?
10   A.   That's my recollection, yes.
11   Q.   And can you tell me -- so if I'm looking down at tribal
12   IIM, I'm just looking at 15 percent of the total.
13   A.   As I mentioned, I can give you the math behind that if you
14   have the work papers.  It's my understanding that it's 15
15   percent.
16   Q.   Okay.  And can you tell me how that number was arrived at?
17   A.   As I mentioned, and if you look on the legend, that was an
18   estimate provided by Morgan Angel.
19   Q.   So Morgan Angel would have a better understanding as to how
20   they arrived at 15 percent than you, I take it?
21   A.   That's correct.
22             MR. SMITH:  Your Honor, I have no further questions.
23             THE COURT:  Okay.
24             MR. QUINN:  Your Honor, we have no further questions
25   for this witness at this time.  As Your Honor knows, there's
0842
 1   been an arrangement agreed to bring Ms. Herman back to conclude
 2   cross-examination as to some of the data completeness validation
 3   report issues.  We've agreed with plaintiffs to bring Ms. Herman
 4   back on Tuesday of next week.
 5             THE COURT:  Well, wait a minute.  Hold it.  I know
 6   Ms. Herman's going to come back on Tuesday of next week.  I
 7   don't want all of Ms. Herman's testimony to be rehashed on
 8   Tuesday of next week.  She's spent 24 hours, or seems like 24
 9   hours on the witness stand.  She's been on the witness stand all
10   of the time in the last 24 hours that we've been here.
11             MR. QUINN:  I don't mean to suggest that, Your Honor.
12             THE COURT:  Well, but my point is plaintiffs are not
13   going to start all over again with Ms. Herman.  The questions
14   they're going to ask next week are going to be confined to
15   whatever is different and new in the material they've just
16   received, which may turn out to be nothing.  In fact, I hope it
17   does turn out to be nothing.  I think you've about exhausted
18   most of the subjects you have to deal with, Mr. Smith.  So if
19   you've got any redirect, I'll have it now.
20             MR. QUINN:  That's what I'm saying, Your Honor.  We
21   have nothing based on -- if we were concluding today, I have
22   nothing further of this witness.
23             THE COURT:  Fine.  Okay.  Understood.
24             MR. SMITH:  Your Honor, what he said is exactly right.
25   There's nothing further --
0843
 1             THE COURT:  Ms. Herman, you may step down subject to
 2   recall.  Thank you, ma'am.
 3             THE WITNESS:  Thank you very much, Your Honor.
 4        (The witness steps down.)
 5             MR. KRESSE:  Good afternoon, Your Honor.  John Kresse
 6   again for the defendants.  We call Robert Winter.
 7         ROBERT J. WINTER, WITNESS FOR THE DEFENDANTS, SWORN
 8                         DIRECT EXAMINATION
 9   BY MR. KRESSE:
10   Q.   Mr. Winter, would you spell your name for the Court?
11   A.   W-I-N-T-E-R.
12   Q.   And it's Robert J. Winter, correct?
13   A.   Correct.
14             MR. KRESSE:  Your Honor, I'll give you a brief
15   overview of what Mr. Winter's expected testimony will be.
16             THE COURT:  Thank you.
17             MR. KRESSE:  Mr. Winter is the director of the Office
18   of Trust Reporting and Reconciliation within the Office of the
19   Special Trustee.  He will testify regarding OST's practices and
20   procedures for categorizing, tracking, and verifying IIM
21   transactions, including check issuance and payment, primarily
22   during his tenure from 1998 through the present.
23        The reports he will discuss show the exchange of receipt
24   and disbursement information between Interior and Treasury,
25   which facilitates, among other things, Interior's ability to
0844
 1   calculate through-put.  Mr. Winter will also testify regarding
 2   the balance in the IIM trust fund, as well as the status of
 3   Interior's mass cancelation fund.
 4   BY MR. KRESSE:
 5   Q.   Mr. Winter, I understand you are an accountant by training
 6   as well as a CPA, correct?
 7   A.   Yes, sir.
 8   Q.   And you've worked at Interior since 1992 to the present,
 9   correct?
10   A.   Correct.
11   Q.   And during that entire period, you've essentially done
12   accounting work?
13   A.   Yes.
14   Q.   You've been with the Office of Special Trustee since July
15   of 1998?
16   A.   Yes.
17   Q.   Did I correctly state your current position with the Office
18   of the Special Trustee?
19   A.   Yes.  Director of the Office of Trust Reporting and
20   Reconciliation.
21   Q.   Mr. Winter, just to touch on an issue that was the subject
22   of earlier testimony, the mass cancelation project, are you
23   familiar with that project?
24   A.   I know about it, but I was not involved in it.
25   Q.   Have you had an opportunity to look at an account set aside
0845
 1   for mass canceled checks?
 2   A.   Yes.
 3   Q.   And when did you do that?
 4   A.   I actually took a look at the balance last Friday.
 5   Q.   And what was the balance approximately?
 6   A.   Around $480 million.
 7   Q.   80 million?
 8   A.   Sorry, 480,000.
 9   Q.   Did you also look at recent activity in the account?
10   A.   There has been no recent activity in the last few years,
11   no.  Other than interest earnings.
12   Q.   Directing your attention to exhibit which is AR-619.  Let's
13   go to the second page of the document.  All right.  Mr. Winter,
14   are you familiar with the accounting discrepancies information
15   binder?
16   A.   Yes, I am.
17   Q.   Is that something that you're in charge of?
18   A.   It is something I do have managerial responsibility over.
19   Q.   Let's go to the fourth page of this exhibit, and this is --
20   the last four digits of the Bates number are 0211, and then
21   there's a second page to this document.
22        Are you familiar with this document, these last two pages?
23   A.   Yes.  It's an issue paper on the mass cancel account.
24   Q.   And is this document consistent with your understanding of
25   the mass cancelation -- of the status of mass cancelation?
0846
 1   A.   Yes, it is.
 2   Q.   And the individual -- on the second page of the memorandum
 3   here it says "Prepared by John Driskill."  Do you know who John
 4   Driskill is?
 5   A.   Yeah.  At the time he was the shadow division chief for the
 6   division of trust funds accounting.
 7   Q.   Did you work with Mr. Driskill?
 8   A.   Yes, I did.
 9   Q.   What's Mr. Driskill doing now?
10   A.   He has since retired, and he's doing some subcontracting
11   work.
12   Q.   Mr. Winter, with regard to the cancelation of Treasury
13   checks issued by the Department of the Interior for individual
14   Indians, what is the current process with regard to checks that
15   are canceled due to limited payability?  Do you know what the
16   process is now?
17   A.   Yes.  Basically after 13 months, if a check is not cashed
18   by an individual, Treasury will place a limited payability
19   cancelation on the check.  They will send us the monies via the
20   IPAC system.  That's the intragovernmental payment and
21   collections system.  That's how agencies pay each other.  They
22   will send us the monies back on a monthly basis, along with
23   information regarding each check that was canceled, basically
24   the account number, the check number, the amount.
25        At that point we place those monies in bulk into a suspense
0847
 1   account, if you will, so they can immediately start earning
 2   interest, and then very shortly thereafter, usually within the
 3   next thirty days, we will move those monies out of the suspense
 4   account into the correct individual's account, as a recredit to
 5   their account.
 6   Q.   And do you know which office at OST is involved with
 7   performing that work?
 8   A.   Yeah.  It's primarily the Office of Trust Funds Management.
 9   Q.   Now, Mr. Winter, as your title states, you're involved in
10   reporting and reconciliation.  Can you explain generally what
11   that involves?
12   A.   Certainly.  As is very clear in the title, our office is
13   comprised of two primary branches, the branch of reconciliation
14   and the branch of reporting.  Our reconciliation group, the
15   primary duties are to perform a myriad of cash and investment
16   reconciliations on a daily, weekly, and monthly basis.
17        Then our group of reporting, their primary functions are
18   financial statement reporting, all of our regulatory reporting,
19   internal managerial reports, and tax reporting.
20   Q.   I believe you said regulatory reporting?
21   A.   Correct.  Those are reports such as the 224 and the 1219,
22   1220 which we submit to Treasury.  Those are simply a statement
23   of cash transactions.
24   Q.   And those reports are required by, you said regulation.
25   A.   By regulation, by Treasury regulation, correct.
0848
 1   Q.   Mr. Winter, I'd like you to turn your attention to
 2   Defendants' Exhibit 233.  And first of all, this document, the
 3   print obviously is very small if you're looking at it on the
 4   screen, correct?
 5   A.   Yes.
 6   Q.   Let's blow up the top portion of the document so we can
 7   read the title.  Mr. Winter, do you recognize this document?
 8   A.   Yes.  This is our daily cash reconciliation report we put
 9   out every morning.
10   Q.   And this is referred to as the DCR?
11   A.   Correct.  Daily cash reconciliation.
12   Q.   Now, this DX 233, it contains another report or document at
13   page 4; is that correct?
14   A.   Yes.  I don't see it on the screen yet, but I do believe
15   that's the daily cash statement we refer to.
16   Q.   And then let's also look at DX 235.  What is Defendants'
17   Exhibit 235, Mr. Winter?
18   A.   This is a transactional download from our Trust Funds
19   Accounting System, better known as TFAS.
20   Q.   All right.  So we can refer to this document as a TFAS
21   download; is that all right?
22   A.   Yes.
23   Q.   And the first document again was the DCR?
24   A.   Correct.
25   Q.   And the second one, the daily cash statement, you also
0849
 1   refer to as the DCS, correct?
 2   A.   Yes.
 3   Q.   All right.  Now, do these -- how do these three documents
 4   work with regard to reconciling balances?
 5   A.   Well, the DCR is the report that combines what is
 6   reconciled between the DCS and the TFAS transactional download.
 7   Basically, that's what we're comparing.  We're comparing all the
 8   cash that either came in or went out of Treasury on a daily
 9   basis, for the trust, to every transaction that happened, that
10   has happened up through yesterday in TFAS, to ensure that we're
11   accounting for the cash properly.
12        It's sort of like reconciling your checkbook.  We're
13   getting information from Treasury, like a bank statement, and
14   we're comparing it to our checkbook and we're doing, like you
15   can see on this document here, we're doing a tick and tie
16   between the numbers so that we can see what came into Treasury
17   was also posted to our TFAS system, and those we know are
18   classified correctly, they drop off the reconciliation.
19        It is -- any items where we see either there was a receipt
20   or disbursement in Treasury that wasn't posted in TFAS or vice
21   versa, something that was posted in TFAS that was not received
22   yet in Treasury, those items will show up on the daily cash
23   reconciliation, which was the first document we looked at.  And
24   we provide that to our accounting group on a daily basis in the
25   morning so that any discrepancies or reconciliation items can be
0850
 1   addressed immediately.
 2   Q.   Now, let's look at DX 235, the TFAS download.  And this
 3   is -- I just want to be clear, this is information from the TFAS
 4   system, correct?
 5   A.   Correct.
 6   Q.   And this is just for one day, right?
 7   A.   Correct.
 8   Q.   And this is just IIM transactions?
 9   A.   No.  This is all transactions.
10   Q.   All right.  And when you say all --
11   A.   All tribal IIM trust.  Anything to do with trust that came
12   into our ALC, which is our agency location code, for trust, gets
13   reconciled.  Of course, those reconciliation items are then
14   grouped by whether they're IIM or trust so that they can be
15   easily researched and taken care of.
16   Q.   And so then looking at the daily cash statement, the DCS,
17   which is DX 233 at page 4, and that's also on page 5, and the
18   last item or entry appears -- or entries are on page 6.  If we
19   can go through that document.  And go back to page 4, please.
20             MR. HARPER:  Your Honor, I'm going to object to this
21   line of questioning on materiality grounds.  As Your Honor's
22   made clear, this is not a trust reform trial.  We can certainly
23   also put on extensive evidence as to what they are or are not
24   doing as far as trust forms.  Everything in here is in 2007.
25   The government's own historical accounting plan ends in the year
0851
 1   2000, so how this is material to the issues before the Court
 2   presently it's not exactly clear to us.
 3             THE COURT:  Want to respond to that, Mr. Kresse?
 4             MR. KRESSE:  Well, Your Honor, first of all, although
 5   we are using current documents, the Court has suggested that the
 6   historical accounting may need to go up through the year 2006.
 7   These are processes -- and I'll certainly ask Mr. Winter to
 8   discuss how far back these reconciliation processes go, but this
 9   goes to the accuracy and reliability of the information that
10   could be part of a historical accounting.
11             THE COURT:  But Mr. Harper makes a good point.  You're
12   talking 2007 numbers.  Why don't you lay a foundation for the
13   proposition that this has been done this way going back as far
14   as he knows or not.
15             MR. KRESSE:  All right.
16   BY MR. KRESSE:
17   Q.   Mr. Winter, the reconciliation process that we've been
18   discussing, how long has your office been conducting it in this
19   manner?
20   A.   In this manner it's been back to approximately 1992, where
21   they've done the cash reconciliation process.
22   Q.   And Mr. Winter, as far as the type of documentation that
23   we're looking at today, do you know how -- has this been, for
24   instance, looking at DX 233, the DCR, is that a -- how long has
25   that type of document been in use, to your knowledge?
0852
 1   A.   Well, certainly not necessarily in its current format, but
 2   the substance of it basically, a reconciliation between Treasury
 3   and our books, has been in place since 1992.
 4             THE COURT:  Why do you say 1992?  Is that as far back
 5   as your own experience goes?
 6             THE WITNESS:  Yeah.  As far as this particular type of
 7   a document is concerned, yes.  My experience only goes back to
 8   '98, though, sir.
 9             THE COURT:  Okay.  So how do you know it goes back to
10   '92?
11             THE WITNESS:  From looking at past documents and
12   knowing what my cohorts have done.
13             THE COURT:  All right.  I'll allow that.  Go ahead,
14   Mr. Kresse.
15             MR. KRESSE:  Thank you, Your Honor.
16   BY MR. KRESSE:
17   Q.   And the information on DX 233, starting on page 4, the
18   daily cash statement, where does this information come from?
19   A.   Information on the data cash statement comes directly from
20   Treasury, information that they download on our stead and fax it
21   over to us, because we cannot access the information via
22   Cash-Link ourselves because of the Internet restriction.
23   Q.   So there's a Cash-Link account for your office?
24   A.   Yes.
25   Q.   But you can't access it, correct?
0853
 1   A.   Correct.
 2   Q.   So what has to be done to get this information into your
 3   system?
 4   A.   They fax us information regarding this on a daily basis.
 5   We then manually take from those reports, enter it into an Excel
 6   spreadsheet, which is what this is, so that we have a
 7   comprehensive report that we can then start comparing to our
 8   TFAS information.
 9   Q.   And by what time of the day is this report done, looking at
10   the DX 233, the DCR?
11   A.   Usually by 10 or 11 a.m. in the morning.  We have people
12   come in very early.  It's a manually intensive process.  So they
13   start receiving the information, compiling this at 6 a.m.
14   Q.   And the information that Treasury gets, that information
15   comes from where?
16   A.   They go in and access our Cash-Link account and our IPAC
17   account, and they do either print screens or reports.
18   Q.   Do you know how the information gets into the Cash-Link
19   account, where that information comes from?
20   A.   Regarding deposits, like right here you can see in SF-215,
21   that's a deposit ticket, that gets put into the system by the
22   bank via the lockbox process.  All the checks come into the
23   lockbox on a daily basis, a deposit is prepared by the lockbox
24   contractor, they deposit it at our Treasury general account.
25   That information gets entered into Cash-Link, and we will see
0854
 1   that the next morning.
 2   Q.   What entity actually puts the information into the
 3   Cash-Link?
 4   A.   The Treasury general account at the bank.
 5   Q.   At the bank.
 6   A.   Yes.
 7   Q.   Now, you mentioned the lockbox?
 8             THE COURT:  Mr. Kresse, this may be a little more
 9   granular perhaps than I need.
10   BY MR. KRESSE:
11   Q.   Mr. Winter, before the lockbox, how would deposits or
12   receipts be taken in?
13   A.   Generally at the agency.  Checks were sent in o the agency.
14   They would prepare a bill for collection, and a deposit ticket
15   and deposit that at their local bank that has a Treasury general
16   account.
17             MR. HARPER:  Your Honor, if I could interpose another
18   objection.  There's a lack of foundation here as well.  There's
19   not been a determination of when this lockbox was put into
20   place.  And so it's not clear that it's material.
21   BY MR. KRESSE:
22   Q.   Mr. Winter, when was the lockbox process initiated at OST?
23   A.   June of 2005.
24   Q.   And is the lockbox --
25             THE COURT:  I'll sustain the objection.
0855
 1             MR. KRESSE:  All right.
 2   BY MR. KRESSE:
 3   Q.   Mr. Winter, directing your attention to DX 240, can you
 4   identify that document?
 5   A.   Yes.  That is the SF-224 statement of transactions that we
 6   transmit to Treasury every month.
 7   Q.   All right.  And for how long, to your knowledge, has this
 8   document been transmitted to Treasury?
 9   A.   I can't give you a year, but I know it's Treasury
10   regulation, so they've been doing it as a -- I know BIA did it
11   before OST did it.  As far as -- I've been in charge of it since
12   1998.
13   Q.   And Mr. Winter, as part of this document, there are two
14   other forms attached; is that correct?  You have the 224?
15   A.   And the SF-1219 and 1220, which are a statement of
16   accountability and statement of transactions as well.
17   Q.   And Mr. Winter, with regard to initially the SF-224, is
18   that a document that is helpful to determining receipts to the
19   IIM trust fund?
20   A.   If you're looking at like through-put numbers, trying to
21   determine receipts, accurate receipts of disbursements, no, it's
22   not.
23   Q.   It does have -- looking at page 1 of DX-240, it does have
24   columns there for receipts and collections, correct?
25   A.   It does, yes.
0856
 1   Q.   And also gross disbursements, correct?
 2   A.   Yes.
 3   Q.   And then down the left-hand side there's various account
 4   numbers, correct?
 5   A.   Yes.
 6   Q.   And if you look down the page toward the middle, there's a
 7   series of -- there's about five lines there that reference
 8   account 14X6039?
 9   A.   Correct.
10   Q.   And that's the IIM trust code, correct?
11   A.   Yeah.  That's the Treasury account symbol for IIM trust
12   fund.
13   Q.   And then there's, the first three lines that include the
14   14X6039 reference, those have numbers in parentheses there.
15   What do those numbers mean?
16   A.   Those indicate investment activity.
17   Q.   And then you have the fourth and the fifth line of just
18   14X6039, correct?
19   A.   Yeah.  That would be noninvestment activity related to any
20   receipts and disbursements.
21   Q.   And looking at the line that indicates gross disbursements
22   of 6 million plus dollars?
23   A.   Yes.
24   Q.   Is that in your mind an accurate representation of the
25   disbursements from the IIM trust fund for the month that's
0857
 1   represented by this report?
 2   A.   Not when you're talking traditional disbursements, say
 3   disbursements to IIM account holders, when you see it's only $6
 4   million, because that column itself includes a lot of other
 5   figures in there, as required by Treasury to report on.  So
 6   anything coming through IPAC, whether it's a receipt or
 7   disbursement, actually gets also reported in that column.  So if
 8   you have IPAC type receipts that exceed disbursements by a vast
 9   amount, it will definitely skew that disbursement number.
10        So I know for a fact that in this month we had
11   disbursements in the 20 million to $30 million range that's
12   reported on our financial statements, and yet on the 224 you
13   only see $6 million worth of disbursements, because a lot of
14   other numbers are netted into that amount.
15   Q.   And what about the receipt number on the following line,
16   the 11 million plus?
17   A.   Similar story.  That amount also includes investment
18   activity as an offset to the line above -- the third line above,
19   with number 43 in parentheses, as a negative number in that
20   column.  So that number is actually a higher dollar amount, I
21   think in the 20 to $30 million range as well.
22   Q.   Now, the other -- you've referenced the first, the fourth
23   and fifth line there, and then you have the two lines that are
24   preceded by the 88 and the 98 code, correct?
25   A.   Mm-hmm.
0858
 1   Q.   What does the number in the second line represent, the 1.4,
 2   looks like 1.4 billion?
 3   A.   That represents almost exclusively our overnighter
 4   investments, meaning that's our purchase of our overnighter
 5   investments, which is shown as a disbursement.  And you can see
 6   it's $1.4 billion, because it's an aggregate of the overnighter
 7   investment that we make every single day.
 8        So when we purchase the overnighter, say tonight we'll show
 9   a disbursement in that column.  I think in this case the average
10   dollar amount per day was around 50 or $60 million in
11   overnighter investments, and upwards to $80 million.  So that'll
12   show -- if we invest $80 million in the overnighter every single
13   day, you will show that aggregated over the entire month
14   process, thus building it up to $1.4 billion, when there were
15   never any really through-put, if you would, disbursements of
16   $1.5 billion.  It's just purely investment activity.
17   Q.   Right.  So this number, even if you had no new receipts
18   into the 14X6039 account, it could still be $1.4 billion?
19   A.   Exactly.
20   Q.   If you extrapolate that out to a year, the number would be
21   approximately what in this category?
22   A.   It's around $17 billion.
23   Q.   And then the same for the next line down, you have the
24   receipts and collections with the symbol 98 in front of the 14X?
25   A.   And that's the redemptions.  So each day we have a purchase
0859
 1   and then a subsequent, or I should say we have a redemption that
 2   morning and a subsequent purchase around 1:00 of the
 3   overnighter.  And so every single day you'll see an in and an
 4   out, an in and an out, an in and an out, and those are
 5   collectively reported on this report as an aggregate amount.
 6             THE COURT:  So if you subtract one from another, you
 7   should figure out how much was earned by overnighters.
 8             THE WITNESS:  Not necessarily, because our overnighter
 9   investments will vary, but we do have a report that we will show
10   you the amount that was earned on the overnighter.  Yes, Your
11   Honor.
12             THE COURT:  Okay.
13   BY MR. KRESSE:
14   Q.   And we can turn to that report, which is DX 277.  Is that
15   the document you were referencing, Mr. Winter?
16   A.   Yes, it is.
17   Q.   And is this a document printed by OST?
18   A.   No.  I believe this was a screen print from Treasury.
19   Q.   And the date --
20             THE COURT:  Screen print from what?
21             THE WITNESS:  The Treasury.  That Treasury produced.
22             MR. KRESSE:  And Your Honor, we'll represent this was
23   a document that was provided to us by Treasury.
24   BY MR. KRESSE:
25   Q.   The date is July 31, correct?
0860
 1   A.   Correct.
 2   Q.   And at just about 5 p.m.?
 3   A.   Right.  When this report was pulled.
 4   Q.   And this document also shows numbers for the code 88 and --
 5   98, excuse me.
 6   A.   As you can see, those numbers are extremely similar to what
 7   we reported on the 224.  As a matter of fact, the redemption
 8   line in parens 98 of the $1.477 billion is exactly the amount of
 9   redemptions or the activity that we showed on our 224.  The
10   investment amount is very similar as well.  That's the
11   purchases.  It is slightly different because of par value
12   adjustments we make on our 224 that is not represented in this
13   report.
14   Q.   So there's some additional investment money that's not
15   shown in this investment number on the 88 number?
16   A.   Yes.  Because this report was pulled as of the last day of
17   July.  Our 224 reporting is not done until the third business
18   day of the following month.  So Treasury doesn't -- pulling this
19   report on that date won't accurately reflect all of the activity
20   that we report on the 224.  But this report is here to
21   illustrate the overall investment in the overnighter on a daily
22   basis, along with the interest earnings that you can see there
23   as $317,000 for that particular month in interest earnings, just
24   on the overnighter.
25   Q.   Right.  And can you focus on that.  That's on the sort of
0861
 1   bottom left to the middle on the screen, correct?
 2   A.   Correct.
 3   Q.   And then lower down, toward the bottom of the first page,
 4   transaction detail.  And that continues on for the next page and
 5   a half.  What does that show there, Mr. Winter?
 6   A.   That shows the detail of our purchase and redemption every
 7   single day of the Treasury overnighter.  You can see there at
 8   the bottom of the first page that our initial -- on 7/2 you see
 9   the negative amount.  That is actually a redemption amount of
10   the overnighter security that happened the morning of the 2nd.
11   Later that afternoon we purchased $86.8 million worth of
12   overnighter security, which then gets redeemed the following
13   day.
14        You can see it's the exact same amount as the amount
15   purchased the night before.  And then over to the right you can
16   see the investment earnings for that particular day.  You'll see
17   varying amounts, primarily because of the amount of days that it
18   was invested for.  So if we invest on a Friday, you'll see
19   triple the amount of earnings as you probably did the day
20   before, because it's invested over the weekend.
21   Q.   And for instance, on July 5, you had the 4th of July to get
22   an extra day?
23   A.   Right.
24   Q.   And in looking at the next page of DX-277, about a quarter
25   of the way down, there's a decrease in the left-hand column on
0862
 1   7/11, the first number is minus 87 million and the next number
 2   is just a little over 70 million.  And do you know why that
 3   number would change so significantly?
 4   A.   Yeah.  In this case I don't know exactly why it changed,
 5   but most likely that's due to the fact that we purchased a large
 6   security that would be longer term.
 7   Q.   And the large security is purchased outside of Treasury?
 8   A.   It can be purchased either at Treasury as a Treasury
 9   security or it can be purchased outside of Treasury.  Either as
10   a Treasury on the open market or via a different governmental
11   entity, government-sponsored entity or a government agency
12   security.  Or of course that could have been a lot of
13   disbursements that were made that particular day.
14   Q.   Mr. Winter, turning your attention to Defendants' Exhibit
15   279, are you familiar with that document, which states at the
16   top "GWA Account Statement"?
17   A.   Yes.
18   Q.   What is the purpose or use of this document?
19   A.   That's another report we get faxed from Treasury that shows
20   ending balances that we use to reconcile all of our Treasury
21   accounts that are divided between IIM and different tribal
22   Treasury accounts.
23             MR. HARPER:  Your Honor, again, same objection.  This
24   is July 2007.  No foundation for why it's applicable for the
25   terms of the period that we're talking about in this trial.
0863
 1   BY MR. KRESSE:
 2   Q.   Mr. Winter, do you know how long the GWA account statement
 3   has been used in your office?
 4   A.   A statement in this form has been certainly in use since
 5   I've been there.  GWA is relatively -- that's the government
 6   wide accounting initiative.  This is simply a statement of
 7   account for the particular month that we receive the download
 8   for.
 9             THE COURT:  The objection is overruled.
10   BY MR. KRESSE:
11   Q.   Mr. Winter, turn your attention to what's marked as
12   Defendants' Exhibit 282.  Do you recognize that document,
13   Mr. Winter?
14   A.   That's a document that shows any statement of differences.
15   Q.   And with regard to this type of document or this type of a
16   printout, how long has this particular type of document been in
17   use in your office?
18   A.   Certainly as long as I've been there.  I know this is a
19   document -- this is once again another Treasury printout.  We
20   utilize the information, not necessarily in this particular
21   format, but we get the same information.
22   Q.   And in this particular example, the document has in table
23   form, the first item on the left is audit date.  Do you see
24   that?
25   A.   Uh-huh.
0864
 1   Q.   And then statement of -- what is that, transaction?
 2   A.   Yeah.  A debit.
 3   Q.   All right.  And then the next column, what is that?
 4   A.   Is your credit.  It's basically the agency.  Control
 5   account at Treasury.
 6   Q.   What does this information next to the audit date 7/07 --
 7   is that July '07?
 8   A.   Yeah.  That's July of '07.  That represents during the
 9   month of July primarily all the canceled checks that were
10   returned.
11   Q.   And when you say returned, returned to where?
12   A.   The money's returned back to us.  Most of those canceled
13   checks are for returned checks that come back because bad
14   address or whatever.  We then will redeposit those back into
15   Treasury.
16   Q.   Does Treasury return -- I mean does Treasury essentially
17   return the money into the Interior account?
18   A.   Yeah.  As soon as we deposit it right back in there, it's
19   available for our use.  We'll go back immediately and recredit
20   that check to the individual's account.
21   Q.   Now, looking at the second line, that audit date is August
22   '07, correct?
23   A.   Yes.
24   Q.   And then there's -- the first column there's a zero and the
25   second column $84,037.73 cents, correct?
0865
 1   A.   Yes.
 2   Q.   And the fourth column under difference, there's a negative
 3   number, of 84,000 plus.  What does that mean when there's that
 4   negative number there for the difference?
 5   A.   That's the statement of difference, meaning there's a
 6   difference between what we reported to Treasury and what
 7   Treasury is saying that they received as deposits to that
 8   particular disbursing symbol.  In this particular case this
 9   report was pulled in the middle of August, specifically up there
10   on the right-hand side, August 17, and at that point they had
11   received deposits from returned checks of around $84,000.
12        However, our reporting doesn't occur until the third
13   business day following the month, so if you pulled this report
14   from Treasury you'd see a statement of difference, no matter
15   when you look at it during the month for that particular month.
16   It's not until the next month would roll around, if you pulled
17   this report on August 4, you would see that we would have no
18   statement of difference because we would have reported to them
19   all of our activity by then.
20   Q.   And on the upper left-hand corner --
21   A.   Sorry.  I should say September 4, excuse me, because this
22   is an August 17th report.
23   Q.   Looking at the upper left-hand, there's the letters ALC and
24   then to the right of that the number ending in 4844.  What does
25   that mean?
0866
 1   A.   ALC stands for agency location code.  It specifically
 2   identifies, it's sort of like your employer identification
 3   number with Treasury.  In this case, 4844 is actually a
 4   disbursing symbol.  The Treasury tends to sort of use those
 5   interchangeably, they'll just show it on the ALC line, but that
 6   is our IIM disbursing symbol.  That's what allows us to print
 7   and mail checks directly from our office in Albuquerque.
 8   Q.   And those are just IIM checks, correct?
 9   A.   Correct.  That is checks going to individuals, yes.
10   Q.   Mr. Winter, the TFAS system, how long has the TFAS system
11   been in operation?
12   A.   TFAS, we started conversion in August of 1998, essentially
13   when I first got there, and I believe it was completed in March
14   of 2000.
15   Q.   And one of the aspects of the conversion is the ability to
16   produce account statements; is that correct?
17   A.   Correct.
18   Q.   And are you familiar with the production of account
19   statements for IIM account holders?
20   A.   Yes.  Our office is responsible for the coordination of the
21   production and mailing of quarterly statements to beneficiaries.
22   Q.   And how long have those quarterly account statements been
23   going out?
24   A.   Certainly since March of 2000.  At point of final
25   conversion, everyone was receiving a statement of transactions.
0867
 1   That included both their beginning balance, all the transactions
 2   that happened in their account, with a description of those
 3   transactions, and an ending balance.  And they do receive those
 4   statements on a quarterly basis.
 5   Q.   And that's a rolling basis.  You don't send them all out on
 6   the same day, right?
 7   A.   Correct.  We split it up into approximately thirds.  A
 8   third of them will receive it on a January, April, July basis, a
 9   third, February, May, so forth.
10   Q.   Mr. Winter, I direct your attention to Defendants' Exhibit
11   239.  Can you identify this document, Mr. Winter?
12   A.   Pardon me.  Please repeat.  I didn't hear that.
13   Q.   I'm sorry.  Can you identify this document?
14   A.   Yes, I can.
15   Q.   What is it?
16   A.   This is basically a flowchart, if you will, of the trust
17   funds processing, from the point that we receive the collection
18   until it is disbursed from our office.  Would you like me to
19   explain a little bit more?
20   Q.   Well, first of all, let's address the issue of how long
21   this process essentially, as it's represented here, has been in
22   place, and you can indicate exceptions, such as the lockbox, for
23   example.
24   A.   Well, the lockbox, of course, very recently the lockbox was
25   implemented for all agencies.  I believe October of 2005.  At
0868
 1   that point everyone was going -- sending their documents to the
 2   lockbox, whether the agencies were converted to TAAMS, which is
 3   the Trust Asset and Accounting Management System, or not.  We
 4   were trying to get the checks going away from the agencies and
 5   into the lockbox as that process.
 6        Now, as each agency has converted over to the Trust Asset
 7   and Accounting Management System, TAAMS, which I think final
 8   conversion occurred here at the end of September, for those
 9   agencies, all of the encumbrances will produce invoices, which
10   are sent out to the lease holders, to then turn around and send
11   their monies back with the invoice to the lockbox.
12             MR. HARPER:  Your Honor, again, similar objection.
13   TAAMS is, as the witness just testified, they're still rolling
14   out this year aspects of it.  We know the lockboxes were of
15   recent vintage.  The fact that this is the trust fund processing
16   flow in 2007 really has nothing to do with the four issues
17   before you.
18             THE COURT:  Well, I'm going to -- I think I agree with
19   that, Mr. Harper, but I want to take a quick run through this.
20   Maybe it will be useful to compare what's being done now to what
21   was being done at some other time.  So let's see what the
22   current status is.
23   BY MR. KRESSE:
24   Q.   So, Mr. Winter, basically just -- and I would appreciate
25   just the brief discussion, which you've already talked about the
0869
 1   invoice now, the money going into the lockbox.  Could you
 2   explain briefly what, when you say lockbox, what does that
 3   really mean?  Physically what's going on there?
 4   A.   Just a centralized facility for the processing of payments,
 5   similar to where you might send your credit card payment.  As
 6   opposed to the leaseholders carrying in or sending their
 7   payments in to each of the agencies, that has happened in the
 8   past, we implemented a centralized lockbox so that all the
 9   monies were coming into a centralized place, deposited every
10   single day, and reported back to us.
11        So this just shows the process of controls that are in
12   place to ensure we're accounting for the dollars coming in and
13   the dollars going out.
14   Q.   Then to the right of the lockbox box, there is a little
15   arrow, and it indicates receipt data and shows it going into a
16   cylinder, TFR.  What's TFR?
17   A.   That's trust funds receivable system.  These are -- it's
18   just basically an accounts receivable system, if you will, that
19   receives information from TAAMS as to when a payment is due.  It
20   is stored in trust funds receivable system, and produces an
21   invoice 45 days prior to the payment being due, in order to mail
22   out to the leaseholder, and they will then turn around and make
23   their payment with the invoice back to the lockbox.
24        And when that occurs, we now have an automated allocation
25   process where that check is matched up with the invoice and is
0870
 1   automatically allocated to all the beneficiaries on that lease.
 2   That wasn't previously the case, of course, because we didn't
 3   have the ownership data in TFAS for that to occur.
 4   Q.   I apologize if I already asked this.  When did the TAAMS
 5   conversion start, do you know?
 6   A.   I believe that also started, I think the pilot was Southern
 7   Plains, and that was in June of 2005.
 8   Q.   So the TFR system, is that tied in with the conversion to
 9   TAAMS as well?
10   A.   Yes.  That was developed independently in order to maintain
11   information on invoices and accounts receivable.
12   Q.   All right.  Was that -- so that was coincidental with the
13   TAAMS conversion, is that fair to say?
14   A.   It was developed shortly after the first pilot.
15   Q.   Now, going down the left-hand side, you have a box on the
16   left-hand corner for Treasury, and then an arrow into
17   reconciliation of cash receipts and disbursements.  Is that what
18   we've been talking about already today?
19   A.   Yes.  That just basically shows monies flowing into
20   lockbox, gets deposited into Treasury, which is the arrow down
21   to Treasury.  That information then gets reconciled to the
22   information that's coming out of TFAS for all of the postings
23   that happen in TFAS.
24   Q.   So the arrow going into the right-hand side of the
25   reconciliation box, the pink box, that's what you refer to as
0871
 1   the TFAS download information?
 2   A.   Correct.
 3   Q.   And then within the TFAS -- it's okay to call it the
 4   barrel?
 5   A.   Sure.
 6   Q.   Within the TFAS barrel, you have a number of boxes and then
 7   you have an elliptical symbol.  It says IIM pool.  What does the
 8   IIM pool represent?
 9   A.   That represents the pool of assets which is invested.
10   Q.   Which are --
11   A.   Instead of investing each and every single IIM account on
12   an individual basis, where most of the accounts are fairly small
13   dollars, as a balance going, it would -- there's no way you
14   could amass the amounts of dollars in order to purchase the
15   longer-term type securities and whatever needed to get a higher
16   interest rate.  So we pool all those monies together, and it's
17   that asset pool that's referred to here, the IIM pool.
18   Q.   To your knowledge, how long has the process of pooling the
19   IIM funds and investing them, how long has that process been in
20   place?
21   A.   Since way before I got there.  Certainly into the early
22   '90s.
23   Q.   And then from the IIM pool, you have an arrow into a box,
24   investments, correct?
25   A.   Correct.
0872
 1   Q.   And then there's an arrow going up into a box on the upper
 2   right called custodian.  Can you explain what that is all about?
 3   A.   Yeah.  The long-term investments, we actually hold it in
 4   custodian.  At this point it's SEI Investments.  This basically
 5   shows that we hold the monies at an outside custodian.  We
 6   perform a monthly reconciliation, that's that pinkish box called
 7   reconciliation, of interest and securities, that we do to ensure
 8   that we know all of our investments that we're showing in TFAS
 9   are also physically at our custodian.
10   Q.   So TFAS not only keeps track of the individual accounts, it
11   also keeps track of the larger numbers.
12   A.   Of all the investments.
13   Q.   And then you also have a box -- a pink box stating
14   unrestricted IIM accounts.  Can you explain what those are?
15   A.   Yeah.  That's basically all of the accounts where there's
16   not a restriction on it, such as a minor or an estate account or
17   a whereabouts unknown account, where the balance is being held,
18   because either we don't know -- don't have a valid address or
19   they're a minor and cannot legally receive the funds yet.
20        Those are accounts where, when the monies come in and the
21   balance gets to $15, those amounts are automatically disbursed
22   to the account holder.
23   Q.   And that can be disbursed how?
24   A.   Via check, ACH, direct deposit.
25   Q.   And ACH means what?
0873
 1   A.   Automated clearinghouse, and it's just, that and EFT,
 2   electronic funds transfer, they're just different methods of
 3   transferring money electronically to a specified account.
 4   Q.   And that's indicated in the light green box, correct?
 5   A.   Yes.
 6   Q.   The arrow from the unrestricted accounts?
 7   A.   Correct.
 8   Q.   Then there's also a -- and I'm sorry.  The restricted
 9   accounts, there's a line going down, and there's a little text
10   still in the bottom of the barrel there, stating "upon
11   request/approval," with an arrow to "disbursement to guardian,
12   parent, et cetera."  Can you explain what goes on there?
13   A.   The restricted accounts, primarily the ones I just
14   mentioned.  You also have voluntary holds, where someone has
15   called us up and said, hey, I don't want a check every single
16   time it gets to 15 bucks, just hold the monies in my account
17   until I call you back up and ask for a disbursement.  That's
18   what it means by, of course, upon request or approval, can be
19   for like a managed account, where the person may be under BIA
20   social services and we'll pay for their electricity bill, other
21   types of bills for them.  That's when those requests come in.
22   And also in the case of minors or whatever, where there is
23   actually disbursements to the guardian or parent.
24   Q.   And you've mentioned several times that certain accounts,
25   if the balance is at least $15, then the check is -- a check or
0874
 1   direct deposit automatically takes place?
 2   A.   Yes.  That is an unrestricted IIM account.  If it's
 3   restricted, a disbursement will not go out until a manual entry
 4   is put into TFAS to make that disbursement.
 5   Q.   And with the $15 balance, how does that work where, let's
 6   say you have, there's a balance of $14 and if $2 comes in, does
 7   that automatically disburse the check for $16?
 8   A.   Correct.  It doesn't just disburse it for 15.  It disburses
 9   it for the whole 16.
10   Q.   And are there other dollar limits that apply to IIM
11   accounts?
12   A.   The only other one is oil and gas.  Those monies, that's
13   the oil and gas process, where the oil and gas money's coming
14   through MMS as royalty payments.  Those get processed on a $5
15   limit as specified in the FOGRMA, F-O-G-R-M-A, Federal Oil and
16   Gas --
17   Q.   Royalties Management Act.
18   A.   Yeah, I'm not sure exactly what it is.  But it specifies
19   our duties to supply a detailed account statement for all oil
20   and gas funds flowing to a beneficiary, along with a payment
21   when the threshold reaches $5.
22   Q.   And do you know how long the FOGRMA has been in effect?
23   A.   I don't know.
24   Q.   Before your time?
25   A.   Yeah.  It's definitely the '90s.
0875
 1   Q.   And is there any problem per se with the $5 limit as far as
 2   OST is concerned?
 3   A.   No.
 4   Q.   We've already discussed the account statement which is the
 5   blue box on the far lower right corner, correct?
 6   A.   Correct.
 7   Q.   Now, Mr. Winter, you have kind of a pea-green box right
 8   underneath the title to the flowchart.  Do you see that?
 9   A.   Yes.
10   Q.   Can you explain what that manual batch is, and other
11   interface files refers to?
12   A.   That's for like our oil and gas interfaces, and certainly
13   any batches that need to be entered manually, say where a check
14   comes in and it's not automatically allocated via -- for those
15   agencies are converted.  Those are just manual batches that
16   are -- where the information is entered directly into TFAS.
17   Q.   And is there an audit control process in place for those
18   entries?
19   A.   Yeah.  We have a pre-QA and post-QA, 100 percent of all
20   transactions that are getting entered into TFAS.  I don't know
21   of really any other entities that do a 100 percent pre-quality
22   assurance and post-quality assurance.  So we check and verify
23   every single work ticket that is produced by the field
24   operations to enter information into TFAS, to ensure that all
25   the figures are correct and that there is supporting
0876
 1   documentation.  It then goes to our encoding.
 2        After encoding we do a 100 percent post-quality assurance
 3   review to ensure that what was on the work ticket was encoded
 4   properly and there were no fat-finger mistakes, if you will.
 5   Basically --
 6   Q.   "Fat-finger" being hit the wrong key --
 7   A.   Correct.
 8   Q.   And how long has that quality control process been in
 9   place?
10   A.   That was in place prior to my arrival.  Definitely in the
11   mid-'90s I think, mid to late '90s.
12   Q.   Mr. Winter, direct your attention to what's marked as
13   DX-281.  Have you seen this document before?
14   A.   Yes, I have.
15   Q.   And you didn't produce this document, did you?
16   A.   No.  That's a Treasury document.
17   Q.   And it's safe to say it's a flowchart?
18   A.   Yes.
19   Q.   All right.  Have you reviewed --
20   A.   Yes, I have.
21   Q.   You have reviewed the flowchart, right.  This flowchart is
22   titled "Central Accounting Process, Interior as non-Treasury
23   disbursing officer."  What does that mean, "Interior as
24   non-Treasury disbursing officer"?
25   A.   Well, usually Treasury is the disbursing officer for most
0877
 1   payments to go out there, but there are select agencies that are
 2   the disbursing officer for disbursements that they produce.  We
 3   happen to be the disbursing officer for all IIM payments.  So
 4   this just represents the fact that Interior is the disbursing
 5   officer.  This is just the flow of information from OST into
 6   Treasury.
 7   Q.   So essentially, like for instance in the upper right-hand
 8   corner, you have the heading "payments," right?
 9   A.   Correct.
10   Q.   And there's a box there references to Department of the
11   Interior disbursing officers.
12   A.   Mm-hmm.  And then you have a line item that just shows you
13   statement of transactions 12/20 and statement of accountability
14   12/19.  Those are the reports we send to Treasury.  Goes into
15   their STAR, which is their centralized accounting system.
16             THE COURT:  Mr. Kresse, I think it's time for a little
17   discussion about how much Treasury involvement we're going to
18   have here.  This is the second Treasury flowchart, and the first
19   one I thought was interesting.  This one I think looks like
20   tough going.
21             MR. KRESSE:  Your Honor, I actually -- I'm sorry.
22             THE COURT:  I mean, the major premise of this trial
23   was we're not going to talk about Treasury except as we have to
24   talk about it to answer the basic questions.  I'm not sure what
25   this has to do with the basic questions.  So I'd like some sort
0878
 1   of a proffer from you as to where we're going with this.
 2             MR. KRESSE:  Your Honor, with regard to this chart, I
 3   think we're finished with that chart to -- making just the point
 4   that Mr. Winter made.  With regard to the next chart, which is a
 5   similar chart, also produced by Treasury, Mr. Winter has about a
 6   couple of sentences to offer on that, and then we'll move on
 7   from there.
 8        There are other Treasury witnesses scheduled, but
 9   essentially we're trying to show that the disbursements by the
10   Department of Interior are accounted for and reconciled, and
11   this is -- Treasury is a part of the process, and that's what
12   we're trying to show here.
13             THE COURT:  Do you have any objection to this,
14   Mr. Harper?
15             MR. HARPER:  Yes, Your Honor.  Actually, we do.
16   That's the first time I've heard that the Department of Treasury
17   is part of the process for this kind of accounting.  The proffer
18   has been heretofore that Treasury does work on sums of funds,
19   aggregate figures.  And now it seems to have some suggestion
20   that's fundamentally different, and that's not our
21   understanding, one.  And two, certainly not our understanding in
22   the time periods relevant to this trial.
23             MR. KRESSE:  Your Honor, I think all we're showing
24   here is that there is a flow of information that goes through
25   Treasury, and the dollars obviously have to be deposited into
0879
 1   Treasury.  It's not an active role by Treasury.  The data that
 2   goes in comes in from banks, comes in from Interior.  Interior
 3   reports to Treasury, as required, as Mr. Winter has testified.
 4   That's basically -- we're not talking about an active role here
 5   by Treasury.
 6             THE WITNESS:  Would you like me to give a general
 7   overview of...
 8             THE COURT:  Keep it general, will you, please?
 9             THE WITNESS:  Certainly.  Generally, when deposits are
10   made, they're only made to our agency location code.  That's
11   just saying trust overall.  They have no idea as to whether
12   that's supposed to be for tribal trust, for IIM trust, and the
13   like.  So it is the Department of Interior that actually reports
14   that data to them.  It basically says here's what buckets each
15   of those receipts go into.
16        Until we report that, Treasury only has information at the
17   aggregate overall trust level.  They don't know whether it's
18   tribal or IIM or other monies until we tell them what Treasury
19   account symbol it goes into that distinguishes between IIM and
20   tribal.
21             MR. KRESSE:  And then, Your Honor, just to finish up
22   the next, or with regard to Treasury here, the next exhibit,
23   DX-283 -- all right.
24   BY MR. KRESSE:
25   Q.   And Mr. Winter, this is a similar flowchart, correct, to
0880
 1   the one we just looked at?
 2   A.   Yes.
 3   Q.   And what's the difference between this one -- very
 4   generally, what's the difference between this one and the
 5   previous one?
 6   A.   This is where Treasury is the disbursing office.  We still
 7   supply the overall disbursement information to Treasury via the
 8   224, the statement of cash transactions that we discussed
 9   previously.  That's really the only difference between these two
10   charts.
11   Q.   And you use Treasury as a disbursing officer for what types
12   of disbursements?
13   A.   For all tribal disbursements and electronic disbursements
14   for the IIM.
15             MR. KRESSE:  Your Honor, we have four exhibits that
16   are simply copies of portions of the Treasury financial manual.
17   I'll identify them as a group.  Defendants' Exhibit 284, 285,
18   286, and 287.  And to save time, if I just ask a few questions
19   of Mr. Winter about the use of the Treasury financial manual,
20   that would speed things up.
21             THE COURT:  If you say so.
22   BY MR. KRESSE:
23   Q.   Mr. Winter, the Treasury financial manual, are you familiar
24   with it?
25   A.   Yes, I am.
0881
 1   Q.   And let's put up 284.
 2             THE COURT:  I thought we were just going to talk about
 3   it.
 4             MR. KRESSE:  Just as an exemplar, Your Honor.
 5   BY MR. KRESSE:
 6   Q.   In any event, Mr. Winter, you are familiar with the
 7   Treasury financial manual, right?
 8   A.   Yes.
 9   Q.   Also known as TFM?
10   A.   Correct.
11   Q.   And what is the use in your office of the TFM?
12   A.   We certainly have the TFM in our office to know what
13   Treasury rules and regulations we need to follow regarding our
14   financial reporting.  And they're basically the basis for our
15   desk operating procedures relating to our regulatory reporting.
16   Q.   And that's, we've discussed already, the 224, 1219 and
17   1220?
18   A.   Right.
19   Q.   That's what these exhibits address, correct?
20   A.   Correct.
21   Q.   Mr. Winter, we've discussed the overnighter and the
22   reporting on the SF-224, correct, regarding how much money goes
23   in and out of the overnight?
24   A.   Right.
25   Q.   At Treasury, right?
0882
 1   A.   Yes.
 2   Q.   And as you pointed out, you had what would effectively be
 3   through-put of about $17 billion a year -- I'm sorry.  You had
 4   an amount of about $17 billion a year in and out of the
 5   overnighter if you took the monthly information that we had,
 6   right, and you extrapolated --
 7   A.   If you extrapolated that, yes.
 8   Q.   I'd like to show you what's AR-120.  Mr. Winter, are you
 9   familiar with this document, AR-120?
10   A.   Yes.  I've seen this.
11   Q.   And do you know Mr. Edwards, Bert Edwards?
12   A.   Can't say I know him personally, but I know he's the
13   director for the Office of Historical Trust Accounting.
14   Q.   And you've read this document, correct?
15   A.   Yes.
16   Q.   Looking at the first paragraph, have you reviewed that
17   portion of the document?
18   A.   Yes.
19   Q.   And do you understand what's being talked about there?
20             MR. HARPER:  Objection, Your Honor.  There's
21   absolutely no foundation.  This is pure speculation.  He's read
22   an e-mail.  We're perfectly willing to have Mr. Edwards come up
23   and testify at this point.
24             THE COURT:  I don't know what the question is.  Let's
25   hear what the question is.
0883
 1   BY MR. KRESSE:
 2   Q.   Mr. Winter, the e-mail's dated August 22, 2001, correct?
 3   A.   Correct.
 4   Q.   And what was your position in August of 2001?
 5             THE COURT:  First, why don't you tell me what this is
 6   about.  What's the point of this?
 7             MR. KRESSE:  Well, Your Honor, counsel for the
 8   plaintiffs had raised this issue in the opening statement as to
 9   Mr. Edwards' e-mail, this particular e-mail, and that the $15
10   billion discussed in here actually should be part of
11   through-put, as we've been discussing through-put in this case.
12   So Mr. Winter has familiarity through his position at the time
13   with that information.
14             THE COURT:  Can't you ask him the questions you need
15   to ask him without reference to this e-mail?  This e-mail is not
16   from him or to him or about him.
17             MR. KRESSE:  Well, at the time he was involved with
18   the creation of this information.
19             THE COURT:  The point is, I think I already get the
20   point.  The point is that the grossing up thing has no --
21             MR. KRESSE:  Relevance.
22             THE COURT:  Relation to reality; is that your point?
23             MR. KRESSE:  Fair enough.
24             THE COURT:  I think I've got that.  Why don't you move
25   on to the next exhibit.
0884
 1             MR. KRESSE:  Thank you, Your Honor.
 2             THE COURT:  Just shows that the word "through-put"
 3   means different things to different people.
 4   BY MR. KRESSE:
 5   Q.   Mr. Winter, directing your attention to Defendants' Exhibit
 6   242, and this document is a Study of Check Negotiation Practices
 7   for Office of Trust Funds Management-Issued Checks.  It's dated
 8   May 31, 2000.  Mr. Winter, are you familiar with this document?
 9   A.   Somewhat familiar, yes.
10   Q.   And how is it that you became familiar with this document,
11   Mr. Winter?
12   A.   We were requested in August of 2004 to perform a
13   reconciliation between the check disbursement number that was in
14   this report, I think of around $177 million, and the
15   disbursement figure that was on the financial statements for
16   fiscal year 1999, of approximately $336 million, obviously a
17   very large difference between, quote, disbursement numbers.
18        So we were asked to reconcile why is there that difference.
19   And that's basically the whole reason why I even had any
20   familiarity with this report, was taking that number and going
21   forth and reconciling the $336 million disbursement number.
22   Q.   And you referenced the amount of checks in this study --
23   and we'll call it the check study, okay?
24   A.   Mm-hmm.
25   Q.   On page 13 of the study, which is the 16th page of Exhibit
0885
 1   DX-242, in the middle of the page there's a table.  Do you see
 2   that?
 3   A.   Yes.
 4   Q.   It states "total amount of checks," and the first number is
 5   177 million plus.  Is that the number you were referring to?
 6   A.   Correct.
 7   Q.   And in the study is it your understanding that this is a
 8   representation that this is the total number of checks issued
 9   by, or IIM checks issued for a year period?
10   A.   Correct.  Yeah, it's for a year that's not a fiscal year.
11   It's from September 1, I think, of 1998 through August 31 of
12   1999, which is one month off of our governmental fiscal year,
13   which is what we report the financial statements on.
14   Q.   And Mr. Winter, when you -- how was it that you were asked
15   to try to reconcile this $177 million number?
16   A.   Well, we were actually asked to reconcile the $336 million
17   number.
18   Q.   I'm sorry.
19   A.   In relationship to this 177.  This is what Treasury says
20   was the total amount of checks for that particular time period.
21   And the question arose as to why is that so different from the
22   $336 million number that you have in your financial statements.
23   So we set about to say, here's what comprises that $336 million
24   worth of disbursements on the financial statements.
25   Q.   And let's look at Defendants' Exhibit 238.  Do you
0886
 1   recognize this document, Mr. Winter?
 2   A.   Yes.
 3   Q.   What is it?
 4   A.   It's just an analysis document produced by our office in
 5   relationship to what I was just speaking to as far as the
 6   reconciliation of the financial statement disbursement amount.
 7   Q.   And do you recall when your office prepared this document?
 8   A.   August of 2004.
 9   Q.   Now, the number you spoke of, the $336 million, and that's
10   shown where on this document?
11   A.   It's toward the lower left-hand corner.  That's the second
12   line from the bottom, with the description "FIN STMT," financial
13   statement is the abbreviation.  That's $336.6 million that was
14   on the audited financial statements that year.
15        And so this document basically shows our reconciliation of
16   that number, what went into that number.  And it's basically the
17   line items above it.  The key figure is that we know for a fact
18   that checks, actual physical checks, as referenced in the check
19   study, for this time period, from October 1 to September 30, was
20   $175.5 million.  That's extremely close to the $177 million they
21   had for their time period, which was one month off.  That's
22   perfectly reasonable.  Basically the rest of the amount is
23   accounted for by either electronic payments or transfers.
24             MR. HARPER:  Objection, Your Honor, and move to
25   strike.  This is not an expert witness and he's giving these
0887
 1   opinions about what's reasonable and what's not.
 2             THE COURT:  I'll strike the word "reasonable," but the
 3   rest of it I'll leave in.  He's describing some studies he did
 4   and numbers he received.  Whether they're reasonable or not
 5   we'll leave to somebody else.
 6   BY MR. KRESSE:
 7   Q.   Mr. Winter, you indicated that these other numbers that you
 8   investigated, correct, the other numbers that lead to the total
 9   number of 336 million; is that correct?
10   A.   Yes.
11   Q.   What work was done to arrive at these other numbers that
12   are listed between the checks 4844 and the bottom total?  Could
13   you just explain briefly what your office did --
14   A.   Yeah.  We had to go back.  The financial statements for
15   that year, for fiscal year 1999, were produced by an outside
16   accounting firm.  OST personnel did not produce the financial
17   statements at that time.  So we went back, we had to pull all
18   the data from that year that would have went into the financial
19   statements, and categorized it as such.  So this is the
20   categorization of the information available to us for that time
21   period.
22   Q.   All right.  And the second line underneath the checks, ACH
23   EFT, what does that represent?
24   A.   That's just the electronic payments made to beneficiaries.
25   Direct deposits.
0888
 1   Q.   And IPAC, why is there an IPAC number there and what does
 2   that mean?
 3   A.   Because there are monies that are disbursed at other
 4   agencies.  That's -- IPAC simply refers to monies flowing to and
 5   from other governmental agencies.
 6   Q.   To and from, but into and out of OST?
 7   A.   Correct.
 8   Q.   Why would that happen?
 9   A.   There could have been monies when we received checks, it
10   might have some other monies in there that are non-trust that we
11   will go ahead and transfer over to BIA, for instance.
12   Q.   Then you have a line of $73 million plus for BB transfers.
13   What do those represent?
14   A.   That's basically transfers out of the IIM trust fund to
15   tribal trusts.
16   Q.   And then debit memos is the next line down, $619,000?
17   A.   Yeah, that's -- debit memo is simply where a check has
18   bounced.
19   Q.   And the following one, canceled checks?
20   A.   Yeah.  That's basically -- yeah, canceled checks where we
21   sent out a check as a disbursement but it came back, we canceled
22   it, therefore it's a negative disbursement.  It shows up as a
23   negative number.
24   Q.   Would this include limited payability checks?
25   A.   Yes, it would.
0889
 1   Q.   Then the transfer ADJ.  What does that represent, $5.5
 2   million?
 3   A.   Just a known transfer adjustment.
 4   Q.   Now you've got to a total of $282 million plus, correct?
 5   A.   Correct.
 6   Q.   And there's still a difference with the financial statement
 7   number, right?
 8   A.   Correct.
 9   Q.   How was that then reconciled, those two numbers, the
10   difference?
11   A.   Well, the difference between those two numbers is the
12   amount at the very bottom, the $54.4 million, which represents
13   intrafund transfers, basically transfers that were made between
14   IIM accounts, either between a special deposit account sitting
15   on the IIM account, where it was eventually transferred to an
16   IIM account, or transfers between estate accounts and heirs'
17   accounts, the like.  Intrafund transfers.
18   Q.   So those don't represent new money into the IIM --
19   A.   Correct.
20   Q.   Looking at the second page of Defendants' Exhibit 238,
21   Mr. Winter, what was the purpose of creating that table?
22   A.   To show the relationship of the intrafund transfers.  This
23   is simply a table showing the different types of receipt
24   activity that went into the financial statement number that year
25   as well.  So we have the similar type of lineup.  You've got
0890
 1   your deposits, your BBs, your other MMS deposits, that's your
 2   oil and gas monies, so on and so forth, coming up to a total of
 3   $202 million in really actual receipts.
 4        The financial statement number for that year was $257
 5   million, leaving a difference of $54.5 million, which is
 6   categorized as an intrafund transfer.  That matches up very
 7   closely to the disbursement intrafund transfer.
 8   Q.   And this table was prepared when?
 9   A.   August of 2004.  It's just showing sort of at the time that
10   there was a little bit of a gross-up in the numbers of the
11   receipts and the disbursements on the financial statements for
12   that year.
13   Q.   And Mr. Winter, looking at the first two columns of the
14   upper portion of the table next to the date, just to the right
15   of the date, you have 4844 deposit and 0651 deposit.  And noting
16   that there are no numbers showing through March of 1999 in the
17   0651 column.  Can you explain that?
18   A.   Prior to my arrival at OST, all of the deposits made for
19   individual Indian monies were made through the disbursing symbol
20   4844.  Now, they did that probably as a carry-over from prior
21   systems where that was the only way that they had to
22   differentiate between tribal and IIM, so all tribal deposits
23   were made to the ALC 14210651, all IIM deposits were made to the
24   disbursing symbol 4844.
25        When I got there I asked the question, why are we doing
0891
 1   this.  It was basically because that's the way we've done it.
 2   And I said I don't see a need for that to occur anymore.  Our
 3   systems have the information that we need to differentiate
 4   between IIM and tribal, and we shouldn't be depositing to a
 5   disbursing symbol.  So we went forth and were changing that
 6   process.
 7        Of course, this was where monies were going -- being
 8   received out to the 80 agencies, so we had to go and replace all
 9   the deposit tickets out there that had basically prestamped on
10   there the 4844 disbursing symbol, with the 0651 ALC number.  And
11   so it was a gradual process.  So that's where you see it
12   gradually increasing in that column toward the end of the year,
13   and decreasing in the 4844 deposits.  And of course if you look
14   at subsequent years it eventually all pretty much rolls over to
15   the proper ALC that it should be recorded in.
16   Q.   And Mr. Winter, you generated additional tables related to
17   fiscal year 2003 at that time; isn't that correct?
18   A.   Yes.
19   Q.   Looking at Defendants' Exhibit 237, and looking at the
20   first page of that exhibit, that was generated in August of
21   2004?
22   A.   Correct.
23   Q.   And what was the purpose of preparing that table for 2003?
24   A.   That was just, I believe, for comparative purposes.  So we
25   had -- never before had we broken out our disbursements by
0892
 1   disbursement type.  So we also did it, at the same time we did
 2   it for that '98-'99 time period, we also did it for the fiscal
 3   year 2003 time period, just for comparative purposes.  Sort of
 4   as an analysis of what was included in the total disbursement
 5   number in the financial statements.
 6        Now, just to make sure you understand that by this time, in
 7   2003, we, OST had started preparing its own monthly and
 8   quarterly financial statements.  We began that process in fiscal
 9   year 2002.  Prior to that it was done by an outside accounting
10   firm before we took it over.  We felt we could take that over at
11   that time as we were staffing up, and we've been doing it ever
12   since, and doing a very good job at it.
13   Q.   Mr. Winter, your financial statements were still audited,
14   though, correct?
15   A.   Oh, of course.  All of these financial statements roll into
16   our annual compilation, which is still audited by an outside
17   accounting firm.
18   Q.   The first page of this exhibit, DX-237, what is the total
19   number of disbursements by check shown on this table?
20   A.   Approximately $132 million.
21   Q.   And then the electronic disbursements?
22   A.   $63 million.
23   Q.   And these are all disbursements to IIM account holders?
24   A.   IIM beneficiaries.
25   Q.   IIM beneficiaries, excuse me.  Second page of this exhibit,
0893
 1   what does this table show?
 2   A.   This just shows the sort of different breakdown of the
 3   miscellaneous disbursement type activity that nets out into the
 4   disbursement lines.  So you see we have returned EFTs, we have
 5   stop payments, we have checks not cashed, you have returned
 6   checks, so on and so forth, that just figure into the net
 7   amount.
 8   Q.   And you've mentioned the ACH return and checks not cashed,
 9   checks returned.  What happens to these amounts when these
10   checks are not --
11   A.   They're automatically recredited to the IIM beneficiary's
12   account.
13   Q.   And the last -- I believe the last exhibit that we have
14   that was generated in August of 2004 is Defendants' Exhibit 236.
15   Do you see that, Mr. Winter?  It's again a two-page exhibit.
16   A.   Yes.
17   Q.   What does the first page of that exhibit show, in the
18   column titled audit 1999 disbursements?
19   A.   This shows our comparison between 1999 and 2003 of the
20   major categories of disbursements that you'll find in the
21   financial statements.
22        So in this case, the 1999 financial statements had a
23   disbursement total of $336 million.  That's really made up of,
24   if you will, around $192 million of really actual disbursements.
25   The rest of it -- I shouldn't say 192.  It's about 202, excuse
0894
 1   me -- of the actual disbursements to beneficiaries.  The rest is
 2   made up of inter- and intrafund transfers.  Basically transfer
 3   activity.
 4        And then you compare that to the 2003 number, where you can
 5   see that $192 million disbursement number is -- it's virtually
 6   all only actual disbursement activity.  The transfers have
 7   pretty much been weeded out of it.
 8   Q.   So it's not that these transfers didn't occur, is it?
 9   A.   No.
10   Q.   It's just that they're not shown on the financial statement
11   as disbursements.
12   A.   Right.  They were shown as basically transfers, when
13   they're in the disbursement number, also gross up the receipt
14   number.  So you're getting a gross-up of receipts and
15   disbursements, as opposed to really getting down to the true
16   number of receipts and disbursements.  And this is to show
17   certainly by 2003 we have pretty much weeded out all the
18   transfer activity that was grossing up some of the receipt and
19   disbursement numbers.
20   Q.   So whereas if you were trying to calculate through-put for
21   purposes of this case, the year 1999, according to the financial
22   statement, shows almost $337 million, correct?
23   A.   Right.
24   Q.   But in actuality it was close to $200 million?
25   A.   It was very close.  It was only $10 million different than
0895
 1   the disbursements made in 2003 to IIM beneficiaries.  However,
 2   the number looks a lot larger.  It looks like there was a lot
 3   more actual disbursements than there were in reality to account
 4   holders.
 5   Q.   Mr. Winter, has OST performed a study going back before
 6   1999 to determine the amount of transfers that might have been
 7   excised from the total disbursement number?
 8   A.   No.  We haven't done any formal study.
 9   Q.   All right.  Would you expect to find a substantial amount
10   of transfers that could be --
11   A.   I would.  I mean, based on looking at the numbers from
12   prior years, I know that there were certain transfers that we
13   found in this study that were definitely included in prior
14   years, although I can't substantiate with firm numbers.
15   Q.   You can't quantify it, right?
16   A.   Right.  I haven't done the actual reconciliation like I did
17   for 1999, but I know that similar type of information was
18   included in the financial statements.
19   Q.   Based on your experience working on the 1999 numbers in
20   your office, the amount of work that was done, do you know how
21   much time and effort that would take at this point?  Just to do
22   another year, let's say go back and do '98.
23   A.   To do '98, that would probably take about a month.
24   Q.   In looking at the second page of Defendants' Exhibit 236,
25   why was that table created, Mr. Winter?
0896
 1   A.   That's basically simply just a further detailed breakdown
 2   of the first page, just to show a little bit more detail.  But
 3   the total numbers are as you will find on the first page.
 4             MR. KRESSE:  Is this a good time for a break,
 5   Your Honor?
 6             THE COURT:  Very good time.  We'll be in recess for 10
 7   minutes.
 8        (Recess from 3:35 p.m. to 3:46 p.m.)
 9             MR. KRESSE:  Your Honor, I'm done with the direct
10   examination of Mr. Winter, but I did want to move certain
11   exhibits into evidence.
12             THE COURT:  All right.
13             MR. KRESSE:  Defendants' Exhibit 233, Defendants'
14   Exhibit 235, 241, 240, 279, 282, 277, 239, 242, 238, 237, 236.
15             THE COURT:  All right.  Without objection, they'll be
16   received.
17             MR. HARPER:  Your Honor, I did have objections on a
18   couple of these.
19             THE COURT:  All right.  What are the objections?
20             MR. HARPER:  It's a little bit difficult because our
21   copies are very --
22             MR. KRESSE:  Small?
23             MR. HARPER:  There's real small print on what was
24   produced.
25             MR. GINGOLD:  Which numbers?
0897
 1             MR. HARPER:  233.  Your Honor, again, 233, this is a
 2   very recent report for a very recent time period.  I don't
 3   believe there was any establishment that this has been something
 4   that's gone on for a long period of time.
 5             THE COURT:  Counsel, let's let these exhibits in and
 6   argue later about what they mean.
 7             MR. HARPER:  Thank you, Your Honor.
 8             THE COURT:  Okay?
 9             MR. HARPER:  Yes.
10             THE COURT:  They'll be received.
11             MR. KRESSE:  Thank you, Your Honor.
12                               (Defendant Exhibit Nos. 233,
13                               235-242, 277, 279, 282
14                               received into evidence.)
15             THE COURT:  When I looked at that document just now on
16   the screen, it was so small, I didn't have my glasses on, I
17   thought it said Cleveland 6, Boston 4.
18        (Laughter)
19                          CROSS-EXAMINATION
20   BY MR. HARPER:
21   Q.   Good afternoon, Mr. Winter.  I'm Keith Harper.  I'm going
22   to ask you a few questions --
23   A.   Good afternoon.
24   Q.   -- regarding your direct testimony.  First could we put up
25   Defense Exhibit 239, please.  Now, we have a black and white
0898
 1   copy, but you recall testifying to this when it was on the color
 2   copy.  With respect to this flowchart, has there been any actual
 3   auditing of the systems pursuant to general standards such as
 4   the COSO standard for internal controls of this system that
 5   you've discussed?
 6   A.   There's actually three systems involved in here.  Are you
 7   talking -- you want me to break it down to each one?
 8   Q.   Let me start from a different -- do you know what the COSO
 9   standard is for internal controls?
10   A.   I'm unfamiliar with COSO.
11   Q.   And that's generally considered the standard to meet for
12   any company, correct, for internal controls?
13   A.   Yes.  I'm definitely well informed on the internal
14   controls, certainly how they relate to financial operations.
15   Q.   Has any of these systems been internally audited and the
16   controls examined?
17   A.   Yes.
18   Q.   And determined to be in conformity with COSO?
19   A.   I know that as part of the financial statement audit, TFAS
20   has certainly been audited for internal controls, for generally
21   accepted -- through generally accepted auditing standards for
22   financial statement control.  I'm not sure if that's
23   specifically for COSO.
24   Q.   So as you sit here today, you do not know if this system
25   has ever been audited pursuant to the generally applicable COSO
0899
 1   standard for internal controls; is that a fair statement?  It's
 2   a yes or no question.
 3   A.   What does that stand for?
 4   Q.   It stands for the Committee of Specialized Organizations of
 5   the Treadwell Commission.  And as you said, that is the general
 6   internal control standard?
 7   A.   All I said is they have been certainly audited as part of
 8   the financial statement audit for internal controls.
 9   Q.   But as you sit here today, you do not know if this system
10   has been deemed to be sufficient to meet the COSO standard; is
11   that a fair statement?
12   A.   No.  I believe they most likely have from what you just
13   said.
14   Q.   So your testimony is that you know that it has met the COSO
15   standard or you don't know?
16   A.   Let me just say I'm unsure.
17   Q.   So you don't know.
18   A.   Correct.
19   Q.   Thank you.  If we can turn back to DX-236.  Can you try
20   DX-238, please.  Mr. Winter, do you recall testifying regarding
21   DX-238?
22   A.   Yes, I do.
23   Q.   And if we could focus down on the bottom end of that.  And
24   you talked a little bit about the differences between the
25   financial statement here regarding disbursements and the $336
0900
 1   million.  Do you recall that?
 2   A.   Yes, I do.
 3   Q.   Is this consistent with the general reports of the auditors
 4   for this time period?  Which number do the auditors use as far
 5   as disbursements?
 6   A.   Which number do the auditors use?
 7   Q.   Yes.
 8   A.   This one is actually regarding receipts.
 9   Q.   Okay.  Well, what numbers did the auditors use regarding
10   receipts?
11   A.   Regarding receipts they use the $257 million number when
12   preparing the financial statements at the time.
13   Q.   And so the financial statement would say $257 million as
14   far as receipts, but $336 million regarding disbursements?
15   A.   Correct.
16   Q.   And you're suggesting that -- okay.  Could we pull up
17   6034-40, please.  So here, this is what's commonly referred to
18   as the Griffin report.  Do you recognize that document?
19   A.   It's financial statements prepared by Griffin & Associates,
20   yes.
21   Q.   And for 1999, the disbursements are shown as $336 million.
22   Do you see that?
23   A.   Correct.
24   Q.   And it says "payments to and on behalf of account holders."
25   Do you see that?
0901
 1   A.   I do.
 2   Q.   And your testimony is that the auditors are incorrect with
 3   respect to the $336 million that went to IIM account holders?
 4   A.   Certainly what you have to also do is examine the footnote
 5   that accompanied this particular disbursement line.  If you go
 6   to note 9, which I believe we also have in our exhibit, note 9
 7   states that $45 million worth of transfer activity is included
 8   in this $336 million.  So right there you know that that number
 9   contains $45 million worth of transfers and is not exclusively
10   payments to and on behalf of account holders.
11   Q.   Okay.  So your suggestion is when your auditors say payment
12   to and on behalf of account holders, 336 million, they were
13   erroneous, as far as this statement right here?
14   A.   It has to deal with how things are termed.  That is a line
15   item that is entitled to payments to and on behalf of account
16   holders.  However, you do have to refer to the notes that are
17   accompanying these financial statements to see a little bit
18   further behind these particular numbers.  In our analysis, we do
19   see that there was more transfer activity that they probably did
20   not include at the time.
21   Q.   So again, just to clarify, your view is that your
22   analysis -- and let me ask you a question, that analysis, did
23   you say that you prepared that analysis yourself or was it other
24   people at your office?
25   A.   It was done by my staff.
0902
 1   Q.   So you --
 2   A.   I did review it.
 3   Q.   You just did it in review capacity?
 4   A.   Well, very detailed review capacity.  I take a look at the
 5   supporting documentation, ensure that everything ticks and ties
 6   and is reconciled.
 7   Q.   But you did not -- other than that review capacity, you
 8   didn't actually do the --
 9   A.   I did not physically prepare the information.
10   Q.   And you're saying that based on the work of your staff --
11   by the way, is that staff all CPAs?
12   A.   No, they're not all CPAs, but they are accountants.
13   Q.   Based on the work of that staff, you're concluding that the
14   transfer numbers that Griffin reflects are erroneous; is that
15   correct?
16   A.   Yes.  That is correct.
17             THE COURT:  What's this exhibit number, Mr. Harper?
18             MR. HARPER:  Your Honor, this exhibit number is --
19             MR. KRESSE:  AR-375, Your Honor.
20             MR. HARPER:  That's correct.
21             THE COURT:  Thank you.
22   BY MR. HARPER:
23   Q.   Mr. Winter, on direct you talked a little bit about a
24   couple of new systems in place.  You talked about one that was
25   basically an accounts receivable system.  Is that a fair
0903
 1   statement?
 2   A.   Correct.
 3   Q.   When will that be fully implemented?
 4   A.   Well, it is fully implemented at this time.
 5   Q.   When was it first rolled out?
 6   A.   I believe in early -- it was either late 2005 or early
 7   2006.
 8   Q.   And so it's your testimony that the trust now has a fully
 9   implemented accounts receivable system for all agency offices?
10   A.   Well, the accounts receivable system will only operate for
11   those agencies where they were converted over to TAAMS.  So
12   while the trust funds receivable system was in operation, it was
13   only applicable to those agencies that converted over to TAAMS,
14   because that's where the TFR received its encumbrance data from.
15   Q.   When you're speaking of TAAMS you're not speaking of TAAMS
16   title roll-out, but the TAAMS realty roll-out.  Correct?
17   There's two different TAAMS systems, right?
18   A.   Well, it's TAAMS title and real ownership is what I'm
19   familiar with, TAAMS title and ownership.
20   Q.   Okay.
21   A.   It's been what's been rolling out over the last couple of
22   years.
23   Q.   And you understand that there is a TAAMS realty and a TAAMS
24   title?
25   A.   I believe the TAAMS realty has already been implemented and
0904
 1   the TAAMS title is what has been rolling out since -- Southern
 2   Plains I think was the first pilot agency back in June of 2005.
 3   Q.   And so for those agencies that have TAAMS title, then
 4   you're suggesting that they have an accounts receivables system.
 5   A.   Correct.
 6   Q.   And so in any case, prior thereto, prior to 2005, they did
 7   not have an automated accounts receivable system, correct?
 8   A.   Correct.
 9   Q.   For the entirety of the time period under discussion for
10   this trial, which includes up to 2005, there was no accounts
11   receivable system, as far as you know?
12   A.   Not that I know, correct.
13   Q.   You talked a little bit about certain reconciliation
14   efforts.  Do you recall that testimony?
15   A.   Yes.
16   Q.   And you talked a little bit about the reconciliation that
17   goes on between -- or that there are certain numbers at the
18   Department of Treasury regarding the IIM trust, right?
19   A.   Right.
20   Q.   And then there are also numbers at the Department of the
21   Interior.  Do you recall that testimony?
22   A.   Yes.
23   Q.   And isn't it true that for the life of this trust, for the
24   times in which they have done analysis, that those two balances
25   have almost always been out of balance?  Is that a fair
0905
 1   statement?
 2             MR. KRESSE:  Object to form, Your Honor.  "They."  Who
 3   "they" are.
 4             MR. HARPER:  The two accounts have been out of balance
 5   with one another, meaning that they don't agree for the majority
 6   of the life of the trust, as far as you know.
 7             THE WITNESS:  As far as I know, yes.
 8   BY MR. HARPER:
 9   Q.   And when you testified that in 1992 you changed over to
10   this system where you're doing these -- taking certain actions
11   for reconciliation, first of all, that is not fully what you're
12   doing today because the TFAS wasn't even implemented at that
13   time, correct?
14   A.   Yes.  It's not precisely TFAS.  It was whatever was in the
15   system, the particular accounting system.  They were reconciling
16   Treasury to the accounting system at the time.
17   Q.   And so --
18   A.   Not necessarily TFAS, no.
19   Q.   So what you're doing now today is different from, say, any
20   period in which TFAS wasn't implemented.  That would be prior to
21   2000.
22   A.   Certainly, yes.
23   Q.   And TFAS is a system that is essentially run by SEI, an
24   outside contractor, correct?
25   A.   Yes.
0906
 1   Q.   And you understand for the other periods of the trust
 2   there's been this out-of-balance condition for the entire
 3   period, as you just testified, and that has been significant, in
 4   the 10s of millions of dollars; is that a fair statement?
 5   A.   For IIM, the difference at the time that we resolved the
 6   difference in 2004 was about $4 million.  It was $35 million on
 7   the tribal side, but there was a $4 million difference between
 8   what Treasury said we had and what we said we had.
 9   Q.   And when you said you resolved the difference, let's talk a
10   little bit about an out-of-balance condition.  An out-of-balance
11   condition could very well mean that you have $4 million of
12   difference in two accounts, if it's a $4 million out-of-balance
13   condition, correct?
14   A.   Sure.
15   Q.   But it could also mean that one is $24 million wrong and
16   one is $20 million wrong.  That could equally be an
17   out-of-balance condition in what is reflected as $4 million
18   between the two systems, correct?
19   A.   That's plausible, yes.
20   Q.   So out-of-balance condition is really a demonstration that
21   you have a problem, but it doesn't really tell you about the
22   nature and scope of the problem.  Is that a fair statement?
23   A.   Yeah.  You could also have a zero balance, but in actuality
24   we'd be off 20 million and they'd be off 20 million the other
25   way.  So you can have differences no matter whether you balance
0907
 1   or not.
 2   Q.   But the relevance of having an out-of-balance condition is
 3   it demonstrates that there is a problem that should be regularly
 4   investigated.  Is that a fair statement?
 5   A.   Certainly.
 6   Q.   It's an important control to have on the systems.
 7   A.   I completely agree.  That's why at the time we did resolve
 8   that $4 million, because we found out it was basically just a
 9   reporting difference.
10   Q.   But whatever the present difference was for that period of
11   time, you didn't go back and investigate the differences that
12   occurred back in time, correct?
13   A.   No.
14   Q.   And so to the extent that there was an out-of-balance
15   condition for whatever reason back in say 1982 or '83, you did
16   not go back and investigate that, you have no reason -- it is
17   what it is, and you have taken no action to address those.
18   A.   No, I have not.
19   Q.   I'd like to turn to Plaintiffs' Exhibit 4174.  Mr. Winter,
20   this is a report from the comptroller general, report to
21   Congress.  It's called Major Improvements Needed at the Bureau
22   of Indian Affairs Accounting System.  As you can see at the top,
23   it does relate specifically to the trust, "The Bureau of Indian
24   Affairs has lost accountability over hundreds of millions of
25   dollars in grants, contracts and trust funds, because its
0908
 1   automated accounting and finance produces unreliable
 2   information.  Also system operating deficiencies, including
 3   inadequate controls over cash receipts and disbursements,
 4   prevent the Bureau from properly discharging its fiduciary
 5   duties as trustee for the Indian trust funds."
 6        I'd like to turn your attention, if I could, to a couple of
 7   items.
 8             THE COURT:  What's the date of this, counsel?
 9             MR. HARPER:  This is a 1982 report, Your Honor.
10   BY MR. HARPER:
11   Q.   If you could turn your attention -- well, if we can have
12   page 4, I'm going to talk about one other item before we get
13   into the out-of-balance condition regarding Treasury, because
14   there's two different out-of-balance conditions historically,
15   right?  There's the out-of-balance condition between --
16             MR. KRESSE:  Your Honor, I object.  This is out of the
17   scope.  Mr. Winter has not testified as to the condition of the
18   trust fund back in 1982.
19             MR. HARPER:  Your Honor, he's testified regarding
20   their reconciliations and what they have done with respect to
21   their reconciliations.  We can show here that they haven't done
22   anything with respect to the most important items to be
23   reconciled, which is those that had historically occurred, that
24   caused, for example, here $25 million --
25             THE COURT:  I'll give you some latitude, but he's
0909
 1   right.  It's way outside the scope.
 2             MR. HARPER:  Thank you, Your Honor.  I'll just touch
 3   upon a couple of items, then.
 4   BY MR. HARPER:
 5   Q.   Mr. Winter, if you could look on page 4 in the highlighted
 6   area, you can see here that it talks about a -- there's an
 7   out-of-balance condition of millions of dollars.  "Detailed
 8   subsidiary ledger trust fund accounts differed from summary
 9   general ledger trust fund accounts over a two-year period by
10   more than $25 million."  Do you see that?
11   A.   I do.
12   Q.   And that means that the subsidiary ledgers at the
13   Department of the Interior, the aggregate total of those do not
14   equal the control account numbers by $25 million.  Is that a
15   fair statement?
16   A.   That is.
17   Q.   And again, that could mean that one system is off by 26
18   million and the other system is off by 1 million; that can mean
19   that one system is correct and the other system is -- it could
20   be anything that adds up in aggregate to $25 million, correct?
21   A.   Yes.
22   Q.   So the problem could be much greater than is reflected in
23   that statement?  Possibly, right?
24   A.   Possibly.
25   Q.   If we can turn to page 26.  Again, we're not going to go
0910
 1   over the top part, but as you can see, it says "information on
 2   financial status of trust funds is unreliable," and then it
 3   talks about the subsidiary ledger issue.  If we go down to the
 4   bottom of the page, starting with the last sentence that goes
 5   into the next page.  It talks about the importance of this
 6   issue.
 7        Let me read it and then I want to ask you a question about
 8   it.  "In a decentralized system such as the Bureau uses, whereby
 9   detailed trust accounts are maintained by local offices and
10   summary control accounts are maintained by the central
11   accounting office, it is vitally important that the accounts are
12   periodically reconciled to ensure that transactions recorded in
13   individual Indian trusts are accurately and completely
14   summarized and recorded in general ledger summary controls."
15        And then the second part:  "They are to reconcile monthly
16   the information in their detailed subsidiary ledger accounts
17   with related information on the summary ledgers' control
18   accounts maintained by the automated accounting and finance
19   systems.  All differences disclosed by the reconciliation are to
20   be investigated and appropriate correcting entries made in both
21   the subsidiary and general ledger."  Do you see that?
22   A.   Mm-hmm.
23   Q.   And the important thing is that to your knowledge, since
24   you've been there, none of these conditions in this
25   demonstration of errors have ever been addressed as far as you
0911
 1   know by the Office of Trust Fund Management or the Bureau of
 2   Indian Affairs.  Is that correct?
 3   A.   No, I wouldn't say that's correct.
 4   Q.   To your personal knowledge, what has been done about this
 5   condition back in -- this out-of-balance condition back in 1982?
 6   A.   Well, I do know there has been special deposit account
 7   cleanup, if you will, where they have looked at -- it's been
 8   ongoing for some time, where they're cleaning up certain
 9   balances on special deposit accounts.  I know as a matter of
10   fact just a few years ago they did clean up several deposit
11   accounts related to the Siletz tribe that revealed basically
12   what we called phantom balances.  They contained a balance in
13   them when in reality they should not have.
14        That's where monies came into these special deposit
15   accounts, and when those monies were identified, to whom the
16   beneficiaries should get those monies, you know, say a hundred
17   dollars come into a special deposit account.  50 beneficiaries
18   are to be the recipients of that $100.  Those monies are then
19   basically receipted into the beneficiary, proper beneficiary
20   account.  But in these cases the balance in the special deposit
21   account was not dissolved.  So that hundred dollar balance
22   remained in the special deposit account.
23        We have found those type of instances in many other special
24   deposit accounts as well.  And that would relate to differences
25   in the subsidiary ledger in comparison with the control account
0912
 1   or the general ledger, from back in the '80s certainly.
 2   Q.   So the subsidiary ledgers -- they would add up -- the money
 3   in the special deposit accounts have always been very high, in
 4   tens of millions of dollars, correct?
 5   A.   Right.
 6   Q.   So they would have added those as part of this process --
 7   if they're going to add up the subsidiary ledgers to compare
 8   them to the general, they would have included SDA accounts?
 9   A.   Oh, of course.
10   Q.   So if they included them, the fact that you know where the
11   money in the SDA account goes doesn't really address the issue
12   of a major $25 million difference --
13   A.   Well, it's part of the $25 million difference back then.
14   If you're talking about a difference between the subsidiary
15   ledger and the general ledger, those improper balances on the
16   subsidiary ledger would certainly be a part of that $25 million.
17   We have subsequently cleaned up some of those differences, and
18   we have at this point -- back in June of 1998, we isolated the
19   difference between the subsidiary and the control account to
20   around $6 million.
21        It's been roughly that amount since that point.  It has
22   come down for our cleanup of these special deposit accounts.  At
23   this point there's only a difference of about $5.2 million
24   between the subsidiary ledger and the control account.  We
25   happen to know what a major portion of that 5.2 million, 2.5
0913
 1   million is contributed to an overdistribution of amortization
 2   back in the early '90s, where basically account holders received
 3   more in interest than they should have because of improper
 4   amortization calculations.
 5        The remaining 2.7 million, we don't know exactly where
 6   that's at, but it's down to -- that would take tens of millions
 7   of dollars of course to go back and try to find those
 8   differences.  But I think it's fair to say that we have located
 9   and cleared up discrepancies from the past.
10   Q.   If I can turn back to the exhibit on page 27.  If we could
11   just -- one question on this and then I want to go back to a
12   statement you made.  If you can look down to the paragraph
13   beginning "although."  As you can see here, it says, "Although
14   reconciliations completed by local office highlighted millions
15   of dollars in differences between the accounts, these
16   differences are generally described by local offices as failures
17   to post transactions to general ledger accounts or simply 'net
18   errors with no further explanation'."  Do you see that?
19   A.   Mm-hmm.
20   Q.   So at least some of the errors, a substantial amount, at
21   least they thought at the time, were not related to SDA
22   accounts.  Is that a fair statement?
23             MR. KRESSE:  Your Honor, objection.  Lack of
24   foundation.
25             THE COURT:  It's cross-examination.  I'll allow him to
0914
 1   ask the question.  If the witness doesn't know the answer, he
 2   doesn't have to answer.
 3             THE WITNESS:  Can you restate the question, please?
 4   BY MR. HARPER:
 5   Q.   I won't reread that section there, but you testified
 6   regarding special deposit accounts.  This reflects a different
 7   reason for why there's this -- explaining the difference between
 8   these two accounts.  Do you see that here?
 9   A.   Uh-huh.
10   Q.   So there are a number of reasons why these are out of
11   balance.
12   A.   Certainly.  Yes.
13   Q.   Indeed, they reflect errors at times, correct?
14   A.   Yes.
15   Q.   And now you say that there's 2 million, or how many
16   million, $5 million?
17   A.   Right now there's a difference between the IIM pool of
18   assets and the IIM liability balances of approximately $5.2
19   million.
20             THE COURT:  In whose favor?
21             THE WITNESS:  In the beneficiaries' favor, meaning
22   that the balance of their accounts in aggregate are $5.2 million
23   greater than what we hold in the asset pool.
24   BY MR. HARPER:
25   Q.   When you're talking about asset pool, you're talking about
0915
 1   the general control ledger, correct?
 2   A.   In essence.  I mean, it's basically our pool of assets,
 3   because our real accounting is done in the individuals'
 4   accounts.  All that activity rolls up as a part of our nightly
 5   balancing into our control account, if you will, that then gets
 6   invested.
 7   Q.   And you say there's at least a few million dollars there
 8   that you can't really -- there's no -- as far as you know,
 9   there's no plan to go back and reconcile; is that fair?
10   A.   Correct.  These are all discrepancies from the past, yes.
11   Q.   When you say there's a difference between that number that
12   is in the subsidiary, added up in aggregate, and there's a
13   difference with the general, how is that in the beneficiaries'
14   favor?
15   A.   It's how you interpret what's in their favor or not.  I
16   mean --
17   Q.   So when you say it's in the beneficiaries' favor?
18             MR. KRESSE:  Objection, Your Honor.  He didn't let the
19   witness finish his answer.
20   BY MR. HARPER:
21   Q.   I'm sorry.  Did you have more to say?
22   A.   Certainly.  I'd like to go ahead and explain that.  How do
23   you interpret what's in their favor?  If for some reason we had
24   more in the pool and less in the liability accounts, you could
25   say, hey, why do you have excess assets?  Shouldn't the
0916
 1   beneficiaries have had some of that posted to their accounts?
 2   They've been the beneficiary, that we know of for sure, of $2.5
 3   million of overamortization calculations that really they
 4   weren't entitled to at the time because we never earned it.  So
 5   that created a $2.5 million imbalance right there.
 6   Q.   You're saying there's an additional 2 million --
 7   A.   No, that's embedded in the 5.2.
 8   Q.   I understand that.  There's an additional 2.5, $2.7 million
 9   that you're saying is in the beneficiaries' favor.  And what I
10   was just asking is how is that exactly -- I don't understand how
11   that is in their favor.
12   A.   It's all interpretation.  I don't understand what you're
13   trying to get -- what do you want me to answer to that?  I'm not
14   sure.
15   Q.   Okay.  So you don't know what you meant --
16             MR. KRESSE:  Objection.
17             THE COURT:  Let's put it this way.  If BIA said we
18   want the money back, it would not be in the favor of the
19   beneficiaries.  I think what he's saying is that $2-1/2 million
20   has been paid out or distributed or at least is recorded as
21   liabilities to beneficiaries which they're not entitled to.
22   BY MR. HARPER:
23   Q.   Is that your testimony, that they're not entitled to that
24   2.5, because the general ledger is -- the general ledger says a
25   number that is lower than the aggregate sums?  Is it your
0917
 1   testimony --
 2   A.   By not entitled, I mean it wasn't earned.
 3   Q.   Couldn't it be --
 4   A.   It's like saying, okay, hey, I'm going to distribute to you
 5   this month $3 million worth of interest across all the IIM
 6   accounts, when in reality I only earned 2 million.  I
 7   distributed to those accounts a million dollars too much, that
 8   then creates a discrepancy in the pool.
 9   Q.   Let me ask the question a little bit differently so we can
10   sort of get down to the issue I'm interested in.  The investment
11   decisions about how much is in the IIM trust are made based on
12   the control account number, correct?
13   A.   The investment decisions, yes, are made based --
14   Q.   So if that number --
15             MR. KRESSE:  Your Honor, again, he's not allowing the
16   witness to finish his answer.
17   BY MR. HARPER:
18   Q.   Mr. Winter, if that number is significantly lower than what
19   is actually in the accounts, doesn't that affect the
20   beneficiaries negatively?
21   A.   Well, it does result in lower interest earning power, yes,
22   it does.
23   Q.   Thank you.  So at least to that extent it wouldn't be in
24   their favor ; it would be to their detriment?
25   A.   I agree with that.
0918
 1   Q.   Couple of points with respect to the TFAS system and some
 2   other systems that you testified with respect to.  Do you recall
 3   who initiated the effort to establish the TFAS system?
 4   A.   No.  I wasn't here at the time when that decision was made.
 5   Q.   But it was in the late 1990s, correct, that the decision
 6   was made to implement a TFAS type system.
 7   A.   I assume, since first conversion happened in August of '98,
 8   basically right after I got there, I assumed the decision would
 9   have been made before --
10   Q.   Have you heard of a gentleman by the name of Paul Homan who
11   was the special trustee?
12   A.   Yes, I have.
13   Q.   And you're not aware one way or the other if he was the one
14   that implemented the TFAS system?
15   A.   No, I am not.
16   Q.   And what about the lockbox system that you testified that
17   was ultimately put in place in 2005?  That was accurate, right,
18   2005 is when the lockbox was put in place?
19   A.   Right, for the pilot agencies, yes.
20   Q.   And so when you say for the pilot agencies, that's not even
21   across the -- for all agencies?
22   A.   When it first came in in June of 2005 it was only for the
23   pilot agencies, yes.
24   Q.   Okay.  And so from that point out, it's been rolling out to
25   other agencies; is that a fair statement?
0919
 1   A.   Correct.
 2   Q.   So for some agencies it's considerably after 2005 that the
 3   lockbox system was put in place.
 4   A.   Well, we implemented it for all agencies, even though they
 5   weren't yet converted to TAAMS, October 1 of 2005.
 6   Q.   You also testified with respect to how the TFAS system is
 7   interfacing with the MMS system.  Do you recall that testimony
 8   as part of the chart?
 9   A.   Yeah.  Basically the information from MMS gets interfaced
10   into TFAS.  There is not a direct interface between MMS and
11   TFAS.
12   Q.   There's not a direct interface between the two?
13   A.   Correct.
14   Q.   So how does it interface?
15   A.   Okay.  When oil and gas monies are received by MMS, they
16   collect the data, they on a daily basis send us a facsimile,
17   because we don't of course have e-mail or that type of
18   capability with them.  They send us a facsimile saying here's
19   how much we collected to date.  We post that to a general
20   holding account.
21        Then on a bimonthly basis MMS sends data to BIA, which gets
22   processed through their RDRS system, that's their royalty
23   distribution and reporting system, which then breaks it down by
24   ownership.  BIA then interfaces that information to us into
25   TFAS, where the disbursements are made to the account holders
0920
 1   from the holding account.
 2   Q.   And you mentioned that there's no Internet or e-mail access
 3   is what you said, so they have to fax it over, correct?
 4   A.   Correct.
 5   Q.   But even well before, when you did have e-mail and you did
 6   have Internet, there was never any electronic interface,
 7   correct?
 8   A.   Correct.
 9   Q.   So there's never been an electronic interface as far as you
10   know ever in this trust.
11   A.   Not directly from MMS.  We don't have to have an electronic
12   interface in order for us to enter that information.  That
13   information is a very bulk, high level.  It's usually on a
14   one-page fax that they give to us.  The real information is the
15   electronic information we receive from BIA via RDRS, to tell us
16   what beneficiaries have received funds.
17   Q.   And that's an important issue.  With respect to the
18   information that you receive from BIA, whatever that information
19   is, you base your decisions on that information.  You don't
20   check the veracity of that information, correct?
21   A.   Correct.
22   Q.   So if that -- if whatever ownership data you're utilizing
23   from BIA is incorrect, then you would be making an incorrect
24   payment, correct?
25   A.   That is true.
0921
 1   Q.   And indeed, the same thing would be true for information
 2   that you're getting for MMS.  There's no verification process as
 3   to the accuracy of that information as well.
 4   A.   There ultimately is verification through their audit.  They
 5   get audited as well.  And those type of transactions are audited
 6   and verified by their external auditors.  So we may not know
 7   that very day, but we would know if there was a problem later
 8   on.
 9   Q.   Okay.  But there's nothing in your -- within your ambit of
10   control to tell you whether or not the information you're
11   getting from MMS is accurate or not accurate.
12   A.   True.  We don't have a way to verify the veracity of that
13   information.
14   Q.   You're relying on their audit systems, whatever they are?
15   A.   Yes.
16   Q.   If they're reliable or if they're not reliable.  It's just
17   whatever was within MMS itself, correct?
18   A.   Yes, sir.
19             MR. HARPER:  That's all I have, Your Honor.  Thank
20   you.
21             THE COURT:  All right.  Anything further?
22             MR. KRESSE:  One moment, Your Honor.
23                        REDIRECT EXAMINATION
24   BY MR. KRESSE:
25   Q.   Mr. Winter, I'm showing you AR-375, which is the audit
0922
 1   report that Mr. Harper earlier discussed with you, correct?
 2   A.   Yes.
 3   Q.   And I'd like to direct your attention to what is the 40th
 4   page by the Bates numbering.  Do you recall discussing that page
 5   with Mr. Harper?
 6   A.   Yes.
 7   Q.   And when Mr. Harper was asking you about those numbers, you
 8   referred to note 9; is that correct?
 9   A.   Correct.
10   Q.   And if we could go to the next page.  And this is the, I
11   believe the 50th page by Bates numbering.  Go to the bottom of
12   the page.  Yes.  And that's page 39 of the audit report.  Do you
13   see that?
14   A.   Mm-hmm.
15   Q.   And is this note 9 that you were referring to?
16   A.   Yes, it is.
17   Q.   And this discusses the amount of the transfers, correct?
18   A.   Correct.
19   Q.   Thank you, Mr. Winter.
20             MR. KRESSE:  That's all I have.
21             MR. HARPER:  Just a couple questions on that,
22   Mr. Winter.
23                         RECROSS-EXAMINATION
24   BY MR. HARPER:
25   Q.   Again, the difference that you found was -- what was the
0923
 1   difference between -- it was 336 to about 200?
 2   A.   About 201, 202 million.
 3   Q.   So this doesn't come near to explain that sizeable
 4   difference, correct?
 5   A.   Correct.
 6             MR. KRESSE:  Beyond the scope of redirect.  I simply
 7   asked --
 8             THE COURT:  No, it's not.
 9             THE WITNESS:  Yes.  I mean, we found that there were
10   more transfers -- this is, just for the record, this 45 million
11   is actually a net transfer amount, meaning between tribal and
12   IIM.  So there could have been a hundred million dollars worth
13   of transfers to tribal, and tribal having $55 million of
14   transfers to IIM, netting out to this $45 million number.
15        So even though our numbers show a greater transfer amount,
16   ultimately the difference being about $54 million worth of
17   intrafund transfer, it's not to say that that is an incorrect
18   number.
19   BY MR. HARPER:
20   Q.   So it could be correct or it may not be -- it may be
21   consistent with your numbers, but it may not be consistent with
22   your numbers?
23   A.   Correct.
24             MR. HARPER:  Thank you.
25             MR. KRESSE:  Nothing further, Your Honor.
0924
 1             THE COURT:  All right.  Mr. Winter, you're excused.
 2   Thank you.  You may step down.
 3        (The witness steps down.)
 4             MR. WARSHAWSKY:  Your Honor, the government's next
 5   witness is Dr. Frederick "Fritz" Scheuren.  If I may,
 6   Your Honor, Dr. Scheuren has requested that he have copies of
 7   the exhibits at the table so he can review them.
 8             THE COURT:  All right.
 9             MR. WARSHAWSKY:  Your Honor, Dr. Scheuren is the first
10   expert that the government is going to be offering in its case
11   in chief.  I'll say this because Dr. Scheuren won't.  He is
12   among the leading statisticians in the country.  Certainly when
13   the court reviews his CV, you will recognize that his peers have
14   so distinguished him over the years.  Dr. Scheuren was the
15   first, I believe --
16             THE COURT:  I'd actually rather do that in Q&A form
17   than have you stand up there and flog him like that.  Why don't
18   you just give me the CV.
19             MR. WARSHAWSKY:  Okay.  At this point, Your Honor, I
20   was simply giving you the overview of his testimony.
21             THE COURT:  I'm sure Dr. Scheuren is a distinguished
22   expert and won't have any problem, but we haven't quite put his
23   name up in lights yet.
24             MR. WARSHAWSKY:  Okay.  I would simply give you the
25   overview.  Dr. Scheuren was the first contractor engaged by the
0925
 1   Office of Historical Trust Accounting, OHTA, within the
 2   Department of the Interior.  Dr. Scheuren will discuss in brief
 3   top-level fashion some of the work that NORC, his organization,
 4   the National Opinion Research Center, what NORC has done as a
 5   contractor for OHTA.  That is, Dr. Scheuren -- projects co-led
 6   by Dr. Susan Hinkins, also a distinguished statistician working
 7   on the project.
 8        From there, Dr. Scheuren, will talk about the design for
 9   the sample in the 2003 plan, which reflected, among other
10   things, as Dr. Scheuren will explain, a high level of doubt,
11   questioning about the ability to find data and the ability to
12   reconcile records, reconcile transactions.  He will testify that
13   as the project went along, leading to ultimately the LSA
14   project, the results of the reconciliation activities led him
15   and his colleagues to come to new conclusions about the
16   necessity for the level of sampling in the 2003 plan.
17        This led to Dr. Scheuren's recommendations, which
18   ultimately are embodied in the 2007 Interior plan with respect
19   to sampling for the electronic ledger era.  And Dr. Scheuren
20   will talk about his recommendations for proceeding with regard
21   to the paper ledger era.
22             THE COURT:  All right.
23       FREDERICK J. SCHEUREN, WITNESS FOR THE DEFENDANTS, SWORN
24                         DIRECT EXAMINATION
25   BY MR. WARSHAWSKY:
0926
 1   Q.   Dr. Scheuren, would you state and spell your full name for
 2   the record.
 3   A.   Frederick John Scheuren, S-C-H-E-U-R-E-N.
 4   Q.   And are you generally known as "Fritz"?
 5   A.   Yes, I am.
 6   Q.   Dr. Scheuren, where do you reside?
 7   A.   I live in Alexandria, Virginia.
 8   Q.   And what do you do for a living?
 9   A.   I'm a consultant statistician, and I do some teaching as
10   well.
11   Q.   Dr. Scheuren, the first exhibit I'd like to hold up has
12   been previously marked Defendants' Exhibit 6.  This will be up
13   on the screen.
14             MR. WARSHAWSKY:  Your Honor, this is a 53-page
15   document.  I'm simply going to have Dr. Scheuren identify it for
16   the record, and you can look at the hard copy in front of you.
17   BY MR. WARSHAWSKY:
18   Q.   Sir, what is Defendants' Exhibit 6?
19   A.   It's my expert report for this trial.
20   Q.   And similarly, if you could refer to Defendants' Exhibit 7.
21   Could you identify that?
22   A.   That is my expert rebuttal report also for this trial.
23   Q.   Referring back to Defendants' Exhibit 6 now, your expert
24   report, I'd like to refer you to attachment 3.
25   A.   Would you help me with a page there?
0927
 1   Q.   40.  This is I believe a three-page attachment.
 2   A.   Okay.
 3   Q.   Yes.  It's three pages.
 4   A.   Okay.  I see it.
 5   Q.   Dr. Scheuren, what is set forth on attachment 3?
 6   A.   That's my CV.
 7   Q.   Does this accurately describe your educational background?
 8   A.   Yes, it does.
 9   Q.   And does it accurately describe your professional
10   experience --
11   A.   Yes, it does.
12   Q.   -- with regard to statistics.  I'm sorry.
13   A.   My fault.  Yes, it does describe my opinion -- in my
14   opinion it does describe it adequately, at a certain level of
15   generality.  After all, I've been around for a while, so I could
16   say a lot more.
17   Q.   At the bottom of page 41, there's a section, "Recent
18   professional service activities."  What's described in that
19   area?
20   A.   It's the work that I do mostly pro bono for the profession.
21   Q.   The next page, page 42, contains a section, about the
22   middle of the page, "Honors."  What's set forth in this section?
23   A.   Well, that indicates the kind of recognition that you
24   mentioned earlier in your opening remarks that the profession
25   has given me.
0928
 1   Q.   And referring you to pages 43 to the end of the document.
 2   It's roughly 11 pages.  Attachment 4, what's set forth on
 3   attachment 4?
 4   A.   Those are the publications and reports that I've been
 5   producing in the last, I guess the last 12 years.
 6             MR. WARSHAWSKY:  Your Honor, the government offers
 7   Dr. Fritz Scheuren as an expert to testify on the subjects of
 8   statistics and statistical sampling.
 9             THE COURT:  Without objection, that'll be granted.  He
10   can give his expert opinion in those fields.
11             THE WITNESS:  Thank you, Your Honor.
12   BY MR. WARSHAWSKY:
13   Q.   Dr. Scheuren, what is NORC?
14   A.   NORC's an acronym for the National Opinion Research Center,
15   a research arm of the University of Chicago.
16   Q.   How long have you been affiliated with NORC?
17   A.   Since 2001.
18   Q.   Would you describe NORC's relationship with the Interior
19   Department.
20   A.   It's a contractor.  I was involved in a competitive
21   procurement where an RC was selected to do the statistical work
22   for this project.
23   Q.   What led to your becoming involved in this competitive
24   procurement?
25   A.   Well, I actually have a lot of background in administrative
0929
 1   records and surveys and sampling, and a good friend of mine,
 2   Dr. Kirk Wolter, at NORC, called me up and said this is ideal
 3   for you.  And I looked at it, agreed with him, wrote the
 4   proposal, that was ultimately accepted by Department of the
 5   Interior.
 6   Q.   And what time frame are we talking about?
 7   A.   This was the summer of 2001.
 8   Q.   Why was this an ideal project for you in the summer of
 9   2001?
10   A.   Well, I'm very interested in human rights issues, and I
11   have a personal need to deal with this issue because one of my
12   relatives is Native American.
13   Q.   Did you have any discussions with the Interior Department
14   before undertaking this project?
15   A.   No.
16   Q.   And who are the key members of your team on this project?
17   A.   Well, I was the only member to begin with.  The engagement
18   called for another senior person.  That turned out to be
19   Dr. Susan Hinkins.  And then intermittently since then there
20   have been more individuals added, depending on the nature of the
21   work, which has grown in scope.
22   Q.   And who is Dr. Susan Hinkins?
23   A.   She's a colleague of mine who has worked with me for about
24   20 years, who lives in Bozeman, Montana, and who has a similar
25   background to mine and a similar interest to mine in these
0930
 1   issues.
 2   Q.   Okay.  She's also a Ph.D. in statistics?
 3   A.   Oh, yes.  Also a fellow of the American Statistical
 4   Association, as am I.
 5   Q.   Now, tell me, have you ever talked to someone like Bert
 6   Edwards or Jeff Zippin about how you were going to approach this
 7   role?
 8   A.   When the competitive process took place, I was brought in
 9   and asked to give a presentation of what I would have done,
10   which is actually described in one of the attachments to my
11   original expert report.  And I talked about two things.  I
12   talked about the -- of course the details of this were
13   described, and also made two points which I would like to
14   repeat.
15        One of them is that I was really not going to be working --
16   I'll put it this way.  I was going to follow the data.  My goal
17   was to let the data speak.  And that's what we've done, at least
18   as far as I can tell, in this engagement ever since then.
19   Q.   What does that mean, to let the data speak?
20   A.   Well, sometimes you have a relationship with a client and
21   the client is very tight with that client, and you're really
22   speaking for the client, and not for the data.  And I didn't
23   want to have that kind of relationship.  If that was the kind of
24   relationship that we would have been asked to take, we would
25   have turned this down.  We had to have independence.
0931
 1   Q.   Now, I'd like you to refer to page 1 of Defendants' Exhibit
 2   6.  Are you at Defendants' 6?  It's the first page.
 3   A.   Thank you.
 4   Q.   And just in very top-level fashion, I want to go through
 5   the five bullet items that you referred to in this as being the
 6   five major OHTA deliverables.  Do you see that, sir?
 7   A.   Yes, I do.
 8   Q.   This is in the sentence right above the bullets.  It says,
 9   "Over that period, there have been five major OHTA report
10   deliverables."  Would you generally describe the first item
11   you've listed, the blueprint?
12   A.   The blueprint was a required report for the office, and I
13   came just at the time it was being produced, and helped in a
14   very minor way in its production.
15   Q.   Okay.  So this was a 2001 project?
16   A.   That's right.  It was completed in the weekend just before
17   September 11.
18   Q.   Okay.  And you said you had a minor role; is that correct?
19   A.   I read the report.  I was still learning what was going on,
20   I was reading the files.  I made some minor suggestions to bring
21   it in conformance with what someone like me who cares about
22   measurement would want to see in there.
23   Q.   What's the second bullet item, the 120-day report?
24   A.   The second was an effort to do something early, without
25   having a comprehensive plan, that would make a beginning on this
0932
 1   tough problem.  And I worked on that quite extensively.  A lot
 2   of the projects that are mentioned are ones that I helped craft
 3   and were included in the report.
 4   Q.   Okay.  Would you describe in a little greater specificity
 5   what kinds of things you did on the 120-day report?
 6   A.   Well, you listen to a lot of people.  That's one of the key
 7   activities you do.  You listen to data, you listen to people,
 8   and you listen to ideas and needs.  And among the things that we
 9   worked on was the land title record projects, which were
10   mentioned, and others.  We worked on several of those.  Other
11   people were given other assignments at that point to do things.
12   Q.   Okay.  The third item that's listed, the July 2, 2002
13   report to Congress.  I think the Court is probably familiar with
14   that.  We've had some testimony already about that report.  What
15   was NORC's role with respect to that report?
16   A.   We were again engaged in the measurement issues, quality
17   issues.  We talked about adaptive methods in that report,
18   because the idea of sampling was something we weren't really
19   talking about at that point.  But of course in my head at least,
20   one of those methods would be sampling.
21   Q.   You used a term there, adaptive methods.  What does that
22   mean?
23   A.   That means when you have done some work and you learn
24   something, you may change what you're going to do after that, do
25   more, do less, do something different.  That's a very broad
0933
 1   definition of adaptive.  In the sampling literature, there are
 2   actually books on adaptive sampling methods as well, and one of
 3   the things that we ultimately did was to hire a student of Steve
 4   Thompson -- Steve is the world expert on adaptive methods, and
 5   we hired one of his students, a recent Ph.D., to help us.
 6   Q.   So aside from the lay understanding of adaptive methods or
 7   the term adaptive, it's actually a term of art?
 8   A.   Yes, it is.  It's a quite well-developed technique.
 9   Q.   And have you utilized adaptive methods in the course of
10   your work at OHTA?
11   A.   Only to a small degree, given the way we approached the
12   project.  Some methods you can argue are adaptive, but some fit
13   within other types of sampling that could have been labeled as
14   another kind of sampling.  Like subsampling, for example, which
15   we extensively used for the LSA project.
16   Q.   Okay.  We're going to talk a little bit more about sampling
17   in a few moments.  But let's get through these deliverables.  By
18   the way, on the July 2002 report, I believe you indicated you
19   were not contemplating sampling for that; is that correct?
20   A.   We weren't talking about it in the report.  I was
21   contemplating it -- it seemed such a natural thing to do, but it
22   wasn't something we were talking about at that point.
23   Q.   Okay.  Maybe, to be clear then, it wasn't something
24   Interior was reporting to Congress; is that correct?
25   A.   That's correct.
0934
 1   Q.   What's the purple plan?
 2   A.   Aside from being color blind, the purple plan was the first
 3   attempt to do an historical accounting plan.  Comprehensive
 4   historical accounting.
 5   Q.   And was that the January 2003 plan?
 6   A.   Yes, it was.
 7   Q.   Did that include sampling?
 8   A.   Oh, yes, it did.
 9   Q.   And you were involved in that?
10   A.   Heavily involved, yes.
11   Q.   And generally -- we'll get into greater detail, but
12   generally what was NORC's role in --
13   A.   The role was to design and propose a sampling approach to
14   that, and indeed it's included in one of the appendices in that
15   report.
16   Q.   And finally, the last bullet point, the revised historical
17   accounting plan, that's the 2007 plan?
18   A.   Yes, it is.
19   Q.   And obviously we'll spend some time talking about that, so
20   I'll move on.
21             MR. WARSHAWSKY:  Your Honor, since, as I indicated,
22   Dr. Scheuren's our first expert, can't help but have a white
23   board for him.  We're going to -- I wanted to spend a few
24   minutes talking about some basic statistical sampling concepts
25   for the Court's benefit.
0935
 1        And Dr. Scheuren, we've got your markers and eraser if you
 2   need them to illustrate any points.
 3             THE WITNESS:  Will I have a microphone over here?
 4             MR. WARSHAWSKY:  No.
 5             THE COURT:  Yes, you will.  We'll give you a hand mic.
 6             THE WITNESS:  I'd like that.  Thank you, Your Honor.
 7             MR. GINGOLD:  Your Honor, perhaps after the day is
 8   over, plaintiffs would like a copy of what Mr. Scheuren has so
 9   we can see what Mr. Scheuren has, whether handwritten notes or
10   otherwise.
11             MR. WARSHAWSKY:  Yeah.  And I'll represent, and you
12   can certainly look at it, those are simply copies of the
13   exhibits that he's going to review.  What I'd request,
14   Your Honor, is that we only show the plaintiffs at this time the
15   specific exhibits that Dr. Scheuren reviewed, since of course we
16   may not get to all those exhibits, they do reflect work product.
17             THE COURT:  Okay.
18             MR. GINGOLD:  Your Honor, to the extent the witness
19   has documents in front of him, plaintiffs would like to see
20   those exhibits.
21             THE COURT:  Well, we'll talk about that later.
22             THE WITNESS:  I would like to indicate I have a single
23   blank piece of paper here, because I do take notes, and I will
24   let you see that when I'm finished.
25             THE COURT:  All right.  You've got your microphone.
0936
 1   Let's go.
 2   BY MR. WARSHAWSKY:
 3   Q.   All right.  Dr. Scheuren, you can probably put the mic
 4   down, because I think right now we're just going to talk about
 5   some basic concepts.  What is statistical sampling?
 6   A.   Well, sampling is a well-known idea.  Everyone has an
 7   intuitive sense of it.  Statistical adds a dimension of
 8   systematic, systematic being thorough, scientific it's sometimes
 9   characterized.  And most importantly, in my use of it, it's
10   probability based, that each observation of population have a
11   positive known, knowable probability of selection, so you can
12   make an inference from the sample.
13   Q.   Okay.  And among the considerations in sampling is the size
14   of the sample; is that correct?
15   A.   Absolutely.
16   Q.   How do you determine the size of the sample?
17   A.   Well, usually it's a dialogue, and there are three parties.
18   There's the sampler, there's the client, and there's the data.
19   And it can evolve over time.  You end up going to a client, the
20   client tells you what they want to do.  They may also tell you
21   how much money they have to spend, how much time they want to
22   take.
23        They may tell you something about the population that
24   you're going to sample.  It would be great if they told you a
25   lot about the population.  Sometimes they do, when they know it
0937
 1   themselves.  Often they don't.  One of the things you do
 2   ordinarily is you check what the client tells you about the
 3   population, maybe by doing a small-scale study of some kind.
 4   Q.   Okay.  Why do you need to know about the population when
 5   you're setting a sample size?
 6   A.   Because the uncertainty in the estimate that you're going
 7   to make depends on the nature of the population.  Populations
 8   that -- in our context, populations that have high error rates
 9   would have a greater degree of inherent uncertainty and
10   therefore require larger samples.
11   Q.   How do you know at the start whether your population is
12   going to have a high error rate or not?
13   A.   You don't.
14   Q.   How do you approach the problem?
15   A.   Well, you listen to people, and we did that.  And then you
16   come up with what you think is a reasonable hypothesis about
17   that, and that hypothesis leads you to a provisional sample
18   design and a provisional sample size.
19   Q.   And the term provisional sample size, is that a term of art
20   as well?
21   A.   I would argue that it is, yeah.
22   Q.   And what's provisional about it?
23   A.   Well, you need to do some checking before you actually
24   implement it.  One of the things that you would do is you would
25   bring it back to the client and say, listen, we think based on
0938
 1   what you told us this is what you need, and this is how much it
 2   will cost, and this is how long it will take.  Or you might say
 3   we need you to help us by giving us access to the data, so we
 4   can actually do some small studies so we can in fact guess
 5   better than we have as to what that sample needs to be.
 6   Q.   So there's some guesswork involved then?
 7   A.   Absolutely.
 8   Q.   And what do you do if you start with a hypothesis and it
 9   proves not to be borne out by your actual testing?
10   A.   Well, if you're building this sample in a way that you --
11   in a modern way, you're getting quick feedback from the actual
12   operation that tells you that you're wrong or tells you that
13   you're right, or tells you you were mostly right, but over here
14   you were wrong, and given -- based on that kind of feedback, you
15   change the design.
16   Q.   How might your design differ if you assumed high error
17   rates as opposed to low error rates?
18   A.   If you assume high error rates, you'll need a larger sample
19   to achieve the same level of precision that the client wants.
20   The client tells you what the level of precision is going to be.
21   You give the client alternatives to give him information as to
22   what he should think about there, but they have to choose that.
23   Q.   Are there any -- can you define any goals when you set the
24   sample size?
25   A.   Well, the client will tell you that I want to achieve an
0939
 1   estimate within 1 percent of its value, or 2 percent.  That
 2   would be a goal the client might give you.  Or I want to get it
 3   done with less than X dollars or X time.  Those are goals.
 4   Q.   Now, one term we often hear in sampling is the word random.
 5   A.   Yes.
 6   Q.   What does random mean?
 7   A.   Random sampling, or approximately random sampling, because
 8   you really can't achieve it -- roughly right is the phrase in
 9   statistics -- is a way to separate the observer, the sampler,
10   the client, from the data and from selection of the sample, so
11   that the sample has an objectivity to it, that in this context
12   both the plaintiff and the government can use that objectivity.
13   They may have different views of the world, but the sample's
14   obtained objectively.
15   Q.   Okay.  And was randomness something you contemplated in
16   your --
17   A.   Yes indeed.  It's crucial to the design.
18   Q.   Okay.  And just so we're clear, I mean -- we can't talk
19   over each other, for the benefit of the reporter, especially at
20   4:45.
21        I'm sorry.  You were saying randomness was something you
22   contemplated in your work with OHTA?
23   A.   Yes indeed.  It was built into what we did.
24   Q.   Could you define the term probability sample?
25   A.   I've already mentioned that one kind of statistical
0940
 1   sampling is probability sampling.  It's what we are using here.
 2   It's a sample where the selections of the units in the
 3   population are done with known probability, known positive
 4   probability.
 5   Q.   Was that again a concept that you utilized in your OHTA
 6   work?
 7   A.   Yes indeed.
 8   Q.   Are there other types of sampling besides probability
 9   sampling?
10   A.   There are a lot of other kinds of sampling.  Some of them
11   have been discredited historically, and there are some new ones
12   which have value.  In this context where we're dealing with
13   controversial issues, we don't recommend any of these other
14   methods.
15   Q.   Okay.  Let me just ask you, going real quickly back, when
16   you set the sample size and you do some testing, are there
17   periods where you reassess your work?
18   A.   Yes.  You can think of sampling as consisting of four
19   periods:  a planning step, an operational step, an estimation
20   step or an inference step or an analysis step -- that's the
21   third piece, you can label it differently -- and a fourth step,
22   which is maybe not so obvious to all of you, but in fact we are
23   in that fourth step right now, where you learn from a previous
24   sample how to design a new sample.
25        And that's exactly what we're doing.  We use the LSA, and
0941
 1   arguably you can consider it a pilot of the original sampling
 2   plan.  That's not the way it was characterized but it could be
 3   argued to be that.  And now we've learned from that, and that's
 4   led to the 2007 plan.
 5   Q.   Okay.  Dr. Scheuren, when you use probability sampling,
 6   what types of estimates can you make?  And if you would like,
 7   this may be -- feel free to use your white board for this.
 8   A.   Let me partially try to do it without that.  You can
 9   estimate a proportion.  You can estimate a mean or a total.
10   Those are commonly done in this context.  Labels in the
11   accounting world, the kinds of samples are often called
12   attribute sample and variable samples.  Both of those are
13   available to you.
14        I might add a note here.  That's not the kind of sample we
15   drew.  We drew a sample that allowed you to do both attribute
16   estimation, which is what the error rate is, and variable
17   estimation, which is how many dollars there were in error.
18   Q.   Okay.  And you're talking about the work that was done for
19   OHTA.
20   A.   Yes.
21   Q.   Okay.  Let me ask you about concepts like precision and
22   confidence, or maybe you have other terms.  Are those also
23   concepts in sampling?
24   A.   Yes, they are, in basic statistics as well.
25   Q.   Okay.  And I know there's, I guess, a bell chart or bell
0942
 1   graph that you sometimes do?
 2   A.   Let me use the board.
 3   Q.   Yes.  Thank you.
 4   A.   One small point.  Let's start with the normal curve or
 5   bell-shaped curve, even though it doesn't actually apply rigidly
 6   or rigorously to this setting, because of the nature of this
 7   sampling.  But we'll start with that because it gives -- you all
 8   have a sense of familiarity with this, I think.
 9        Can this be seen by all of you?  I'm going to do it over
10   here.  This is a classical bell-shaped or normal curve.  Can you
11   see this?
12   Q.   Yeah.
13   A.   And let me talk about this in terms of confidence
14   intervals.  I have something I want to estimate.  It's an
15   unknown quantity from a population that I'm going to be sampling
16   from, as in this case.  Let's say it's an attribute error rate;
17   it's a proportion between zero and one.  So I'm going to just
18   count an error as a 1, count something that's not an error as a
19   zero, and I'm going to tally them up, suitably dealing with the
20   nature of the sampling design we're talking about.
21        And I want to calculate a 95 percent confidence level,
22   which is to say in the normal parlance of those of you who read
23   about polls in newspapers -- I'm sure you all do, or you all
24   wish you didn't -- the margin of error in the newspapers is a 95
25   percent confidence level.  Upper bound.
0943
 1        95 percent confidence level, there's 2-1/2 percent on this
 2   side and another 2-1/2 percent on this side.  And these bounds
 3   are the bounds for the 95 percent confidence interval.  And why
 4   is that?  Of course, in between there is 95 percent.  And that's
 5   why we call it a 95 percent confidence level.
 6   Q.   Could you explain to Judge Robertson what is being depicted
 7   by that bell?
 8   A.   The way to think about this is now, in modern times, we
 9   don't just draw a single sample.  We collect data from only a
10   single sample because you can't afford to do it for more than
11   once.  We simulate samples, thousands and thousands of samples.
12   Indeed, we did that here.  So we would simulate samples.  And of
13   course we don't know what the actual population is, so we
14   simulate them under some assumptions about what the nature of
15   the population is.
16        That's where the hypothesis comes in.  If I think I have a
17   1 percent error rate, then I'll simulate a sample from a
18   population with a 1 percent error rate.  And I'll do that many
19   thousands of times.  And each one of these samples then,
20   usually -- we're all familiar with this -- I then create a
21   histogram.
22   Q.   And what's a histogram?
23   A.   It's a count of the number of samples.  Say I drew 10,000
24   of them.  It's a count of the number of samples that fell
25   between this interval here and this interval and so forth.  And
0944
 1   then naturally what you do is you draw that smooth curve through
 2   it.  And if your sample is big enough, that will behave like a
 3   normal distribution.
 4        In the samples that we're using here, which we assume a
 5   very low error rate, the sample has to be very large for us to
 6   get this normal shape.  And so when we do the actual
 7   calculations for the work we're doing, we'll use a reference
 8   distribution -- this is called a reference distribution.  We use
 9   a different reference distribution that allows us to deal with
10   the fact that the sample may be too small to achieve normality.
11        In the actual work we did on debits, for example, where we
12   found no errors at all, we didn't make -- our reference
13   distribution was not a normal distribution.  And we had to use
14   something else, and that's in the weeds, since I won't go into
15   details.  But it is possible to do that, and we did do that.
16   Q.   Let me just get back to some basic concepts.  Margin of
17   error, precision, what does that mean?
18   A.   Margin of error in the newspaper sense is a 95 percent
19   confidence interval.
20   Q.   What does that mean?
21   A.   95 percent of the time, when I've drawn a sample from this
22   population and calculated a quantity, say it's an average, say
23   it's a polling number, say it's an error rate, I'll get close to
24   the right value 95 percent of the time.  I'll be within that --
25   this margin of error, this interval will be wide enough so that
0945
 1   95 percent of the time when I do that calculation, the true
 2   value will fall within that interval.
 3   Q.   Okay.  So if I'm clear -- I'm not a statistician, but what
 4   you're saying is that the sample result is going to be within
 5   that range --
 6   A.   Correct.
 7   Q.   -- 95 percent of the time?
 8   A.   Correct.  So it's going to -- the value will fall within
 9   that range 95 percent of the time.  And if I draw a bigger
10   sample, then I'll narrow this range, and eventually -- and this
11   is a client decision -- the range will be narrow enough so the
12   client will be satisfied with the result.
13   Q.   Okay.  In the case of the 2003 plan, for example, you
14   didn't use a 95 percent assurance level, right?
15   A.   We used a 99 percent, that's correct.
16   Q.   So that meant what in this case?
17   A.   It meant that this would have been wider.  Quite a bit
18   wider, in fact.
19   Q.   Okay.  So what, you'd have .5 percent on each end, instead
20   of --
21   A.   That's correct, yes.  Close to 0.5, yes.
22   Q.   Let me ask you one thing -- and you can sit down.  You
23   talked about the size of the sample affecting your
24   determinations regarding precision and confidence, right?
25   A.   Repeat that, please?
0946
 1   Q.   The size of the sample, you said if you drew a bigger
 2   sample that that would --
 3   A.   You draw a bigger sample, you will improve the precision of
 4   your estimates.  You can also improve the precision of your
 5   estimates by designing it differently.  And that's why it's so
 6   important to know a lot about the population.  The more you know
 7   about the population, perhaps the better design you can do, and
 8   you may be able to save the client money by a better design.
 9   Q.   What I'd like you to do is refer to table 1 within
10   Defendants' Exhibit 6.  This is on the fifth page.
11             THE COURT:  Well, we're getting into the actual
12   numbers.  Maybe it's time we called it a night and start again
13   tomorrow morning.
14             MR. WARSHAWSKY:  Okay.  Very good, Your Honor.
15             THE COURT:  Dr. Scheuren, I assume, is going to be on
16   the stand more than about another half hour.
17             MR. WARSHAWSKY:  Oh, he will.  This one point simply
18   relates to the notion of sample size.  We can certainly pick it
19   up tomorrow morning.
20             THE COURT:  All right.  We'll be in recess.
21             MR. WARSHAWSKY:  With respect to the request from the
22   plaintiff s to review what he's looking at.
23             THE COURT:  No, this isn't a criminal case.  He's
24   brought up a notebook full of exhibits.  He can look at that and
25   the plaintiffs aren't entitled to look at it.  May I see you at
0947
 1   the bench, Mr. Warshawsky?
 2        (Off-the-record discussion.)
 3        We're in recess until tomorrow morning.
 4        (Proceedings adjourned at 5:06 p.m.)
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0948
 1                                 INDEX
 2   WITNESS:                                                 PAGE:
 3   
      Michelle Herman         Cross-Examination(Cont') ........ 828
 4    Robert J. Winter        Direct Examination............... 843
                              Cross-Examination................ 897
 5                            Redirect Examination............. 921
                              Recross-Examination.............. 922
 6    Frederick J. Scheuren   Direct Examination............... 925
 7                                 *****
 8                           EXHIBITS RECEIVED
 9    Defendant Exhibit Nos.233, 235-242, 277, 279, 282 ......  897
10   
                                   *****
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