IN THE UNITED STATES DISTRICT COURT
                                                FOR THE DISTRICT OF COLUMBIA
              ELOUISE PEPION COBELL, et al.,                   )
                                                                            )
                  Plaintiffs,                                         )
                                                                            )
                  v.                                                   )        Case No. 1:96CV01285
                                                                            )        (Judge Lamberth)
              GALE NORTON, Secretary of the Interior, et al.,   )
                                                                            )
                  Defendants.                                       )
                                                                            )
                                             NOTICE OF FILING
                       The Secretary of the Interior and the Assistant Secretary - Indian Affairs hereby give
              notice of the filing of the attached Fiducia O, Obligations Compliance Plan pursuant to the
              Court's September 17, 2002 Order.
                                                                   Respectfully submitted,
                                                                  ROBERT D. McCALLUM, JR.
                                                                  Assistant Attorney General
                                                                  STUART E. SCHIFFER
                                                                  Deputy Assistant Attorney General
                                                                  J. CHRISTOPHER KOHN
                                                                  Director
                                                                  SANDRA P. SPOONER
                                                                  D.C. Bar No. 261495
                                                                  Deputy Director


             Dated: January 6, 2003                           y_-/-__//J_,,,_-_., ..._._
                                                                  _'_nior Thai 3_tt_om_
                                                                  Commercial Litl- '
                                                                                     'gation Branch
                                                                  Civil Division
                                                                  P.O. Box 875
                                                                  Ben Franklin Station
                                                                  Washington, D.C. 20044-0875
                                                                  (202) 514-7194






                                                   Department of the Interior


                                    _:_T O_
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                        Fiduciary Obligations
                      Compliance Plan


                                       January 6, 2003




                                             TRUST OBLIGATIONS COMPLIANCE PLAN
                                                        TABLE OF CONTENTS
                 I.       INTRODUCTION                                                                  pg.     1
                 II.      ONGOING TRUST REFORM PLANNING AND IMPLEMENTATION pg.     4
                         A.      ELEMENT ONE: REORGANIZATION                              pg.     5
                         B.      ELEMENT TWO: REENGINEERING                                pg.     6
                                  (1)     Phase I - The "As-Is" Process                                   pg.     6
                                  (2)     Phase ii - "To-Be" Process                                      pg.     9
                                  (3)     Strategic Plan                                                      pg.     9
                 III.     STANDARDS                                                                      pg.     13
                 IV.     CURRENT OWNERSHIP - FUND COLLECTION, DEPOSIT AND TRANSFER
                         A.      INTRODUCTION                                                         pg.     17
                         B.      THE CURRENT OWNERSHIP COLLECTION, DEPOSIT AND
                                  TRANSFER PROCESS                                                   pg.     18
                                  (1)     IIM Accounts                                                      pg.     18
                                  (2)     Maintaining Ownership Information                            pg.     19
                                  (3)     Leasing Activity                                                  pg.     19
                                  (4)     Collecting and Depositing Lease or Permits Payments       pg.     20
                                  (5)     Collecting, Accounting and Depositing Oil, Gas and
                                           Other Mineral Lease Payments                                  pg.     22
                         C.      PERFORMANCE TARGETS                                            pg.     24
                         D.      GUIDANCE REGARDING PERFORMANCE                       pg.     25
                         E.      STATUS OF OPERATIONAL PERFORMANCE ("AS-IS")       pg.     26
                                  (1) General Assessment
                                  (2) Relevant Accounting Observations of the "As-Is"
                                      Evaluation Team
                                          (i)      System Interfaces
                                          (ii)     Indian Trust Systems
                                          (iii)    Title Maintenance
                                          (iv)    Title Maintenance Backlog
                                          (v)     Surface Land-Use Processes
                                          (vi)    Collection Process




                              F.      STEPS NECESSARY TO REACH TRUST OPERATION PERFORMANCE
                                                              ("TO-BE")                                       pg.     36
                                    (1)     Overview
                                    (2)     Options for Inlprovement
                                    (3)     "To-Be" Process and Project Management

                  V.      CURRENT ACCOUNTING - TRUST FUNDS ACCOUNTING
                           SYSTEM                                                                            pg.     44
                           A.      INTRODUCTION                                                         pg.     44
                           B.      TRUST FUNDS ACCOUNTING SYSTEM PROCESS             pg.     44
                                    (1)     General Statutory Directions
                                    (2)     Systems
                                    (3)     Controls - Receipts and Disbursements
                                    (4)     Reconciliations
                                    (5)     Audit
                           C.      RECORDS MANAGEMENT                                            pg.     63
                                    (1)     Perfomlance Targets
                                    (2)     Guidance Regarding Performance
                                    (3)     Status of Performance
                                             (i)      Records Under the Control of Interior
                                             (ii)     Records Not Currently Under the Control of Interior
                                    (4)     Steps Necessary to Reach Performance Targets
                   VI.     UNIVERSAL SUPPORT FUNCTIONS
                           A.      STAFFING OF TRUST ORGANIZATIONS: WORKFORCE     pg.     78
                                    PLANNING
                           B.      COMPUTER AND BUSINESS SYSTEMS ARCHITECTURE    pg.     86
                            C.      ELECTRONIC RECORDS SECURITY PERFORMANCE
                                    TARGETS                                                                  pg.     93


                     FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                                        THE DEPARTMENT OF THE INTERIOR PLAN
                        TO BRING ITSELF INTO COMPLIANCE WITH CERTAIN FIDUCIARY
                                                              OBLIGATIONS
                                                  OWED TO IIM BENEFICIARIES
                                     (FIDUCIARY OBLIGATIONS COMPLIANCE PLAN)

                                                            JANUARY 6, 2003



                   I.       INTRODUCTION


                   This Plan has been prepared in compliance with a September 17, 2002 Court order that
                   the Department of the Interior ("Interior") submit a plan showing how it intends to bring
                   itself into compliance with certain fiduciary obligations that it owes to Individual Indian
                   Money ("IIM") account holders in accounting to them for its management of their IIM
                   trust funds. The Plan describes the relevant part of an ongoing trust reform planning and
                   implementation process in which Interior is currently engaged.

                   The Court has declared that for purposes of this litigation the primary duty with respect to
                   IIM trust fund management is that Interior, as required by the American Indian Trust
                  Fund Management Reform Act ("the 1994 Act"), 25 U.S.C.{} 162a et seq. and 4011 et
                   seq., "provide plaintiffs an accurate accounting of all money in the IIM trust" by the
                  United States for the benefit of the plaintiffs.




                  i Cobell v. Babbitt, 91 F. Supp. 2d 1, 58 (D.D.C. 1999)

                                                                       1


                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                  The 1994 Act describes the path that must be followed to fulfill that duty. Under the
                  terms of the Act, Interior will provide an accurate accounting of all trust funds when it
                  can fully comply with the requirements of sections 401 l(a) and (b) of the 1994 Act.
                  Those sections require that Interior:

                         account for the daily and annual balance of all funds held in trust; and
                         provide a quarterly statement of performance to each IIM account holder that
                          identifies: a) thc source, type and status of the funds; b) the beginning balance; c)
                          the gains and losses; d) receipts and disbursements; and e) the ending balance.


                  To comply with the requirements of sections 4011 (a) and (b), Interior has determined that
                  it must administer programs to accomplish three objectives:

                           1)  Historical Accounting - Interior must provide information that can be used to
                               assess the accuracy of the current balance in each of the IIM accounts.
                               Interior has maintained account ledgers through time, but the accuracy of
                               these ledgers and the supporting trust management systems has been
                               challenged in this litigation and has been repeatedly criticized by observers
                               from within and outside Interior. Without an assurance that all current
                               account balances are reliable and, if necessary, appropriately corrected,
                               Interior cannot ensure an accurate accounting on a going forward basis, no
                               matter how carefully future transactions may be recorded. The historical
                               accounting of IIM accounts that Interior is currently conducting will provide
                              information that can be used to assess the accuracy of current IIM trust
                              account balances. The Office of Historical Trust Accounting (OHTA) has the
                              lead responsibility for doing the historical accounting. Interior's plan for
                              conducting the historical accounting is being submitted to the Court today and

                                                                     2


                     FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003
                   I




                                                                                             is incorporated herein by reference as a necessary part of Interior's plan to
                                bring itself into compliance with its accounting obligations.

                            2)  Current Ownership, Collection, Deposit and Transfer - Interior must collect
                                the correct fund amounts in a timely manner for the correct IIM account
                                holders. This requires that Interior's programs have adequate systems for
                                tracking the trust land ownership interests of account holders and for
                                collecting the money that is owed to each account holder and depositing it in
                                Interior's Trust Funds Accounting System ("TFAS"). Programmatic
                                improvements must occur in Interior's land title and revenue collections
                                systems. The Bureau of Indian Affairs (BIA), the Minerals Management
                                Services (MMS) and the Bureau of Land Management (BLM) all have
                                responsibilities pertaining to one or more of these systems. Interior's plan for
                                improving its Collection, Deposit and Transfer systerns is presented below.

                           3)  Current Accounting - Trust Funds Accounting System - Once the funds are
                                collected, Interior must deposit them in the correct IIM account, properly
                               credit interest earned to the account, and disburse from the account the correct
                               amounts to the correct persons. These functions are performed through
                               Interior's use of TFAS, which is managed by the Office of Trust Fund
                               Management (OTFM) in the Office of the Special Trustee for American
                               Indians (OST). Interior's plan for bringing itself into compliance with its
                               Current Accounting - Trust Funds Accounting System duties is presented
                               below.

                  In evaluating this Plan, two points must be kept in mind. First, as required by the Court's
                  order, the Plan submitted today focuses on Interior's IIM trust fund accounting
                                                                      3


                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003
                  I





                                                    obligations. Second, the Plan is part of an ongoing comprehensive trust reform planning
                  and implementation effort. The Plan must be understood in the broad context of a much
                  larger effort of Indian trust reform. The next section describes how this Plan fits into
                  Interior's ongoing trust reform planning and implementation efforts and how that
                  ongoing effort will be used as a tool to achieve the necessary program and perfomlance.

                  Il.      ONGOING TRUST REFORM PLANNING AND IMPLEMENTATION
                  Interior has responsibility for what may be the largest land trust in the world. The Indian
                  trust today encompasses aproximately 56 million acres of land - over ten million acres
                  belonging to individual Indians and nearly 45 million acres owned by Indian tribes. On
                  these lands, Interior manages over 100,000 leases for individual Indians and tribes.
                  Leasing, use permits and sales revenues of approximately $300 million per year are
                  collected and distributed to approximately 236,000 Individual IIM accounts, and about
                  $800 million per year is distributed to about 1,400 tribal accounts. In addition, the trust
                  manages approximately $2.6 billion in tribal funds and $400 million in individual Indian
                  funds.

                  Interior is carrying out a comprehensive and systematic plan to reform the management
                  of its trust responsibilities. This comprehensive effort has been described to the Court in
                  the quarterly reports, beginning with the Eighth Report. 2 The comprehensive plan and
                  the processes it contains will be used to identify and implement the changes necessary in
                  Interior's current accounting systems.



                  2 Eight Report to the Court at 3-8, 15-17; Ninth Report to the Court at 43-55; Tenth Report to the Court at
                 3-4, 32-39; Eleventh Report to the Court (Eleventh Report) at 3-4, 29-38

                                                                      4


                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                  The primary elements of this ongoing effort are: 1) the reorganization of Interior trust
                  offices to improve delivery of services, effectiveness and accountability of trust
                  operations, and 2) the reengineering of Interior's business processes and universal
                  support functions to ensure that Interior meets its trust goals and objectives.

                           A.      ELEMENT ONE: REORGANIZATION

                  Interior evaluated its trust-related organizations and, after a lengthy consultation process
                  with tribes and individual Indians, determined that a different structural alignment of its
                  organizational functions is required. Interior recently has been given the appropriate
                  approval by Congressional appropriators for this reorganization and Interior is now
                  implementing it.

                  The reorganization within the BIA and OST places a particular focus on each
                  organization's fiduciary duties to Indian individual and tribal beneficiaries. For instance,
                  land and natural resource management is located in the BIA because it has demonstrated
                  expertise in this area of the trust. The OST has been given the direction to expand its
                  operational role in addition to its statutory oversight duties. As a result, OST will
                  develop a regional and agency presence to ensure that trust standards are followed in the
                  management of these assets and will retain the responsibility for financial asset
                  management. By further developing and taking advantage of the strengths of each
                  organization, Interior will have a more cost effective, efficient and successful trust
                  management system. Simply put, this reorganization dedicates more trained personnel to
                  provide consolidated trust services, increases the emphasis on tribal contracting and
                  provides direct trust accountability.


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    B.      ELEMENT TWO: REENGINEERING

                   The reengineering of Interior's trust business processes consists of two basic phases: an
                   "As-Is" documentation of those processes and the development of a "To-Be" process
                   model that will then be implemented in accordance with Interior's strategic plan for trust
                   reform.


                                     1.  Phase I - The "As-Is" Process

                   Although significant efforts have been made by Interior in the past to accomplish trust
                   reform, these efforts have not been sufficiently designed and integrated to produce all of
                   the material and long-term improvement in performance. To remedy this problem,
                   Interior is pursuing a thoughtful, thorough, time-effective evaluation of its trust
                   management systems known as the "As-Is" process. Rather than yield to the impulse to
                   offer quick fixes, Interior, after considering other approaches, chose to continue the
                   rigorous process chosen a year ago.


                   A year ago, a review was conducted regarding the results produced by the
                   implementation of the High Level Implementation Plan (HLIP).  Interior concluded, and
                   Electronic Data Systems (EDS) concurred, that implementation of the HLIP had not
                   produced satisfactory results.


                   Subsequently, Interior concurred with one of the key recommendations in EDS' January
                  2002 Trust Reform Report, which was to develop a business model for trust operations.
                  To develop a business model for trust operations EDS recommended that Interior first


                     FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                   develop an accurate, current state model to include business processes, internal controls,
                   and associated information technology. As Interior has previously reported to the Court,
                   it is currently undertaking an intensive and thorough effort to document the "As-Is"
                   business processes currently employed in managing the Indian trust.


                   By documenting the "As Is" business processes, Interior expects to achieve the following
                   benefits:

                               Establishing a comprehensive understanding of current trust business
                                operations.
                               Identifying needs and opportunities for improvement.
                               Understanding variances among geographic regions, and their causes.

                   With the delivery (on or about December 20, 2002) of the draft "As-Is" analysis, it is
                   abundantly clear that expedient measures to effect trust reform are not available. Due to
                   the complexity and interrelationships of Interior's trust management systems, a rigorous
                   process of evaluating and redesigning its trust management processes is needed.


                   The draft "As-Is" analysis represents the compilation and analysis of information
                   received from 10 work sessions with the 12 BIA regions, a session with the compact and
                   contract Tribes, and a session with the OST/OTFM.  Through these sessions, more than
                   650 subject matter experts from Land Title Record Offices (LTRO), Tribes, BIA
                   Agencies, BLM, MMS, the Office of Hearings and Appeals (OHA) and OST/OTFM
                  were consulted.


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003


                    On average, the sessions were one-week long and involved five to twenty-five subject
                   matter experts for each process area. As a result of these work sessions, the "As-Is" team
                   documented variances, identified the genesis of the variances, clarified sub-processes,
                   and documented additional details for the baseline model. Additional information
                   obtained during interviews and work sessions related to:
                        *   Fiduciary and legal obligations and controls specific to the location;
                       -   Systems used to support the business processes;
                          Performance measures and metrics;
                          Opportunities for improvement; and
                          Issues, comments, and recommendations related to each of the processes.
                   The challenges posed by BIA's decentralized hierarchy have been captured in a location-
                   by-location documentation of variances from standard practices. This will allow an
                   understanding of the extent and causes of varying practices, and establish whether there is
                  a specific requirement for each, or if it has evolved over time or at local discretion.


                  Through this detailed evaluation process, Interior has identified current issues and
                  opportunities for change that may provide the foundation for lasting trust reform. It is for
                  this reason that the process modeling is so deep, so detailed, and involves such a wide
                  spectrum of participants.

                  The "As Is" part of the business process evaluation will be completed after the results
                  have been returned to the local regions and agencies for comments to determine whether


                     FIDUCIARY OBLIGATIONS COMPLIANCE PLAN              JANUARY 6, 2003

                   the information in the draft report is an accurate representation of the current state. The
                   next step of the review will be to inform stakeholders of the "As-Is" analysis and its
                   findings, and to seek advice on its recommendations.
                                     2.  Phase I1 -"To-Be" Process
                   After completing the "As-Is" phase, review, detailed recommendations will be developed
                   for adjusting business processes, where appropriate. This phase is known as the initial
                   "To-Be" business process initial phase. The development of the initial "To-Be" model
                   will take into consideration those recommendations and lessons learned from the "As-Is"
                   process. After examining the existing business processes, Interior will compare these
                   processes to the initial "To Be" model processes to determine how existing processes can
                   be improved. In particular, if existing business processes vary from region to region,
                   efforts will be made to standardize the processes to the initial "To Be" model, if instances
                   arise where standardization cannot be done as a result of different statutes, regulations, or
                   tribal codes, these differences will be noted and incorporated into the final "To Be"
                   model, as an appropriate variance from the standardized process. In addition, the "As-Is"
                   and "To-Be" model processes will be compared to standard industry practices. Finally,
                   Interior will integrate the final "To-Be" model processes with universal support and
                   operational functions, and these reengineered business processes will be documented
                   with appropriate polices, procedures, guidelines and handbooks.

                                    3.  Strategic Plan

                  In addition to the development of sound trust business processes, to successfully
                  reengineer, Interior must have an overall strategic plan to guide the design and
                  implementation of the trust business processes. Interior is in the process of developing a


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    strategic plan 3, which will define and describe the vision, goals, and objectives of trust
                    reform and operating the trust program.

                   This strategic planning effort began in January 2002 under the leadership of the Office of
                   Indian Trust Transition (OITT) and has expanded through the efforts ora department-
                   wide strategic planning team, including representatives from OST, BIA, MMS, and
                   BLM. The Joint Interior/Tribal Leader Task Force on Trust Reform (Task Force)
                   participated in this process through its planning subcommittee, and the subcommittee
                   recommended that Interior's proposed goals and objectives (with minor changes) be
                   adopted. Interior has also retained a management-consulting firm, Logistics Management
                   Institute, to assist in preparing the strategic plan.


                   The goals at the heart of the strategic plan will cover: (1) beneficiary services; (2)
                   ownership information; (3) land and natural resources assets; (4) trust fund assets; (5)
                   Indian self-governance and self-determination; and (6) administrative services. The
                   objectives set forth in the strategic plan will define the broad ways in which these goals
                   will be achieved. The strategic plan will also consider the trends that influence trust
                   management, the role of relevant stakeholders, and the interaction of Interior agencies.
                   Through examination of the "big picture" of trust management, Interior seeks to create a
                  coordinated and integrated system in which all pieces function as a coherent whole.




                  3 This plan has been previously been referred to as the Indian Trust Business Plan. See,
                  e.g., Eleventh Report, Nov. 1, 2002, at 37-38. More recently it is referred to as the
                  Comprehensive Trust Management Plan.

                                                                      10


                     FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    Since Interior's submission of the Eleventh Report, work on the strategic plan has
                   continued, and Interior expects that this plan will be completed by the end of the second
                   quarter of CY2003. Once completed, it will be regularly evaluated and updated to ensure
                   its responsiveness to the ongoing needs of Interior's trust operations. It will be a dynamic
                   strategic plan that can and will be adapted to changing environments.


                   As previously mentioned, the primary elements of Interior's ongoing trust reform
                   planning and implementation efforts are: 1) the reorganization of Interior trust offices to
                   improve delivery of services, effectiveness and accountability of trust operations, and 2)
                   the reengineering of Interior's business processes and applying the universal support
                   functions to ensure that Interior meets its trust goals and objectives. Through this
                   ongoing comprehensive effort at trust reform Interior expects to achieve the results that
                   Congress, Indian beneficiaries and the Court are expecting. The elements of the ongoing
                   effort have been the subject of consultation with the Task Force and others in the Indian
                   community. The effort also has been guided by independent outside trust experts, and,
                   for the first time, will result in an integrated beneficiary-tbcused Plan for delivery of trust
                   services.

                   In its September 17, 2002 opinion, the Court reaffrmed its December 1999 conclusion
                   that it would not be appropriate for the Court to specify "the accounting method for the
                   agency to employ" in conducting the historical accounting. 4 Just as the Court and the
                   Court of Appeals 5 have not prescribed a specific method of accounting that Interior
                   should use, so, too, the Court should allow Interior to pursue its comprehensive trust
                  reform effort, as previously described to the Court.

                  4
                            226 F.Supp 2d 1, 116 n. 136 (DDC 2002)
                          5 Cobell v. Norton, 240 F3d 1081, t 103 (D.C. Cir. 2001).

                                                                                                 11


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003



                   Interior's reform effort as designed will enable Interior to take into account such things as
                   the dynamic tension that exists between the United States government's commitment to
                   Indian self-governance and self-determination and the need for standardizing trust
                   business practices and services as well as recognize the differences in the Indian trust and
                   a private sector trust. The trust that Interior is responsible for includes land, Indian
                   homes that sit on that land, ancestral property, sacred sites and other unique assets. It is a
                   trust of both Indian tribal lands and the lands of individual Indians often with strong
                   cultural and emotional ties. For this reason, Interior, as trustee, is mindful of the
                   importance of recognizing the unique circumstances of all beneficiaries in the
                   management of this trust. The trust that Interior manages is not the typical corpus
                   managed by a private sector trustee where fees are charged as part of normal business
                   practices for the services delivered. Moreover, the Court recognized that "the federal
                   government's fiduciary obligations may not be coextensive with those of an ordinary
                   trustee. ''6


                   The Federal Government bears the entire cost of administering the Indian trust. As a
                   result usual incentives found in the private sector for reducing or paying for the
                   management of the trust do not apply to the Indian trust. For instance, thousands of
                   accounts must be maintained for IIM account holders that contain less than one dollar.

                   In order to meet its trust goals and obligations, Interior continues to request significant
                   budget resources. However, to meet the expectations of both Interior and its
                   beneficiaries, Congress must appropriate these funds. The President's proposed FY2003
                   budget and the budgets passed by the House and reported out by the Senate

                   6 226 F.Supp. 2d 1,151, n. 161 (DDC 2002).

                                                                                      12


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    Appropriations Committee endorsed significant increases in trust management. While
                    details of the FY2004 budget are not available until the President's budget is released in
                    February 2003, Interior is confident that even more resources will be provided for trust
                    services.


                    Traditionally, Indian people have had their closest relationships with the BIA at the local
                    level. It is at that level that the beneficiaries have found that their special needs and
                   practices have best been taken into consideration. As a result, the BIA has developed
                   many different processes for managing the Indian trust. Meaningful trust reform will
                   require examining how to standardize practices while keeping in mind that our
                   beneficiaries often have vastly different needs. In addition, the lands that make up the
                   corpus of this trust are under the jurisdiction of more than 500 different Indian Tribes,
                   each of which is a sovereign government subject not only to Federal law and treaties, but
                   also to its own internal laws and customs, and often, its own statutes and regulations.
                   This tension is part of what makes trust reform difficult but also essential. Interior
                   recognizes that the beneficiaries must have confidence in trust management as they move
                   towards more self-determination and self-governance.


                   III. STANDARDS


                   In accordance with the Court's order, Interior has examined the standards applicable to
                   administration of the IIM accounts. ? The primary standard that Interior must meet in
                   regard to accounting is set by the 1994 Act. As enunciated by this Court, it is "to provide

                   7 This Plan is intended to comply with the Court's order. It is not intended to, and does not, create any
                   legal right or benefit, substantive or procedural, enforceable by a party against the United States, its
                   agencies, or instrumentalities, its officers or employees, or any other person.
                                                                      13


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    an accurate accounting of all money held in trust for the benefit" of Indians. 8 Other
                    standards that Interior must meet in fulfilling its trust fund accounting obligations, as
                    enumerated in the 1994 Act, 9 are as follows:
                           provide adequate systems for accounting for and reporting trust fund balances;

                           provide adequate controls over receipts and disbursements;
                           provide periodic, timely reconciliations to assure the accuracy of accounts;
                           determine accurate cash balances;
                           prepare and supply account holders with periodic statements of their account
                            performance and with balances of their account which shall be available on a
                            daily basis;
                           establish consistent, written policies and procedures for trust fund management
                            and accounting;
                           provide adequate staffing, supervision, and training for trust fund management
                            and accounting;

                           account for the daily and annual balance of all funds held in trust for the benefit of
                            individual Indians;
                          provide a periodic statement of performance at the end of each calendar quarter to
                            each IIM account holder that identifies: a) the source, type and status of the funds;
                           b) the beginning balance; c) the gains and losses; d) the receipts and
                           disbursements; and e) the ending balance; and
                          perform an annual audit of all funds held in trust by the United States for the
                           benefit of individual Indians.

                   s 226 F. Supp. 2d at 17.
                  9 25 U.S.C.  162a(d)(1)-(7); 25 U.S.C.  4011.

                                                                      14


                     FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                   Thus, the 1994 Act requires that certain systems or programs be implemented to achieve
                   the 1994 Act's standards for beneficiary service. It uses terms such as "adequate" and
                   "timely," but the Act generally does not specify the manner in which Interior must
                   structure or operate its accounting programs. Instead, Interior must exercise its best
                   judgment in determining which of myriad ways to operate an accounting program most
                   effectively the statutory obligations.


                   Interior looks to a number of sources as guidance to inform its judgment and assess its
                   performance ill meeting the 1994 Act's requirements: applicable federal statutes, Interior
                   regulations, the Departmental Manual, Office of Management and Budget (OMB)
                   circulars, Department of Treasury guidelines, generally accepted accounting and auditing
                   standards, its employees' and consultants' experience and expertise, as well as other
                   sources of relevant fiduciary practices.


                   Where there are statutes or regulations governing particular aspects of certain programs,
                   these are discussed in connection with those programs. For the most part, the documents
                   listed in this Plan as sources of guidance describe best practices or establish specific
                   procedures for certain functions, but not judicially enforceable standards.


                   With this background in mind, throughout this Plan, Interior has identified the various
                   sources upon which it relies for guidance. It has also provided information about
                  performance targets, principles and goals that guide Interior's managers in reforming,
                  implementing and evaluating their accounting programs.   Through this Plan's


                                                                      15


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    description of the many sources that influence trust accounting operations, Interior hopes
                   to inform the Court about the manner in which it will take action to fulfill its
                   responsibilities.





































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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN              JANUARY 6, 2003

                  IV.     CURRENT OWNERSHIP, FUND COLLECTION, DEPOSIT AND
                            TRANSFER
                               A.      INTRODUCTION

                  As set forth in the introduction, to comply with Sections 4011 (a) and 4011 (b), Interior
                  has determined that it must accomplish three tasks: (1) Historical Accounting; (2)
                  Current Ownership, Fund Collection, Deposit and Transfer; and (3) Current Accounting-
                  Trust Fund Accounting System (TFAS). This section discusses our plan with respect to
                  the section - Current Ownership, Fund Collection, Deposit and Transfer.



                  As stated earlier, the Historical Accounting Plan addresses IIM account balances up to
                  December 31, 2000. Current activities are those occurring January 1, 2001 to present.


                  The following discussion focuses upon land title, ownership, Teasing, and the associated
                  activities of funds collections, deposits and transfer to OST's OTFM.


                  OST's trust funds management activities, from the point that they are received from BIA
                  and MMS, are discussed in the next section of this document.












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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                               B.      THE CURRENT OWNERSHIP COLLECTION, DEPOSIT AND
                                        TRANSFER PROCESS
                                          1.  IIM ACCOUNTS


                  An IIM account is normally opened to receive and maintain trust finds. Trust funds may
                  become available because of an inheritance, or funds may come to an individual from
                  various sources, such as judgment awards, land leases or sales, rights of way payments,
                  or Tribal Trust fund per capita disbursements.


                  As discussed extensively in tile Historical Accounting Plan, there are three distinct types
                  of accounts that involve individual Indian Trust funds: judgment and per capita, land
                  based and special deposit. Judgment and per capita accounts typically receive a payment
                  reflecting a distribution of a judgment award or of tribal trust funds to tribal members.
                  Land-based accounts are typically associated with beneficiaries who receive income from
                  allotted lands. Special deposit accounts are holding accounts maintained until funds are
                  properly distributed to the appropriate individual or entity.


                  OTFM updates an IIM account when it receives notice of address, name, or marital status
                  changes or when any type of error is discovered and documented. These updates may
                  reflect status changes (e.g., restricted, unrestricted) for a variety of reasons. Restrictions
                  may be voluntary or involuntary.






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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    Currently, an IIM account may be coded as closed when it no longer receives recurring
                    income, when a minor reaches the age of majority with no potential recurring income,
                    when an estate is probated, assets are no longer owned, or when an unnecessary duplicate
                    account is identified. IIM accounts are eligible to be coded as closed after a 24-month
                    time lapse with a zero balance and no activity.


                                            2.  MAINTAINING OWNERSHIP INFORMATION


                   The Land Titles and Records Offices (LTRO), pursuant to 25 C.F.R. 150.4, and other
                   BIA offices having title service responsibilities, are designated as the Federal offices of
                   record for Indian land records and title documents. LTRO managers are responsible for:
                   processing input into the Land Record Information System (LRIS); recordation, custody,
                   and maintenance of records except eastern Oklahoma that affect titles to trust and
                   restricted Indian land and government-owned land under the jurisdiction of BIA;
                   examination of titles to trust and restricted Indian land and the preparation of title status
                   reports; certification of title documents; and preparation of land status maps.


                                           3.  LEASING ACTIVITY
                  BIA agency and regional offices prepare and manage land leases, permits, and contracts
                   for the sale or lease of trust lands. Leases and permits convey rights to a lessee or
                  permittee to conduct a variety of activities in exchange for payments. Examples of such
                  rights include but are not limited to agriculture, grazing, timber harvesting, oil and gas
                  production, development of hard-rock minerals, and rights-of-way, etc.


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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003


                    BIA enters many (but not all) leases into the lease module contained in the Integrated
                    Records Management System (IRMS) or other automated and manual systems within
                    BIA. This information is used in conjunction with the ownership data to facilitate
                    distribution to beneficiaries.


                                            4.  COLLECTING AND DEPOSITING LEASE OR PERMITS
                                                PAYMENTS


                    BIA agency and regional offices prepare and manage contracts for land leases, permits or
                    land sales. They may or may not send bills for payments due, and few offices have any
                   type of automated accounts receivable system. Payments are generally received at BIA
                   agency and regional offices.



                   Payment checks are logged by the mail clerk and delivered to the certified collection
                   officer, which is usually a collateral duty assigned to a staff member. Notices of payment
                   are given to the appropriate program office (such as realty, forestry, etc.). The program
                   office should match each notice with the appropriate lease or permit. Some agencies
                   maintain beneficiary distribution information in the ownership module of IRMS, which
                   interfaces with the TFAS. Others prepare the information manually. The certified
                   collection officer prepares a schedule of collections and forwards the schedule and
                   monies for ultimate deposit to a federal depository.




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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    Certified collection officers may be located at the Agency or Regional Office, depending
                    on the region. The collector verifies accuracy of the deposit information related to the
                    checks and deposits the funds at a federal depository.


                    Funds are posted to beneficiaries' accounts through one of the following means:


                                 a)  Interface files for posting to TFAS;
                                 b)  The OTFM field staff enters information into an electronic work ticket
                                     system for eventual posting to TFAS; and
                                 c)  The OTFM field staff creates manual work tickets and faxes to OTFM in
                                     Albuquerque for posting to TFAS.


                   OTFM reviews proposed transactions for appropriateness of documentation, and if
                   adequate, approves for posting to TFAS. if a transaction is not approved, OTFM notifies
                   the originating office of the errors to be corrected (e.g., dollar amount, account number,
                   date). The originating office makes corrections and faxes documentation to OTFM with
                   the corrections initialed as having been made.


                   OTFM performs a verification of accuracy on transactions posted through OTFM and for
                  interfacing systems. The originating office verifies that funds were posted to appropriate
                  accounts. If OTFM or the originating office finds an error in TFAS, the appropriate



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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    OTFM issues group addresses remediation. OTFM makes the correction, and the
                    originating office verifies that the error was corrected.



                    If funds do not post, the specific transactions are listed on the Daily Cash Reconciliation
                    (DCR) report. The DCR also lists checks that did not clear with the Treasury. These
                    exceptions are referred to the appropriate office.


                                            5.  COLLECTING, ACCOUNTING AND DEPOSITING OIL,
                                                GAS AND OTHER MINERAL LEASE PAYMENTS


                   MMS manages the collection and accounting of royalties and rentals received from
                   producing Indian mineral leases. MMS does not maintain information on individual
                   Indian mineral beneficiaries.


                   The Payor submits payment and a royalty report for Indian leases to MMS. Royalty
                   payments are generally due on the last day of the month for the previous month's
                   production. Funds are received in the following manner:
                                    a)  Check via mail or courier;

                                    b)  Electronic Funds Transfer to Federal Reserve Bank; and

                                    c)  Lockbox arrangement.






                                                                      22


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    Over 98% of all funds are received through electronic funds transfers directly to the
                    MMS Treasury account. However, when a check is received by MMS, it is deposited
                    with other MMS receipts in a federal depository for credit to MMS's Treasury account.
                    On a daily basis a listing of all Indian payments deposited to Treasury the previous day is
                    faxed to OTFM. The listing includes a distribution code which identifies receipts by
                    specific Tribe or allotted leases. OTFM then posts the funds to either a specific Tribe or
                    a holding account in the case of allotted lands. Once identified, the funds are transferred
                    from the MMS Treasury account to OST's Treasury account and OTFM is notified via a
                    standard form (SF) 1081.



                   MMS processes the royalty report (containing lease and royalty information) and runs it
                   against system edits to check for among other things: mathematical errors; valid lease
                   and agreement numbers; royalty rates; and sales month and year. Upon completion of
                   system edits, royalty information is allowed to establish an accounts receivable. The
                   MMS system matches receivables with payments. MMS staff provides support as
                   needed.



                   Once this payment matching process has occurred, the MMS creates the Indian
                   Distribution File (with leases and amounts as well as fund codes) that is hand-carried on
                   CD to Interior's National Business Center in Denver. BIA logs onto the National
                   Business Center computer and initiates the process. The file is then transferred to the
                   BIA Office of Information Resource Management (OIRM) in Reston, Virginia for



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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003
                                                                                                 I



                                                         completion of the Royalty Distribution and Reporting System (RDRS - a module of
                    IRMS) process.


                    The BIA agencies or regional offices reconcile the Indian Distribution File from MMS
                    with the RDRS generated information. OIRM coordinates the processing and transfer of
                    the distribution interface from BIA to TFAS beneficiary accounts.



                   Additionally, MMS receives and processes production reports for Indian mineral leases.
                   Production reports are sent to the BLM which verifies the production report to MMS by
                   the operator. Inconsistencies are reported to MMS, which then researches and makes the
                   appropriate correction.



                                C.      PERFORMANCE TARGETS


                   Interior's key goals regarding funds collection, deposit and transfer, are accomplished
                   when Interior is able to:


                          Provide timely and accurate data regarding the ownership of individual Indian
                            allotments and associated lease and sale proceeds.


                          Provide timely information regarding the source, type and status of funds.




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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                           Provide adequate controls over the receipt (collection, deposit and transfer to
                            TFAS) of funds.


                            D.      GUIDANCE REGARDING PERFORMANCE


                   The 1994 Trust Reform Act does not specifically address fund collection, deposit or
                   transfer processes. To meet some of the Act's specific accounting obligations, however,
                   it is essential that the collection, deposit and transfer systems work properly. Other
                   Federal Government guidance on these subjects include:


                           Title Standards 2001, Department of Justice
                            The Title Standards serve as a guide for the preparation of evidence of title for all
                            acquisitions by the United States of land or interests in land, including
                            acquisitions by direct purchase, exchange, donation, and condemnation. Title or
                           ownership of land or interests in land is determined by an examination of
                           documents in the public land records, by a physical inspection of the property and
                           by a review of other supplemental or supporting documents.


                          Land Titles and Records Guidelines, 54 BIA Manual Supplement 9
                           Provides guidance regarding policies, procedures, and standards to the Land Titles
                           and Records Office managers, and other program managers who have direct
                           supervision over the land titles and records function.




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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                        *   BIA Regulations, 25 C.F.R.  115.702 - 708
                            These regulations provide specific guidance regarding acceptable IIM account
                            deposits.


                        *   Department of Treasury Guidelines
                                 o  Checks and Cash Received in Collections, Treasury Financial Manual,
                                     Part 5 Chapter 2000
                                 o  Deposit Tickets, Treasury Financial Manual Part 5 Chapter 3000
                                 o  Making Deposits, Treasury Financial Manual Part 5 Chapter 4000


                            These documents provide Treasury guidance regarding cash collections and
                            deposits.


                   E.      STATUS OF OPERATIONAL PERFORMANCE ("AS-IS")


                                1.      GENERAL ASSESSMENT
                   Interior can comply substantially with all of the requirements, on an individual, case-by-
                   case basis. Land title documentation is maintained, ownership interests are determined,
                   leasing activity is conducted, and leasing and sales receipts are collected, deposited and
                   transferred to TFAS.







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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    However, Interior is not satisfied with the overall performance of the trust management
                   program. Trustees are expected to perform trust functions accurately and timely and
                    questions have been raised about the performance of this Indian trust.


                   An evaluation of the complexity and limitations of current trust management systems,
                   both automated and manual, suggests that Interior cannot timely provide for the entire
                   trust:


                           data regarding allotment ownership to individual Indian beneficiaries on a routine
                            basis.
                           source, type and status information linked to every cash receipt.
                           an independent audit evaluation of its cash receipt process.
                          timely and complete information regarding the gains and losses associated with
                            the sale of allotment assets.


                   Several initiatives have been recommended to improve performance in this area. Interior
                   plans to review those recommendations as a part of its "To-Be" trust management
                   systems reengineering process.











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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                               2.      RELEVANT ACCOUNTING OBSERVATIONS OF THE "AS-
                                        IS" EVALUATION TEAM


                  Information gathered through the "As-Is" process has been utilized in preparing this
                  section, although the report itself has not been completed. This section of this document
                  will only focus upon the "As-Is" observations on the ownership, funds collection, deposit
                  and transfer functions associated with accounting management analysis.


                  A significant part of the draft "As-Is" document describes, in detail, the standard and
                  non-standard trust processes. The term "standard", as used in the draft "As-Is"
                  document, refers to common practice in the field (i.e., how a process operates most of the
                  time is not necessarily how it is supposed to operate). Regional variations to the standard
                  processes are presented in variance tables; these variances are considered "non-standard"
                  trust processes.



                  Variances exist for a variety of reasons. They may be due to federal, state, or local laws,
                  treaties, court rulings, local practices, or other reasons. These variances indicate how
                  various tasks may be done differently, but it is not synonymous with the function being
                  done incorrectly. Additional analysis is required to identify best practices from among
                  the various approaches being employed. Where possible, effort will be needed to
                  standardize the process to attain greater efficiency in work product management.





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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN              JANUARY 6, 2003

                    The "As-Is" trust document is complex and complicated. The eight business processes
                   have significant inter-relationships and require a substantial amount of coordination. The
                   processes also flow across organizational boundaries, which adds more complexity and
                   possible conflict that can slow down the delivery of services to the beneficiaries.


                   Based upon the discussions with Interior staff and a review of the key observations from
                   EDS (which are pending Interior review), relevant comments regarding the status of
                   funds collection, deposit and transfer activities include the following:


                                                  a)  SYSTEM INTERFACES


                   Depending on the systems being used, BIA performs quality assurance routines prior to
                   creation of the distribution interface file. For example, this includes:


                       *   Confirming distribution ownership to the ownership in the title system;
                       .   Preparing and reviewing pre-distribution reports; and
                          Checking physical records.


                  If a distribution file contains a beneficiary account that is not available on TFAS, the
                  transaction is posted to a TFAS reject account. Each day, OTFM notifies the originating
                  office of a rejected account. The originating office is then responsible for ensuring that
                  documentation is provided to move the transaction from the reject account to the proper
                  beneficiary's account.


                                                                     29


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003


                    Accuracy of royalty payments received from the lessee is verified by MMS through its
                    compliance program. This activity verifies that payments are made in accordance with
                    applicable Indian lease terms, laws and regulations, as well as policy guidance. The
                    MMS perfonns a combination of automated verification routines and traditional field
                    audits. MMS through its audits will verify that the volume, value and royalty are
                    reported accurately by industry. The compliance activities occur after payments are
                    received. If the audits or automated verification routines result in findings, the payor will
                   receive an order to pay the additional royalty and associated interest due. Once the
                   payment is received, the full amount is distributed to the lease interest owner.


                   The MMS financial system was audited by an independent auditor and for its FY2001
                   audit received all unqualified (i.e., clean) opinion.


                                                  b) INDIAN TRUST SYSTEMS


                   Interior operates systems that record beneficiary information, title information, ownership
                   and real property information and accounting information. There are multiple systems.
                   Some beneficiary information is contained in all of the systems.


                   In the current Interior environment, there are four main types of data being captured:
                   beneficiary, title, realty and accounting. The same data elements are being entered into a
                   number of different automated and manual systems without reconciliation being


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                     FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                   performed among these various systems. There is not a standardized format for capturing
                   data across the systems or across the geographical regions. As a result, there are
                   instances where important information in such systems as the Land Record Information
                   System (LRIS), IRMS, Trust Asset and Accounting Management System (TAAMS) and
                   TFAS is not in agreement.


                   This lack of a unified source of information makes it difficult to produce a
                   comprehensive beneficiary statement of performance. In some cases, it has proven either
                   cumbersome or difficult to find all of the information necessary to satisfy a beneficiary
                   query or operational need in a timely way. The lack of intra and inter-Bureau consistency
                   diminishes the effectiveness of the organizations that must use, share or update common
                   information.


                   Currently, BIA has no standard accounts receivable system. Some BIA offices use local
                   accounts receivable systems, but other offices have no automated capability to track
                   effective dates and termination dates of leases or permits, send invoices for payments
                   due, project the amount of money coming in, or monitor payment compliance.


                   In addition, Interior has recently moved to investigate other, broadly-based IT systems
                   that might be adapted for use in the trust management systems. Problems with the quality
                   of the data in title and realty within the Indian trust are caused by a lack of national data
                   standards and quality control and a lack of integrated trust systems. These
                   inconsistencies can have a direct impact on the ability of Interior to administer its


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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    fiduciary responsibilities. Interior has recognized these problems and has expanded the
                    Data Quality and Integrity initiative. This project will improve the quality and integrity
                    of the data in the systems. A by-product of this initiative may be an improved ability of
                    the BiA, OTFM, BLM, MMS and other agencies to access and share consistent
                    information.


                   The Data Quality Integrity effort underway will address some the problems of errors and
                   inconsistencies within the IIM accounts. Under it, Interior is planning to develop a
                   centralized data warehouse that will store "cleanscd" data, have the ability to link with
                   multiple systems, and sustain a single, approved set of critical data elements. This will
                   directly address the problem of different trust units not using the same data ownership,
                   realty and payment data.



                                                  C)  TITLE MAINTENANCE



                   Generally, title to trust land is maintained by the BIA and a few tribes. However in
                   Oklahoma, some owners' title is maintained by the state. These organizations have
                   separate requirements, procedures and infrastructures for maintaining title. This makes it
                   difficult to coordinate Trust-related title information and causes inconsistency.


                  While there are procedures in place to ensure that LTRO updates are performed, they are
                  not routinely followed. The backlog of data entry is creating inconsistencies between the

                                                                      32


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    information in the LTRO and agency/tribal ownership records. There is no automated
                    reconciliation to ensure LTRO and agency/tribal records are consistent once changes
                    have been applied in the various systems.


                   Recordation policies are not consistently applied for each transaction with regard to
                   document setup and recordation. Some agencies do not submit all short-term leases,
                   leases for nominal payment, or permits to the local servicing LTRO for recording. Lease
                   renewals, expirations and cancellations are not always recorded.



                   LTRO managers met in October, 2002 to begin evaluating and standardizing recordation
                   policies and information support. This meeting included both BIA and Tribal Land Titles
                   and Records Office managers. LTRO standardization activities are ongoing.


                   The agency and tribal network infrastructure is limited; agencies rely primarily on
                   standard, low-speed dial-up connections to access Interior resources. This infrastructure
                   will not support the volume of information required to share title documentation with all
                   affected organizations.










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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                                                 d)  TITLE MAINTENANCE BACKLOG

                  Interior maintains a record of trust assets, ownership and utilization. However, the
                  recording and encoding backlogs prevent LTRO, agencies and tribes from sharing
                  information in a timely manner, thereby making it difficult to maintain current and
                  accurate title records.



                  The TAAMS title software module is currently in use by four BIA Regions. Plans are
                  underway to upgrade and implement this title system across the remaining LTROs.
                  TAAIVIS has increased fimctionality and improved efficiency of both data entry and
                  retrieval.


                                                 e)  SURFACE LAND-USE PROCESSES
                  Ownership information is vital to surface leasing processes. Specifically, issuing 90-day
                  notices, requests for "authority to grant", and obtaining agricultural lease consent, all
                  provide BIA line officials the necessary input and approval from the landowners of
                  fractionated-ownership tracts to enter into contractual relationships with land operators
                  on behalf of the landowners. Most importantly, the ownership interests are also used to
                  calculate the distribution advice for disbursement of land use revenues.


                  A variety of situations and reasons drive local BIA land program or realty resources to
                  use different sources of information. The generally agreed-upon legal system of record
                  for ownership interest information is either TAAMS or LRIS. Cycle times from request
                  to receipt of certified Title Status Reports (TSR) are impractical for use in most land

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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    operations processes. Surface operations resources, to support timely completion of these
                    processes, turn to whatever information is available. Where tribal resources perform any
                    of these processes, there are additional access and security limitations for access to the
                    appropriate information, and tribal records are frequently used.



                                                  f)  COLLECTION PROCESS
                    BIA offices receive most payments for land-related transactions. The appropriate
                   program staff, such as realty, forestry, or range is responsible for preparing posting
                   instructions for the certified collection officer prior to deposit, so the funds can be posted.


                   As noted in other areas, parcels of land may have hundreds or more than a thousand
                   fractionated interest owners. When a parcel of land is leased, the appropriate BIA
                   program office sets up a file that lists all interest owners with corresponding IIM account
                   numbers and interest percentages for payment distribution. In many cases, this
                   information is encoded in a lease and owner module. These systems create electronic
                   batch updates to TFAS. However, due to the multiple systems of record, all ownership
                   records may not be synchronized.



                  In regions where a lease distribution interface program is not used, BIA program staff
                  must manually prepare distribution information for the certified collection officer, who
                  deposits checks and submits distribution advice to OTFM for the preparation of paper



                                                                     35


                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                  work tickets. In these cases, OTFM will reject only transactions that are not supported by
                  proper documentation.


                  BIA offices routinely record funds that cannot be immediately distributed to the
                  beneficiaries into Special Deposit Accounts (SDAs) so interest can be earned until proper
                  distribution can be made. This practice results in SDAs with large balances. An
                  initiative is underway to clean up these accounts, and the current policy is to use SDAs
                  only as a last resort. However, a few regions continue to use SDAs because all lease
                  payments are due at the same time each year, and they do not have the resources or
                  information to process payments quickly.


                  Compliance with the policy of depositing funds within 24 hours of receipt is not
                  consistent nationwide. There are a variety of reasons. Agencies located in remote areas
                  often have no choice but to send deposits to the OTFM regional office via regular mail or
                  drive several hours to hand carry them. In addition, an OTFM office may receive too
                  many deposits on one day to process before the bank cut-off time.



                      F.  STEPS NECESSARY TO REACH TRUST OPERATION PERFORMANCE
                           ("TO-BE")


                           1.  OVERVIEW
                  EDS, and the "As-Is" evaluation team, also conducted a comparison between the
                  structure and workings of commercial trusts and the Indian trust. The document noted

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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    that there are a number of inherent differences between them: the high number of small
                    accounts in the trust, the emphasis toward encouraging tribal self-government and trust
                    function operation, and other factors (several more are discussed in the Observations
                    section below). Further, commercial trusts are primarily governed by the laws and
                    guidelines of the Office of the Comptroller of the Currency (OCC), whereas the Indian
                    trust must deal with a great number of separate federal, state and local laws, as well as
                    tribal laws and treaty obligations. These laws and regulations add a significant level of
                    complexity to Indian trust administration.


                    In many other respects, there are close parallels between commercial trusts and the Indian
                    trust. The two have the same basic functions and transactional requirements, and have
                    similar fiduciary responsibilities. However, there are many differences in the way they
                   are implemented.


                   A general finding of the evaluation team is that current Indian trust operations are much
                   more complicated when compared to a commercial trust environment. Indian trust
                   processes operate within silos, with many steps cycling back from one area to another to
                   obtain needed additional information or further action. The EDS analysis clearly
                   demonstrates the very large number of flows, loops and sequences that are now part of
                   the trust activities. This situation has developed in large part as a result of the
                   decentralized procedures and systems, which have evolved piecemeal over time, from
                   organizational fragmentation, and from absence of trust-wide planning. In contrast,
                   commercial trusts (including those with substantial real estate holdings) have a much


                                                                      37


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                    smoother transactional flow even though it depends upon many different parties to
                    execute required title and realty activities.


                    EDS and the "As-Is" evaluation team found Interior staff to be hard working and
                    typically performing as well as they could within the current environment. The team was
                    also able to find several instances where, either at the agency or regional level, very
                    effective practices had been put in place.


                    In many cases, it appears that the personnel resources available are inadequate to address
                    the current workload. However, because there are other major opportunities to improve
                   the speed and effectiveness of the work being performed, it is difficult to draw overall
                    conclusions about the need for additional personnel.


                            2.  OPTIONS FOR IMPROVEMENT


                   For the purposes of this submission to the Court, Interior has identified a variety of tasks
                   that could improve the trust management environment. These options, and others to be
                   developed, must be evaluated in the "To-Be" trust systems redesign process and that are
                   relevant to the topic of funds collections, deposit and transfer include:


                           Continue upgrade and expansion of TAAMS title module.


                           Expand the Indian land consolidation program to reduce fractionation.


                                                                       38


                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003


                         Increase use of the "memo tickler" capability in TFAS to record important
                           information associated with accounts, especially anything an Interior employee
                           may need to be aware of if a beneficiary makes an account maintenance or
                           disbursement request in another region.


                         Follow through with enhancements to TFAS that are planned or already
                           underway, such as integrating the source assets information associated with an
                           IIM account.


                         Continue the Data Quality Integrity initiative to build a data store that will house
                           all critical components of information and allow appropriate units to access
                           information for infom_ational, reporting, or processing purposes.


                         Implement an accounts receivable system with capabilities to track effective dates
                           and termination dates of leases or permits, link to asset and ownership
                           information, send invoices for payments due, accept interface updates of
                          payments received, auto-distribute to beneficiary accounts, project cash flow, and
                          monitor payment compliance.


                         Add reporting capabilities to TFAS to automate Treasury and in-house
                          management reports and reconciliations as much as possible.




                                                                     39


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                           Streamline account maintenance and disbursement request forms so they will be
                             easier to understand and complete.


                           Make forms, requirements, and instructions available to beneficiaries on the
                            Intemet. Develop beneficiary instruction cards or brochures explaining
                            procedures and requirements, and make them available in BIA and OTFM offices.


                           Identify alternatives to notarization, in addition to Interior staff, to certify
                            accounting transaction forms.


                           Put an OST staffperson at each BIA agency office to handle account maintenance
                            and financial transaction requests. Regions that do this reported far fewer
                            problems with transaction processing. It relieves BIA staff of the responsibility of
                            preparing accounting transaction requests and gives it to an accounting technician
                            for whom it is a primary responsibility.


                          Provide electronic reference/help to BIA and OST staff so there will be one
                            consistent source of requirements, guidelines, and procedures.


                          Implement document imaging and retrieval capabilities so beneficiary documents
                           and records can be scanned once and made available to appropriate Interior staff
                           nationwide.




                                                                      40


                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                           Implement workflow or case management technology combined with the imaging
                             capability to manage the information and processing flow.


                           Provide additional resources to BIA offices to help clean up ownership records,
                            lease distribution interface files, and special deposit accounts. These efforts are
                            already underway and should be maintained.


                           Develop and implement consistent internal controls for the collection process.


                           Automate and centralize the collection, deposit, and posting process. This
                            recommendation is dependent on accurate ownership records, the association of
                            assets with IIM accounts, document imaging, and an automated accounts
                            receivable system. Auditing a centralized process would be much more practical
                            than auditing processes at offices nationwide.


                          Establish a cost-effective procedure to address small trust fund distributions.
                            Currently many distributions of less than one dollar are made to IIM accounts
                            from probate accounts or lease payments. Many accounts must be opened solely
                            to receive these distributions. As of September 30, 2002, there were more than
                            20,000 accounts with a balance of less than one dollar. The annual cost to
                           maintain an IIM account on TFAS is between approximately $35 - $180
                           (depending upon transaction volume).



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                      FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                            Continue with BIA/OST Interagency Handbook (see Exhibit 1) training initiative
                             already underway.


                           Conduct periodic meetings between BIA and OST at all levels to resolve issues
                             and unclear responsibilities, and identify additional opportunities to improve
                             communications between BIA and OST.


                            3.  "TO-BE" PROCESS AND PROJECT MANAGEMENT
                    Interior will need to consider the aforementioned initiatives further to determine whether
                   the initiative will achieve the desired result, which are most critical, where monies should
                   be allocated, in what order initiatives should be implemented, and what supporting
                   changes in technology will be required.


                   Development of the new trust management model will be a challenging and complex
                   undertaking for Interior. It will require significant coordination, collaboration, and
                   communication among many participants, tribal representatives, process areas, subject
                   matter expertise, leaders, and sponsors. Effective project planning and management will
                   be critical to achieve the desired outcomes of this phase. The past organizational issues
                   and decentralized nature of efforts to improve have hindered progress.


                   The model should not only encompass reengineered and new processes, but also include
                   coordinated improvements in supporting systems, organizations, training, and personnel
                  requirements of the new environment. Attaining the real change needed for planning and

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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                  implementing the "To-Be" model will not happen quickly and will require participation
                  and buy-in from many stakeholders.



                  Interior's recent experience in seeking buy-in regarding the proposed reorganization of
                  trust functions within interior, illustrates the shortcomings of unilateral decision-making
                  and lack of communication with affected stakeholders. What appeared to be a
                  straightforward initiative requiring routine communications with Congress and Indian
                  Country, resulted in many consultation meetings around the country, the formation of a
                  Task Force that involved other multiple meetings around the country, consumed
                  thousands of hours of Interior senior management attention, and involved multiple
                  Congressional hearings. The reorganization proposal ultimately took almost one year and
                  support for the initiative is still mixed. Other, more significant changes, to be identified
                  in the reengineering of the trust management program may also require substantial time
                  and resource commitments.

















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                  FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                 V.      CURRENT ACCOUNTING - TRUST FUNDS ACCOUNTING SYSTEM


                     A. INTRODUCTION


                 The next section describing current accounting obligations covers the accounting for
                 funds from the time funds are recorded into the trust fund accounting system until they
                 are disbursed. The activities engaged in beforehand to collect and deposit the funds have
                 been described in the previous sections. In the same manner as the previous section, this
                 discussion will focus only on current accounting. Issues raised by the historical
                 accounting for fimds up to December 31, 2000 is discussed in a separate plan submitted
                 to the Court.


                 This section describes the accounting activities including investment of funds received,
                 reconciliation of funds within TFAS, communication with beneficiaries, disbursement of
                 funds and auditing of the trust funds. Included is a discussion of the systems used,
                 controls for receipts and disbursements in place and the steps to come into compliance
                 wherever deficiencies in meeting the trust obligations may exist.


                      B.   TRUST FUNDS ACCOUNTING SYSTEM PROCESS
                 Interior's goal is to provide accurate accounting of all funds held in trust for individual
                 Indians. Interior will achieve this goal when it can properly discharge the following
                 statutory obligations, which include both maintaining accurate account balances and
                reporting information to beneficiaries:


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                   FIDUCIARY OBLIGATIONS COMPLIANCE PLAN               JANUARY 6, 2003

                   (1) GENERAL STATUTORY DIRECTIONS



                (i)    Statutory Direction

                REQUIREMENT TO ACCOUNT- The Secretary shall account for the daily and annual
                balance of all funds held itt trust by the United States for the benefit of an Indian tribe or an
                individual Indian which are deposited or invested pursuant to the Act of June 24, 1938 (25
                U.S.C.  162a.
                                                                                                         25 U.S.C. _ 4011 (a)
                Tile Secretary's proper discharge of the trust responsibilities of the United States shah include
                (but are not limited to) the following:
                     Deterntine accurate cash balances.
                                                                                                          25 U.S.C. 162a (d) (4)
                         Preparing and supplying account holders with periodic statements of their account
                         performance and with balances of their account which shall be available on a daily
                         basis.
                                                                                                          25 U.S.C.  162a(d)(5)


                PERIODIC STATEMENT OF PERFORMANCE- Not later than 20 business days after the
                close of a calendar quarter, the Secretary shall provide a statement ofperformance to each
                Indian tribe attd individual with respect to whom funds are deposited or invested pursuant to
                the Act of June 24, 1938 (25 U.S.C.  162a).  The statement, for the period concerned, shall
                identifj_ -
                                   (1) the source, O_e, attd status of the funds;
                                   (2) the beginning balance;
                                   (3) the gains attd losses;
                                   (4) receipts and disbursements; and
                                   (5) the ending balance.
                                                                                                          25 U.S.C. 4011 (b)



                   Interior complies with most of its statutory obligations as they apply from receipt through
                   disbursement in TFAS. For funds recorded in TFAS, Interior has contracted for an

                   adequate system to account for daily and annual balances and to provide account holders


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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                  upon their request with information concerning their account(s). Using this system, OST
                  prepares quarterly statements on accounts in TFAS and mails the statements to account
                  holders with known addresses to include beginning balances, type of income, receipts and
                  disbursements and ending balance.


                  interior's performance as described in this section should be considered in combination
                  with its performance as described in the other parts of this plan and the Historical
                  Accounting Plan. This section of the plan addresses only trust funds recorded in the
                  TFAS.


                  For funds recorded in TFAS, Interior will meet its general statutory directions that enable
                  the accounting and reporting directions above when Interior cames out the following
                  statutory requirements:
                          Providing adequate systems for accounting for and reporting trust fund balances.
                           25 U.S.C.  162a (d) (1)
                          Providing adequate controls over receipts and disbursements.
                           25 U.S.C.  t62a (d) (2)
                          Providing periodic, timely reconciliations to assure the accuracy of accounts.
                           25 U.S.C.  162a (d) (3)
                         Annual Audit - The Secretary shall cause to be conducted an annual audit on a
                           fiscal year basis of all funds held in trust by the United States for the benefit of an
                           Indian tribe or an individual Indian which are deposited or invested pursuant to
                           the Act of June 24, 1938 (25 U.S.C.  162a), and shall include a letter relating to
                           the audit in the first statement of performance provided under subsection (b) of



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                       FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                             this section after the completion of the audit.
                             25 U.S.C.  4011(c)


                    The status of lnter/or's compliance with each of these four statutory trust obligations -
                     Systems, Controls, Reconciliations, Audit - are discussed in detail below.

































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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003
                  I[[[[[








                                                                  (2) SYSTEMS

                       (i) Statutory Direction
                   Tile Secretary's proper discharge of the trust responsibilities of the United States shall
                  include (but are not limited to) the following:
                           Provid[e] adequate systems for accounthlg for attd reporting trust fund
                           balances. 25 U.S.C.  162a (d)(1)


                  (ii) Guidance Regarding Performance
                  Interior assesses its performance of this statutory obligation by reference to the pertinent
                  sections of the following guidelines:

                     American Institute of Certified Public Accountants, Financial Accounting
                       Standards Board, Statement on Auditing Standards (SAS) No. 70.
                       SAS 70 is the authoritative guidance that allows service organizations to disclose
                       their control activities and processes to their customers and their customers' auditors
                       in a uniform reporting format. A SAS 70 examination signifies that a service
                       organization has had its control objectives and control activities examined by an
                      independent accounting and auditing firm.
                     Departmental Manual, "Principles for Managing Indian Trust Assets,"
                      303 DM 2.
                      These principles require a verifiable system of records that identify "...deposits,
                      transfers, disbursements, third-party obligations, amount of earnings, investment
                      instruments, and closing of all trust fund accounts..."

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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                  (iii) Status of Performance
                       In March 1998, Interior signed a contract with SEI Investments, Inc., to provide a
                       trust funds accounting system. The system Interior contracted for, known as the Trust
                       3000 system, is used by seven of the ten largest trust banks in the United States. In
                       Interior, SEI's Trust 3000 product is known as the Trust Funds Accounting System
                       (TFAS). OST began converting IIM accounts and respective balances to TFAS in
                       August 1998. Simultaneously, OST centralized its financial data entry and
                       verification. OST finalized conversion to TFAS for all regions on April 1, 2000.


                       The conversion to TFAS provided, among other things, the following functions,
                       previously unavailable. These included capabilities now being used to:
                              Maintain one unified system;
                              Schedule disbursements for beneficiaries including direct deposits to financial
                               institutions;
                              Utilize master name and address data for holders of multiple accounts to
                               ensure accuracy of data and prohibit duplicate account numbers;
                              Automate reconciliations;
                              Automate audit trails on cash transactions and account file maintenance;
                              Provide password protection to delineate access levels and authorizes change
                               controls;
                              Afford additional information on receipt and disbursement transactions;





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                    FIDUCIARY OBLIGATIONS COMPLIANCE PLAN             JANUARY 6, 2003

                              Schedule multiple beneficiary statements at appropriate intervals to include:
                                    o  beginning balance for the reporting interval (that is the same as the
                                        ending balance for the previous reporting interval),
                                    o  type (i.e., category of income, e.g., leasing, timber sales, interest),
                                    o  receipts and disbursements, and
                                    o  ending balance.


                  SEI Investments, Inc. has a well-established user group to which Interior belongs. This
                  group recommends improvements to Trust 3000 on a regular basis in order to keep
                  abreast of industry standards and requirements. SEI Trust 3000 links with other financial
                  systems for notification of prepayment and valuations of financial investments, and itself
                  creates notification of upcoming maturities and interest payments.


                  (iv) Steps Necessary to Reach Performance Targets
                  For funds recorded in TFAS, Interior meets the obligation for an adequate system for
                  accounting and reporting trust fund balances. Using the information recorded in TFAS,
                  Interior can provide account holders with transaction activity and balance information on
                  a daily and annual basis.
                      The following steps will enable Interior to meet the reporting requirement obligation
                      as it applies to TFAS:
                                  Add status of funds (whether invested) to statements         2Q CY2003
                                  Add gains and losses explanation to statements               2Q CY2003




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