382



                                     UNITED STATES DISTRICT COURT
                                     FOR THE DISTRICT OF COLUMBIA


                   ELOUISE PEPION COBELL,       :  Civil Action 96-1285
                   et al.                       :
                                 Plaintiffs     :
                                                :  Washington, D.C.
                           V.                   :  Wednesday, June 11, 2008
                                                :
                   DIRK KEMPTHORNE, Secretary   :
                   of the Interior, et al.      :
                                                :
                                 Defendants     :  AFTERNOON SESSION

                                 TRANSCRIPT OF EVIDENTIARY HEARING
                                               DAY 3
                                BEFORE THE HONORABLE JAMES ROBERTSON
                                     UNITED STATES DISTRICT JUDGE

                  APPEARANCES:

                  For the Plaintiffs:      DENNIS GINGOLD, ESQUIRE
                                           LAW OFFICES OF DENNIS GINGOLD
                                           607 14th Street, NW
                                           Ninth Floor
                                           Washington, DC 20005
                                           (202) 824-1448

                                           ELLIOTT H. LEVITAS, ESQUIRE
                                           WILLIAM E. DORRIS, ESQUIRE
                                           KILPATRICK STOCKTON, L.L.P.
                                           1100 Peachtree Street
                                           Suite 2800
                                           Atlanta, Georgia  30309-4530
                                           (404) 815-6450

                                           KEITH HARPER, ESQUIRE
                                           JUSTIN GUILDER, ESQUIRE
                                           KILPATRICK STOCKTON, L.L.P.
                                           607 14th Street, N.W.
                                           Suite 900
                                           Washington, D.C.  20005
                                           (202) 585-0053

                                           DAVID C. SMITH, ESQUIRE
                                           KILPATRICK STOCKTON, L.L.P.
                                           1001 West Fourth Street
                                           Winston-Salem, North Carolina  27101
                                           (336)  607-7392

                                                                               383



                  For the Defendants:      ROBERT E. KIRSCHMAN, JR., ESQUIRE
                                           JOHN WARSHAWSKY, ESQUIRE
                                           MICHAEL QUINN, ESQUIRE
                                           J. CHRISTOPHER KOHN, ESQUIRE
                                           GLEN GILLETT, ESQUIRE
                                           U.S. Department of Justice
                                           1100 L Street, N.W.
                                           Washington, D.C.  20005
                                           (202) 307-0010

                                           JOHN STEMPLEWICZ, ESQUIRE
                                           Senior Trial Attorney
                                           U.S. Department of Justice
                                           Commercial Litigation Branch
                                           Civil Division
                                           Ben Franklin Station
                                           P.O. Box 975
                                           Washington, D.C.  20044
                                           (202) 307-1104


                  Court Reporter:          REBECCA STONESTREET
                                           Official Court Reporter
                                           Room 6511, U.S. Courthouse
                                           333 Constitution Avenue, N.W.
                                           Washington, D.C.  20001
                                           (202) 354-3249


                  Proceedings reported by machine shorthand, transcript produced
                  by computer-aided transcription.

                                                                               384



                                          C O N T E N T S

                  WITNESS                  DIRECT    CROSS     REDIRECT  RECROSS

                  DON PALLAIS
                  By Mr. Smith               386       --        448       --
                  By Mr. Siemietkowski       --        430       --        --

                  MICHELLE HERMAN
                  By Mr. Quinn               453       --        --        --




                                           E X H I B I T S

                      NUMBER                                   ADMITTED


                                 (No Exhibits Moved into Evidence.)

                                                                               385



            1                          P R O C E E D I N G S

            2              COURTROOM DEPUTY:  Civil Action 96-1285, Elouise Cobell

            3     et al. versus Dirk Kempthorne, et al.

            4              THE COURT:  All right.  Let's see.  Who's going to call

            5     the next witness?  Mr. Smith?

            6              MR. SMITH:  Yes, Your Honor.

            7              THE COURT:  All right.

            8              MR. SMITH:  Good afternoon.

            9              THE COURT:  Good afternoon.

           10              MR. SMITH:  Your Honor, our next witness is Mr. Don

           11     Pallais.

           12                (Oath administered by Courtroom Deputy.)

           13              MR. SMITH:  Your Honor, you had previously heard from

           14     Mr. Pallais at the October trial.  Just briefly, he is a

           15     licensed CPA.  If we could have Exhibit 60, please, and the

           16     Exhibit 60 is a copy of his CV.

           17              He has approximately 30 years of experience as a CPA,

           18     he worked on the audit staff of Coopers & Lybrand, he was a

           19     comptroller in the private industry, he also worked on the staff

           20     of the American Institute of Certified Public Accountants, and

           21     including serving on the Auditing Standards Board.

           22              Mr. Pallais will testify about, number one, historical

           23     problems affecting disbursements from IIM accounts, including

           24     money going out without authority, money going to the wrong

           25     people, improper transfers of IIM money, theft of IIM funds, and

                                                                               386



            1     general category of money being caught up in the system and not

            2     being disbursed.

            3              And secondly he will testify about how these problems

            4     affect the government's figures regarding disbursements, and

            5     particularly those figures in AR-171.

            6              Your Honor, he has previously been tendered as an

            7     expert in accounting and accounting principles and procedures.

            8     We would tender him for that purpose as well, and I understand

            9     the government has no objection to that.

           10              MR. SIEMIETKOWSKI:  That's correct, Your Honor.

           11              THE COURT:  Well, he was considered qualified at the

           12     last trial.  He still is, unless he's lost a step or two, so he

           13     can testify.  Go ahead.

           14              MR. SMITH:  Thank you, Your Honor.

           15         (DON PALLAIS, PLAINTIFF witness, having been duly sworn,

           16                          testified as follows:)

           17                           DIRECT EXAMINATION

           18     BY MR. SMITH:

           19     Q.  Mr. Pallais, would you describe what you have done, the

           20     scope of your inquiry in preparation for your testimony today?

           21     A.  Certainly.  You want me to include what I did in October,

           22     which set the stage for this?

           23     Q.  That would be fine.

           24     A.  Well, starting with the October trial, I reviewed the

           25     government's historical accounting plan, their accounting

                                                                               387



            1     manual, I looked at a number of reports by independent auditors

            2     and government auditors that critiqued the IIM accounting and

            3     control systems, I reviewed some expert reports for the purpose

            4     of determining whether the systems used in the IIM system were

            5     generally reliable.

            6              Since the October trial, I read the Judge's findings in

            7     the October trial, I've read the filings in this matter, I read

            8     transcripts of hearings and some of the trial testimony here.

            9     I've also looked at a document called historical compilation of

           10     disbursement issues, or something very similar to that, and

           11     looked at a database of reports which was very similar to the

           12     one I looked at in October.

           13     Q.  Back in October, had you been provided with several disks

           14     which have been referred to as the meta-analysis documents?

           15     A.  Yes.

           16     Q.  And generally what did those documents comprise of?

           17     A.  The disks comprised a slew of reports.  The ones I was

           18     interested in were the ones that NORC had characterized as

           19     audits, and that constituted about 300 reports.

           20              So I read those 300 reports.  There was more in the

           21     database but they weren't relevant for my purposes.

           22     Q.  Okay.  The audits that you reviewed, would you characterize

           23     those as principally internal or external audits?

           24     A.  I think you would characterize most of them as internal

           25     audits.  There were only a handful done by independent auditors.

                                                                               388



            1     Q.  And when we're talking about internal audits, what are we

            2     talking about?

            3     A.  I think what we mean -- I think what you meant when you said

            4     it was audits done by government auditors, either the GAO or the

            5     Office of the Inspector General, as opposed to a CPA firm.

            6     Q.  And were these audits of all of Interior's Trust operations

            7     or were they more regional or local in scope?

            8     A.  There seemed to be a wide range.  There were local office

            9     audits and there were audits that affected the trust fund

           10     overall.  There were audits in different parts of the country.

           11     There was a fairly wide range.

           12     Q.  So it's fair to say that a lot of the documents you reviewed

           13     in preparation for your testimony today you reviewed back in

           14     October as well?

           15     A.  That's correct.  Yes.

           16     Q.  And to refresh everyone's recollection, what was the scope

           17     of your testimony back in October?  What were you asked to talk

           18     about?

           19     A.  What I was asked to talk about was whether the government's

           20     historical accounting plan could be depended on to achieve the

           21     objectives of the plan, which would be a complete and accurate

           22     accounting of the transaction histories for the individual

           23     Indian accounts.  And my conclusion was that based on decades of

           24     experience and reports of auditors, it appeared that the system

           25     was too unreliable to be used as a basis that way.

                                                                               389



            1              The plan intended to largely use internal documents,

            2     and the history of the IIM Trust was that internal documents

            3     were notoriously unreliable.

            4     Q.  Okay.  Now, what have you been asked to look at today?

            5     A.  What I was asked to do for this trial was a similar

            6     exercise, except I was specifically asked to look at controls

            7     and observations regarding disbursements over the decades.

            8     Q.  Okay.  And based on your examination of those audits, what

            9     conclusions have you reached?

           10     A.  My conclusions are that you cannot depend on disbursement

           11     numbers to represent valid disbursements to individual Indians.

           12              So to the extent that the disbursements are intended to

           13     portray disbursements to IIM account holders, the system is not

           14     good enough, not dependable enough that you can be sure that

           15     those disbursements represent valid payments to the appropriate

           16     recipients.

           17     Q.  Okay.  Have you had an opportunity to look at AR-171, which

           18     was part of the administrative record from the October trial?

           19     A.  Yes.

           20              MR. SMITH:  If we could have a copy of that, please.

           21     BY MR. SMITH:

           22     Q.  On the screen is a document.  Is that what you understand to

           23     be AR-171?

           24     A.  Yes.

           25     Q.  And looking at that document, there's an evident disparity

                                                                               390



            1     between collections and disbursements.  Is that correct?

            2     A.  Yes, there is.

            3     Q.  And what is that approximate disparity?

            4     A.  As near as I can recall, it was about three and a half

            5     billion dollars.  Collections were three and a half billion

            6     dollars more than disbursements.

            7     Q.  If you look at Column G, is that the disbursement column?

            8     A.  Yes.

            9     Q.  And is there any information prior to 1972 on disbursements?

           10     A.  There's none listed, no.

           11     Q.  Okay.  Have you had an opportunity to compare that to a

           12     revised AR-171 provided by the government?

           13     A.  Yes.

           14              MR. SMITH:  If we could see that document, please.  The

           15     first one, yeah.

           16     BY MR. SMITH:

           17     Q.  Is this a copy of the document you've reviewed?

           18     A.  This is one of the them.  This appears to be the May 30th

           19     version.

           20     Q.  So you've seen two different revised AR-171s?

           21     A.  Yes.

           22     Q.  And when did you first see the Revision 1?

           23     A.  Must have been about a week ago.

           24     Q.  And Revision 2?

           25     A.  I want to say over the weekend maybe.

                                                                               391



            1     Q.  And in revised AR-171, disbursements is now reflected in

            2     Column H.  Is that correct?

            3     A.  That's correct.

            4     Q.  And does it appear at this point that within the past week

            5     or two, pre-1972 disbursements have been filled in with some

            6     numbers?

            7     A.  On this version there are now pre-1972 disbursements.

            8     Q.  Okay.  If you could -- on Column H there's a reference to

            9     footnote five, and I believe that's on the second page.  If we

           10     could look at that, please.  If we could focus in on five.

           11              And what does footnote five indicate Column H

           12     represents?

           13     A.  Column H represents all outflows from the IIM system.

           14     Q.  Okay.  And includes, it says Tribal Trust checks and

           15     electronic funds transfers?

           16     A.  Correct.

           17     Q.  In your review of documents, did you encounter any documents

           18     related to electronic fund transfers?

           19     A.  I don't recall any.

           20     Q.  Did you as far as checks and Tribal Trust transfers?

           21     A.  Yes, there were lots of documents that referred to checks

           22     and transfers.

           23     Q.  And if we could look on the next page.  And focus in on item

           24     H.  And does it appear that the data from 1887 through 1971 came

           25     from something called a NORC disbursement estimate?

                                                                               392



            1     A.  Yes, that's what it says.

            2     Q.  And at this point, have you been provided any data regarding

            3     that estimate?

            4     A.  No.

            5     Q.  Okay.  Mr. Pallais, based on the review that you have

            6     performed of the audit data over the past 100 years of this

            7     Trust, what if any opinions have you developed regarding the

            8     ability to determine the propriety of disbursements from the

            9     IIM Trust?

           10     A.  Well, as I mentioned, to the extent that disbursements are

           11     supposed to represent valid payments to IIM beneficiaries, the

           12     controls and accounting procedures that the IIM used over the

           13     decades was sufficiently unreliable that you can't depend on

           14     that number being a valid representation of the amounts that

           15     actually went to the correct IIM beneficiaries.

           16     Q.  And what's the basis for that?

           17     A.  Looking at 100 to 150 reports over almost 100 years of

           18     history.

           19     Q.  And what are the types of problems that you encountered that

           20     led you to that conclusion?

           21     A.  There are a number of problems.  There are lack of

           22     authorization for payments, there are recorded instances of

           23     payments not going to the right people, there have been

           24     instances of fraud, there are a lot of internal control

           25     weaknesses, lack of segregation of duties, lack of control over

                                                                               393



            1     the checking account or the checks, there are lack of

            2     reconciliations, there are a number of problems that occurred

            3     with some frequency for years and years and years.

            4     Q.  That was my next question.  Would you characterize these

            5     problems as sporadic or of a more pervasive nature?

            6     A.  They appear to be fairly pervasive.  You see the same

            7     observations, comments, and criticisms decade after decade.

            8              MR. SMITH:  If we could see Exhibit 65, please.

            9     BY MR. SMITH:

           10     Q.  And can you describe for the Court what Exhibit 65 is?

           11     A.  This is a document that summarizes observations made in

           12     roughly 100 to 150 reports, starting from 1905 and goes all the

           13     way through 2006 or so.  These represent quotes or descriptions

           14     of criticisms of internal control regarding disbursements taken

           15     from reports that presumably were in the NORC database.

           16     Q.  Okay.  And you have a listing of a year and then a quote or

           17     a summary under there.  And then can you actually link to the

           18     document itself that has that summary?

           19              THE COURT:  I think you neglected to ask the witness

           20     who prepared this.

           21              MR. SMITH:  Okay.

           22     BY MR. SMITH:

           23     Q.  Can you describe for me who prepared this document?

           24     A.  I'm not sure who prepared it.

           25     Q.  Okay.

                                                                               394



            1              THE COURT:  Oh.

            2     BY MR. SMITH:

            3     Q.  Have you reviewed this document?

            4              THE COURT:  I thought he was going to say that he

            5     prepared it.  So it's just a document?

            6              MR. SMITH:  It is a document, Your Honor.

            7     BY MR. SMITH:

            8     Q.  Have you reviewed this document?

            9     A.  I have reviewed the document.  I've looked at all of the

           10     reports that are referenced, and from what I can tell, the

           11     quotes and descriptions are a fair representation of what is

           12     actually in the report.

           13     Q.  And are the quotes consistent with the documents that you've

           14     reviewed back in October?

           15     A.  Yes.

           16     Q.  And do they fairly reflect your opinions regarding the

           17     disbursement issues since 1905 through 2006?

           18     A.  They fairly reflect the opinions of the people who wrote the

           19     reports, I presume.

           20     Q.  Okay.  They fairly reflect the problems that were

           21     encountered over the 100 years of the Trust?

           22     A.  Yeah, this document fairly reflects what the reports written

           23     by auditors say.

           24     Q.  And you indicated the source for the majority of the

           25     documents are meta-analysis documents from NORC?

                                                                               395



            1     A.  That's correct.

            2     Q.  Now, in some years there's nothing listed.  Is that fair?

            3     A.  That's true.

            4     Q.  Were there some years where you had no audit reports at all?

            5     A.  There were no audit reports in the NORC meta-analysis.

            6     That's correct.

            7     Q.  When performing an audit, what if any importance do you

            8     place on identifying internal controls?

            9     A.  Internal controls is typically an important feature of an

           10     audit.  Now, there are two kinds of audits we need to keep in

           11     mind here, because there are two kinds of audits being done on

           12     the IIM Trusts.

           13              There are independent audits, what we call GAAS audits,

           14     Generally Accepted Auditing Standards, and these are done by

           15     independent auditors, CPA firms.  And the purpose of the GAAS

           16     audit is to render an opinion on whether the financial

           17     statements fairly present financial position or results of

           18     operations in conformity with generally accepted accounting

           19     principles.

           20              When we do an independent audit, the auditor is

           21     required to understand internal control as part of doing that

           22     audit.  The auditor has to understand enough about internal

           23     control, that is the accounting processing and the disciplines

           24     over the accounting system, to understand what kinds of things

           25     could go wrong, what kinds of things could be misstated in the

                                                                               396



            1     financial statements.

            2              He also has to understand internal controls in

            3     sufficient detail to figure out where are the areas of increased

            4     risk, where are errors or misstatements more likely to occur,

            5     because what the auditor wants to do is focus on the areas where

            6     the misstatements are more likely to occur.

            7              The auditor also has to understand internal control

            8     enough so that he can design the actual tests he's going to

            9     apply.  You can't test documents unless you know what they

           10     represent and where they came from.

           11              If controls are effective, if they're really good, the

           12     auditor can test their effectiveness and rely on the company's

           13     controls to reduce the amount of testing he does.  On the other

           14     hand, if the controls are not that effective, the auditor can't

           15     rely on them, the auditor can still complete the audit, though.

           16     Generally we can audit around problems in the internal controls

           17     by merely doing more or better kinds of tests.

           18              In really egregious cases the controls are so bad that

           19     the auditor actually can't do an audit and can't render an

           20     opinion.

           21     Q.  Now -- I'm sorry, go ahead.

           22     A.  The other kind of audit is an internal audit, or what we

           23     might call an operational or performance audit.  Now, the amount

           24     of work you do on internal controls on one of those is entirely

           25     dependent on what your goal is in the audit.  Often it's the

                                                                               397



            1     case that the whole point of the audit is to look at some aspect

            2     of control.  You might not be looking at the entire control

            3     structure, but you want to see some aspect of control and see if

            4     it's working efficiently and effectively.  And in that case

            5     internal control is obviously of paramount importance, because

            6     that's what you're doing.

            7              You might also do an internal audit that has absolutely

            8     nothing to do with controls, and in that case you wouldn't look

            9     at internal control at all and you very well probably would not

           10     have any observations regarding internal control, because that's

           11     not what the auditor was intending to look at.

           12     Q.  And when auditing something like the IIM Trust, what kinds

           13     of internal controls would you expect to exist?

           14     A.  If you're looking at the IIM Trust, the kinds of controls

           15     you would expect to exist if this were well functioning are ones

           16     that ensure that -- and we're talking about now disbursements, I

           17     presume, controls over disbursements?

           18     Q.  That's correct.

           19     A.  We would expect to see controls that make sure the

           20     disbursements are only paid to the right people in the right

           21     amounts, and that the system captures all of the disbursements

           22     made.

           23              So you would expect to see a lot of controls.  And

           24     although this isn't a comprehensive list, the kinds of controls

           25     you would expect to see would be things like disbursements are

                                                                               398



            1     only made if they're authorized, so disbursements should only be

            2     made if the beneficiary has specifically requested the

            3     disbursement be made to him.  And you would expect to see some

            4     documentation of that.

            5              You would also expect to see that somebody at the Trust

            6     ensured that the payments were only being made based on the

            7     right documentation, a signed request by the beneficiary, and so

            8     you would expect that that person would authorize the actual

            9     payment.

           10              You would expect controls to make sure that the records

           11     are internally consistent and have integrity.  So, for example,

           12     you would want to make sure that the controlled account that

           13     shows the amount owed to all of the beneficiaries agrees to the

           14     total of the detail, the total of the individual accounts.  So

           15     this way you know that if a disbursement has been made, it has

           16     been allocated to a particular account.  You don't have

           17     disbursements made that haven't been allocated to anybody.

           18              You would expect to see that the cash account in the

           19     general ledger agrees to the cash reflected at the bank, or in

           20     this case the Treasury Department, to make sure that all of the

           21     disbursements that you have made have actually been recorded.

           22              And you would expect a third kind of discipline over

           23     this, which is to say you would expect statements to be sent to

           24     the account holders so that if there's a problem in the

           25     individual account, they would complain and bring it to your

                                                                               399



            1     attention.

            2              So you would know, as a result of those three, that all

            3     disbursements have been recorded in individual accounts, you've

            4     accounted for all disbursements, and the allocation to the

            5     individual accounts are correct because the individual Indians

            6     would have complained if they were charged for a withdrawal they

            7     didn't make.

            8              You would also expect to see segregation of duties.

            9     What this means is you would have internal checks, one employee

           10     checking the work of another.  If you have one person doing

           11     everything, for example, it would be very hard to catch a

           12     mistake, whether it be unintentional or intentional.  So you

           13     don't want one person writing the checks and accounting for the

           14     checks and doing all those other things.

           15              You would also expect to see controls over the writing

           16     of checks, that only certain people are allowed to sign checks,

           17     certain people are allowed to approve them, that there's

           18     controls to make sure other people can't write unauthorized

           19     checks.

           20              And you would expect to see something where there's

           21     monitoring of accounts where mistakes could happen.  For

           22     example, when there are negative balance accounts, you would

           23     want somebody looking at negative balance accounts to say, how

           24     did that get overdrawn, what's the mistake and how do we fix it.

           25     Or if there are dormant accounts, for example, dormant accounts

                                                                               400



            1     are a great place to look if you wanted to misappropriate funds,

            2     because there isn't a beneficiary who is on top of it, since

            3     it's dormant.  So you would want regular reviews of dormant

            4     accounts to see if there's any unexpected activity.

            5              So those are the kinds of controls you would expect to

            6     see.  Obviously there are a lot more specific controls, but

            7     that's just kind of a summary.

            8     Q.  When you're talking about statements, are you talking about

            9     statements that would be clear and understandable to a

           10     beneficiary?

           11     A.  Yeah, I would presume they would not be useful if they

           12     weren't clear and understandable.

           13     Q.  The types of internal controls that you've identified, were

           14     those present based on the audits you reviewed in the IIM Trust?

           15     A.  There were deficiencies probably in every one of those areas

           16     that were referred to in reports over the decades covered in the

           17     NORC database.

           18              MR. SMITH:  If we could look at Exhibit 61.

           19     BY MR. SMITH:

           20     Q.  And is this a summary of some of the major disbursement

           21     problems that you identified?

           22     A.  Yes.

           23     Q.  Lack of authorization or support for disbursements, absence

           24     of reconciliations, lack of segregation of duties, absence of

           25     statements, absence of thumbprints or other identifications,

                                                                               401



            1     problems with supervisory accounts, dormant accounts, negative

            2     balance accounts, lack of addresses, failure to safeguard

            3     checks, general findings of lack of controls, and then last one,

            4     improper distributions and theft.  Is that correct?

            5     A.  Correct.

            6     Q.  I want to briefly go through some of those items and show

            7     you a few examples.

            8              Let's focus on the first one, lack of authorization or

            9     support for disbursements.  What are you talking about?

           10     A.  Well, as I mentioned, controls you would expect to see

           11     include the fact that disbursements are only made when requested

           12     by the account holder, so you don't want money being spent out

           13     of somebody's account if they didn't ask for it to be done, or

           14     if somebody who is unauthorized to ask for it asks for it to be

           15     done.

           16              You also want controls at the Trust itself to make sure

           17     that funds are only being expended based on those requests.

           18              MR. SMITH:  If we could look back to Exhibit 65,

           19     please, and go to item 41, 1954.

           20     BY MR. SMITH:

           21     Q.  And if we could hyperlink on that and if you could tell us

           22     what this document is.

           23     A.  This appears to be a report on an audit at Anadarko done by

           24     the Department of Interior in 1954.

           25     Q.  And is this one of the documents you reviewed in preparation

                                                                               402



            1     for your testimony today?

            2     A.  Yes.

            3     Q.  And if we could go back to the actual hyperlink page.  If

            4     you could focus in on the first paragraph under 13.

            5     A.  Uh-huh.

            6     Q.  Can you describe for the Court what the problem is with

            7     respect to authorization for disbursements?

            8     A.  Well, it shows that nearly three quarters of the

            9     disbursements were not supported by the proper authorization,

           10     and of the ones that were supported, half didn't have the

           11     document the Department of Interior required.

           12              Where they were on file, almost one out of five were

           13     not filled in completely, and more than a quarter were approved

           14     by somebody who also prepares and issues the checks.  So

           15     somebody was preparing, approving, and doing the check, which is

           16     a segregation of duties problem.

           17     Q.  This example, is it an isolated example?

           18     A.  No.  There were examples of unauthorized payments throughout

           19     the database through most of the decades.

           20     Q.  Okay.  Would the problems with the lack of authorization

           21     include authorizations signed by someone other than the

           22     beneficiary?

           23     A.  Yeah, there would be requests by people other than the

           24     beneficiary.

           25     Q.  What about transfers of funds?  What kinds of problems did

                                                                               403



            1     you identify with respect to transfers of funds?

            2     A.  Well, some of the problems that were identified include

            3     transfers to government agencies without what the auditor

            4     considered to be appropriate support.

            5     Q.  How about transfers to third parties or Indian tribes?

            6     A.  Right.  Well, I guess when I said government agencies, what

            7     I intended to include was Indian tribes, other people.  And

            8     there would also be checks made out to third parties who did not

            9     appear to be authorized recipients.

           10     Q.  And again, were these problems isolated or fairly common?

           11     A.  They occurred across the database.

           12     Q.  You were looking at the government's disbursement numbers.

           13     Why is this important?

           14     A.  Well, to the extent that we are assuming that the

           15     disbursements represent valid disbursements to individual

           16     Indians, this calls that assumption into question because we're

           17     being told that there are checks being written that people

           18     didn't ask for.

           19     Q.  Now, just because a distribution may not be authorized, or

           20     there may not be any documentation of the authority doesn't mean

           21     it was not actually received by the correct beneficiary.  Is

           22     that correct?

           23     A.  That's correct.

           24     Q.  What if anything did you see in your examination of records

           25     that supported your concerns that money was in fact not being

                                                                               404



            1     received by beneficiaries?

            2     A.  Well, there were a number of situations where the auditor

            3     contacted beneficiaries directly, and the beneficiaries reported

            4     that the amounts shown as disbursed to them were not received by

            5     them.

            6     Q.  What is a confirmation or a negative confirmation in

            7     accounting terms?

            8     A.  Well, confirmation is a type of audit test we do.  It's one

            9     of the strongest kinds of tests we have.  In a confirmation, we

           10     typically go outside of the audited entity to ask some

           11     independent third party to provide evidence about amounts

           12     recorded in the financial statements.

           13              Typically we see this in accounts receivable in a

           14     typical commercial entity.  The commercial entity will say, this

           15     customer owes us $10,000, and the auditor will send a letter

           16     directly to the customer saying, do you owe the client $10,000,

           17     please tell us.  And the response will come directly back to the

           18     auditor.  This is very strong audit evidence.

           19              Confirmations in general fall into two kinds.  We have

           20     what we call positive confirmations, in which case we send out

           21     the request and we ask the person on the other end, please tell

           22     us specifically, do you agree with this number; if yes, tell us

           23     yes, if no, tell us why you disagree.  If it's a positive

           24     confirmation, we expect a response back in either case.

           25              Negative confirmation, we send out a letter that says,

                                                                               405



            1     please contact us if you disagree.  You don't need to do

            2     anything if you agree, but if you disagree, please tell us.

            3     Q.  In a typical situation where you would send out a

            4     confirmation or a negative confirmation, based on your

            5     experience, what would be the response?

            6     A.  Positive confirmations vary all over the lot, depending on

            7     the client base, the industry, and that sort of thing.  Negative

            8     confirmations, there's no predictability at all, and in fact,

            9     when I was on the Auditing Standards Board, we issued Statement

           10     on Auditing Standards Number 67, which essentially says you

           11     can't use negative confirmations for audit evidence.  It doesn't

           12     say absolutely, but it says most of the time you can't, except

           13     in some very specific situations.

           14              And the reason for that is, it doesn't provide you a

           15     basis to draw a lot of conclusions.  If you don't get any

           16     responses back on negative confirmations, you don't know whether

           17     everybody agrees.  People might not agree but they didn't bother

           18     to read the confirmation, they just threw it away.  The

           19     confirmation was sent to the wrong address and the intended

           20     recipient never got it.  So the fact that you don't get a

           21     response back doesn't give you much in the way of audit

           22     evidence.

           23              On the other hand, when you do get them back, it tells

           24     you that you might have a problem.

           25     Q.  The auditing standard you mentioned, was that subsequent to

                                                                               406



            1     1990?

            2     A.  That was issued around 1990 or 1991.  I think it was 1990,

            3     sometime in that range.

            4     Q.  Okay, good.  In the examples that you saw in the audits that

            5     you reviewed, were they significant or no?

            6     A.  The responses were significant.  A very large contingent of

            7     people wrote back to the auditors saying that the statements

            8     they received were not correct, and a large number said that

            9     they did not receive the disbursements reflected in the

           10     statements.

           11     Q.  We'll see an example of one.  If we could look at 1986,

           12     number 261.  And if we could go to the first page of that

           13     document.

           14              And can you tell us what document this is?

           15     A.  This is an audit report by the Department of Interior's

           16     Office of Inspector General.  So this was not done by an

           17     independent CPA firm, this was done by government auditors.

           18     Q.  And does it look like it's March 1986?

           19     A.  It looks like 1986.

           20              MR. SMITH:  If we could go back to the original page.

           21     BY MR. SMITH:

           22     Q.  And can you describe what is happening here?

           23     A.  Yes, although if you could scroll up just a little bit, that

           24     would be good.  Stop.

           25              What they did was they selected 1410 disbursements

                                                                               407



            1     posted on ledger cards and they sent confirmations to the

            2     account holders.  And these went out, and what they got back

            3     was, of the 1410, 103 responded that they had not received the

            4     IIM checks reflected on the statements, and that totaled

            5     $328,000.

            6     Q.  And it looked like they had about 850 of them returned?

            7     A.  There were 850 returned for one reason or another, yes.

            8     Q.  What if any significance is that in terms of an auditor?

            9     A.  Well, the 103, you have 103 in disagreement based on a

           10     sample of 1410.  I haven't done the math, but that's got to be

           11     an 8 percent problem rate.  That's a very high rate.  That's an

           12     unusually high rate of problems.

           13     Q.  And 15 to 16 percent of those that actually returned the

           14     confirmation?

           15     A.  Uh-huh.

           16     Q.  There were subsequent negative confirmations by Arthur

           17     Andersen.  Is that correct?

           18     A.  That's correct.

           19     Q.  And the Court has already heard testimony about those, so I

           20     won't belabor those, but can you just generally describe your

           21     reaction to the negative confirmations delivered by Arthur -- or

           22     received by Arthur Andersen?

           23     A.  Well, Andersen did negative confirmations not as an evidence

           24     gathering tool but to look at this issue.  And their results

           25     were very similar to the OIG results.  They got a lot of people

                                                                               408



            1     writing back, unusually high number of people writing back to

            2     say, we never got these disbursements, we never got these

            3     checks.

            4     Q.  In fact, in the case of Arthur Andersen, it would be close

            5     to over 30 percent?

            6              MR. SIEMIETKOWSKI:  Objection, Your Honor, leading the

            7     witness.

            8              THE COURT:  Sustained.

            9              MR. SMITH:  If we could look at 1988, number 267.

           10              THE COURT:  Before you do 1988, number 267, go back to

           11     that 261, that part that you showed.  There's something just

           12     underneath the quoted part that said we're going to compare the

           13     missing checks to the responses we got.  Let me read the rest of

           14     that paragraph and then tell me if you know, if either

           15     Mr. Pallais, or for that matter Mr. Smith knows, whether that

           16     was ever done and whether we have any evidence of the result.

           17              MR. SMITH:  Your Honor, I can tell you in the documents

           18     that we've received, we have not seen any response -- seen that

           19     that was ever done.

           20              THE COURT:  Any follow-up on that.

           21              MR. SMITH:  That's correct.

           22              THE COURT:  Do you know of any, Mr. Pallais?

           23              THE WITNESS:  No, sir.

           24              MR. SMITH:  Thank you.

           25              If we could look at 1988, number 267.

                                                                               409



            1     BY MR. SMITH:

            2     Q.  And does that refresh your recollection as to the response

            3     received by Arthur Andersen?

            4     A.  Well, it says they got 1249 responses, and of the 12 --

            5     well, it doesn't say what the sample size was, it tells you that

            6     30 percent of the responses talked about not receiving the

            7     payments.  So that would be roughly 400 people said they didn't

            8     get payments.

            9              MR. SIEMIETKOWSKI:  Objection, Your Honor.  The

           10     documents in the pleading attached to the May 30th response to

           11     our motion in limine speak for themselves.  While we may not

           12     object to Mr. Pallais analyzing the results as an accountant, we

           13     do object to him actually just reading from the screen.

           14              THE COURT:  All right.  Well, I'm going to overrule

           15     that because he's reading at the same time I'm reading, so I

           16     don't attach any particular significance to the fact that he's

           17     reading it.

           18     BY MR. SMITH:

           19     Q.  Does the Arthur Andersen result confirm your concerns

           20     regarding failure to receive funds by beneficiaries?

           21     A.  Yes, it's clearly a concern.  Andersen found it, the

           22     Department of Interior found it, so it's clearly a concern.

           23     Q.  The second item on your list was absence of reconciliations,

           24     and the Court has already heard a lot about reconciliations so I

           25     don't want to again belabor that point.  But when you're talking

                                                                               410



            1     about absence of reconciliations, what are you talking about?

            2     A.  There are two things that need to be reconciled here.  One

            3     is that the total of all of the individual Indian accounts

            4     should agree with or at least reconcile to the general ledger

            5     control total, so you know that everything has been accounted

            6     for.

            7              The other reconciliation that you need to be concerned

            8     with is the cash shown by the IIM Trust agrees with essentially

            9     what his bank says, in this case the Treasury Department, so you

           10     know that all of the cash transactions have been appropriately

           11     accounted for.  Or I think appropriately included.

           12     Q.  Let's talk about the first one, subsidiary to the general

           13     ledger.  Why is that important when you're talking about

           14     accuracy of disbursement data?

           15     A.  Well, if we are saying that disbursements were made to

           16     individual Indian beneficiaries, then each of those

           17     disbursements should be reflected in the IIM account.  And if

           18     the total of the IIM account doesn't agree with the control

           19     total, you've got an issue, you've got either something that was

           20     paid and not recorded or something that was recorded but not

           21     paid, or something that was paid to somebody other than the IIM

           22     beneficiary.

           23              And unless you can reconcile those two numbers, you're

           24     not sure what the right number to use for disbursements is.

           25     Q.  Okay.  If you don't reconcile the subsidiary and general

                                                                               411



            1     ledger promptly, what happens?

            2     A.  Well, if you're extraordinarily lucky, if you have a

            3     problem, it fixes itself the next month, if you're

            4     extraordinarily lucky.

            5              If the problem with reconciliation is a systemic

            6     problem, then over time it just gets worse.  More and more

            7     errors get made, and the difference between the total of the

            8     individuals and the control total can get bigger or it can get

            9     smaller, but if it gets smaller, that doesn't mean necessarily

           10     the situation is getting better, it just means you -- it might

           11     just mean you've got new errors going in a different direction

           12     than the original errors were.

           13              But generally, over time, if it's a systemic error, it

           14     just gets harder and harder to reconcile.

           15     Q.  In what you've reviewed, is it an isolated problem or a

           16     systemic error?

           17     A.  It appears to be a systemic error because it occurs over

           18     decades.

           19     Q.  This Court has already seen disparities between the

           20     subsidiary and general ledger in, let's call it the modern era,

           21     subsequent to 1980.  Were there problems like that back in

           22     earlier years?

           23     A.  Absolutely.

           24     Q.  And when the problems were identified, were they corrected?

           25     A.  Typically there's no indication that they've been corrected.

                                                                               412



            1     I recall one instance where somebody forced an adjustment on the

            2     control account to get it to agree to the total of the

            3     individual accounts, but that doesn't necessarily mean they

            4     corrected the error, that just meant they forced the two to

            5     agree.

            6     Q.  What do you mean, they forced the two to agree?  What did

            7     they do?

            8     A.  Well, they looked at the difference between the control

            9     account and the total of the individual accounts, and they just

           10     adjusted the control account so that it agreed.  They changed

           11     the number so it agreed with the total of the individual

           12     accounts.

           13     Q.  So there was no indication whether the agreement was proper

           14     or not?

           15     A.  That's correct.  It presumed that the individuals were right

           16     and the control account was wrong.  But from my reading of the

           17     report, they really had no evidence that that was the case.

           18     Q.  Let's talk generally about Treasury.  You've mentioned that

           19     and the Court has seen imbalances between Treasury and the

           20     general ledger.  How does that affect your concern about

           21     disbursements?

           22     A.  Well, again, if you can't reconcile your bank account, if at

           23     the end of the month I can't reconcile my personal bank account

           24     to what the bank shows, I don't have any confidence that my

           25     checkbook is right.

                                                                               413



            1              And if I'm reporting to people based on the results in

            2     my checkbook, they've got no reason to believe that my

            3     disbursements are right.

            4     Q.  Okay.  The next item on your list was lack of segregation of

            5     duties.  And what is the importance of that?

            6     A.  Well, segregation of duties is a basic control concept.  One

            7     aspect, the most obvious is you want people checking each

            8     other's work.  But you also don't want somebody to have what's

            9     called incompatible duties, so you don't want, for example, the

           10     same person to approve the checks, write the checks, and do the

           11     accounting for the checks.  Because if the person makes a

           12     mistake, nobody will ever notice it because they're the ones

           13     that do the follow-up.

           14              If they want to misappropriate funds, that's the

           15     position to do it in because you approve it, pay it to yourself,

           16     and then bury it in the accounting records.

           17              So in a good control structure, you want segregation of

           18     duties to separate those functions, so if somebody does

           19     something wrong, somebody else can catch it.

           20              MR. SMITH:  Let's look at 1953, number 35.  If we can

           21     go to the document itself, the first page.

           22     BY MR. SMITH:

           23     Q.  And can you describe for the Court what this document is?

           24     A.  This is a report done by the Bureau of Indian Affairs,

           25     June 1953.  It's apparently a GAO document.

                                                                               414



            1     Q.  And is this one of the documents that you reviewed in

            2     preparation for your testimony today?

            3     A.  Yes.

            4              MR. SMITH:  And if we could go to the actual hyperlink

            5     page.  And if we could focus on the first full paragraph, under

            6     "inadequate internal control."

            7     BY MR. SMITH:

            8     Q.  If you could read that, and it goes on to the next page?

            9     A.  In this case what it's saying is one person receives cash,

           10     prepares official receipts and schedules of collections.  So

           11     they're receiving the cash, accounting for the cash.  Enters the

           12     receipts in a cash receipt book, makes the deposit -- I can't

           13     make out the first word.  Totals the cash receipts book, makes

           14     postings to the individual accounts.

           15              So they're accounting for the cash coming in, taking it

           16     to the bank, and making the entries into the individual ledger

           17     cards for the individual Indian accounts; sends the statements,

           18     prepares the disbursements, and if statements come back, this

           19     person gets them.

           20              So this one person takes care of all the receipts, does

           21     the disbursements, does the accounting for them, and is in

           22     charge of correspondence with the individual Indian

           23     beneficiaries.  So if this person wanted to misappropriate

           24     funds, nobody would ever find it, unless they were particularly

           25     poor at what they did.

                                                                               415



            1     Q.  And in this particular example, again, is it an isolated

            2     occurrence or is it fairly routine?

            3     A.  There are comments criticizing the lack of segregation of

            4     duties across the decades.

            5     Q.  And again, how does that impact your evaluation of the

            6     disbursements by the government?

            7     A.  Well, that tells you that if this situation exists, there is

            8     a substantial risk that the disbursements being reflected in

            9     individual Indian accounts actually didn't go to those people,

           10     they might have gone to the person who wrote the checks.

           11     Q.  The next item you mentioned was absence of statements, and

           12     you talked a little bit about the importance of statements.  Let

           13     me show you an example.

           14              MR. SMITH:  If we could turn to 1954, number 48.  If we

           15     could link on the document and show the first page.

           16     BY MR. SMITH:

           17     Q.  And can you describe what this document is?

           18     A.  This appears to be a 1955 audit done by the GAO.

           19     Q.  And is this again one of the documents you reviewed in

           20     preparation for today?

           21     A.  Yes.

           22     Q.  And if we could go back to the link page and focus in on the

           23     first full paragraph.

           24     A.  What this is saying is that statements -- that procedures

           25     called for statements to be sent semiannually, but the Fort Peck

                                                                               416



            1     Agency was not doing that.  People only got statements if they

            2     specifically asked for them.  And the reason they didn't,

            3     according to this, is that when they did send statements out, so

            4     many people disagreed with them that they came in and filled the

            5     office.

            6     Q.  And again, we just looked at one example, but how common was

            7     this problem?

            8     A.  There are comments across the database indicating that

            9     statements weren't being sent.

           10     Q.  Next item, you had thumbprints or other identification.  Can

           11     you describe for us what those concerns were?

           12     A.  Well, this is something that primarily affected earlier

           13     years, and apparently was not unusual for Indian beneficiaries

           14     not to be able to write.  So to transact business, they provided

           15     a thumbprint rather than a signature, and to make sure that the

           16     appropriate person was receiving the cash, the policy was that

           17     people were supposed to witness the thumbprint to attest to the

           18     fact that this is the right person.

           19              And there are comments in many years, many audits

           20     indicating that this witnessing was not going on.

           21     Q.  Next item, you have three entries, supervisory accounts,

           22     dormant accounts, and negative balance accounts.  What are

           23     supervisory accounts?

           24     A.  Supervisory accounts are those accounts where the person who

           25     owns the account is not judged capable of taking care of their

                                                                               417



            1     own business.  It might be a minor or it might be an

            2     incompetent.  So somebody has control over the account for them.

            3     Q.  And what kinds of problems did you see with supervisory

            4     accounts?

            5     A.  For supervisory accounts, for minors, for example, you might

            6     see -- or they did see disbursements going out for things that

            7     were not apparently for the benefit of the minor, things like

            8     pawn tickets, purchases of vehicles.  There were other problems

            9     with minor accounts in that once the minor had aged out, they

           10     did not inform them that the money was available to them.

           11              Typically -- or not typically, but often the supervisor

           12     was somebody who worked for the Trust, so an employee actually

           13     had full authority over the beneficiary's account.

           14              MR. SMITH:  If we could look at 1986, number 259, and

           15     go to the first page of that document.

           16     BY MR. SMITH:

           17     Q.  And can you identify for us what this document is?

           18     A.  This is an OIG audit report dated March 1986.

           19              MR. SMITH:  And if you could go back to the link page

           20     and link on it.

           21     BY MR. SMITH:

           22     Q.  And if you could review that and tell generally what the

           23     problem is that the auditor identified.

           24     A.  Well, this is use of minors' funds for things that the

           25     auditor apparently did not think was clearly justified.

                                                                               418



            1     Parents' debts were being paid, pawn tickets, hospital bills.

            2     Q.  For the parents?

            3     A.  For the parents, yes.  Purchase of furniture and appliances,

            4     $10,000 from a nine-year-old was used for the down payment on a

            5     van.

            6              THE COURT:  Mr. Smith, is this particular example an

            7     example of a disbursement problem that falls under the

            8     restitution category or is this more of a management problem

            9     that might fall under damages?

           10              MR. SMITH:  Your Honor, I think this would fall under

           11     restitution.

           12              THE COURT:  The money was paid.  Right?

           13              MR. SMITH:  We don't know if it was paid or not.  It

           14     went out but we don't really know where it went, whether it went

           15     for the benefit of the supervisor or someone else.

           16              THE COURT:  Well, purchase furniture and appliances,

           17     parents have a down payment for a van.  All right.  Go on, go

           18     on.  I'm not sure what portion of this this bears to the whole,

           19     but it strikes me as a slightly off-kilter example of what

           20     you're talking about.

           21              MR. SMITH:  I understand, Your Honor.

           22     BY MR. SMITH:

           23     Q.  Let's go on and talk about dormant accounts.  What is the

           24     concern with dormant accounts?

           25     A.  A dormant account, by definition, has very little activity,

                                                                               419



            1     so there is a question about whether anybody is monitoring the

            2     account.  If the account is dormant, and there is no beneficiary

            3     who is aware that the money is owed, if I were going to

            4     misappropriate funds, that would be a place I would do it

            5     because the odds on somebody finding it are not really that

            6     good.

            7     Q.  And how many instances did you see of problems with dormant

            8     accounts?

            9     A.  There were several instances where there were criticisms of

           10     the review and accounting for dormant accounts.

           11     Q.  And if we could look at 1982, number 222.  And if you could

           12     link on the first page and tell us what this is?

           13     A.  This is a report to Congress by the Comptroller General

           14     describing improvements needed in the BIA accounting system.

           15     Q.  And go back to the link page, and third full paragraph, if

           16     you could focus on that.

           17     A.  And in this case, what they're saying is, as I mentioned,

           18     dormant accounts need to be reviewed to see if there's any

           19     unusual activity, and the Comptroller General report says that

           20     they're not being periodically reviewed, making fraudulent use

           21     of the funds easier.  And they point to at least one example

           22     where a Tribal employee was convicted of embezzling more than

           23     $26,000 from a dormant account that belonged to an aged,

           24     incompetent adult.

           25     Q.  The next item was actually negative balances.  What are we

                                                                               420



            1     talking about when we talk about negative balances?

            2     A.  Well, negative balances, they have paid out more than the

            3     account holder had in their account.  That's obviously an issue,

            4     because presumably this person now owes the Trust some money.

            5     Whether it was ever paid is a question.  As an auditor, you have

            6     to satisfy yourself that that debt was ultimately collectible,

            7     and I'm not sure that the auditors ever did that.

            8              But if money is being paid inappropriately to somebody

            9     that is included in the disbursements, clearly that disbursement

           10     was not a valid one.

           11     Q.  How often did you see problems with negative balances?

           12     A.  There were several references to negative balances going

           13     back to the 1950s.

           14     Q.  And are we talking about small amounts of money or somewhat

           15     larger?

           16     A.  It varied.  There were very small amounts and very large

           17     amounts.

           18     Q.  In millions?

           19     A.  Yes.

           20     Q.  And again, how does that affect your concerns about

           21     disbursements from the Trust?

           22     A.  Well, it tells you that the fact that a disbursement has

           23     been made doesn't mean it went to a valid recipient.

           24     Q.  How would negative balances affect those concerns where

           25     you're dealing with an account that might be commingled?

                                                                               421



            1     A.  Well, to the extent that your total was correct, a

            2     negative -- if you've overpaid one person, you will by necessity

            3     have to have underpaid another person.

            4     Q.  Next item on your list was lack of addresses.  And just

            5     describe generally for the Court what the concern was.

            6     A.  Well, the concern of the auditors was for large portions of

            7     some of the populations, the Trust did not have current

            8     addresses for the beneficiaries.  So if a check was mailed to

            9     the beneficiary, the question arises, where did you mail it if

           10     you don't have a current address?  If you sent a statement,

           11     where did you send the statement if you don't have a current

           12     address?

           13     Q.  And how common was this concern reflected by the auditors?

           14     A.  There were several reports that discussed this issue.

           15     Q.  And are we talking about just a handful of addresses or

           16     something more significant?

           17     A.  In some cases it was very significant.

           18     Q.  If we could look at 1956, number 105.  And can you describe

           19     what this document is?

           20     A.  It's a 1956 audit report in the Aberdeen area, done by a

           21     government auditor, but I'm not sure which department it is from

           22     looking at this.

           23     Q.  And if you could link on to the -- under analysis, if you

           24     could focus in on that paragraph under there in the middle of

           25     the page.

                                                                               422



            1     A.  Uh-huh.

            2     Q.  What was the problem with addresses there?

            3     A.  It said that of 581 accounts, 87 percent did not show the

            4     addresses of the account holders.  Also had problems with dates

            5     of birth.

            6     Q.  Again, problems that were not isolated but were fairly

            7     routine?

            8     A.  Common, anyway.

            9     Q.  Next item was failure to safeguard checks.  And Mr. Ziler

           10     testified a little bit about this, but could you describe what

           11     your concerns were?

           12     A.  Well, there are several reports that discuss the fact that

           13     the checks were out in the open, they weren't accounted for, the

           14     check writing machines were available to people who might not be

           15     authorized to use them, check signing plates were available.  So

           16     it would be not difficult for an unauthorized person to write

           17     what appears to be a valid check.

           18     Q.  Okay.  In your review, did you find instances of actual

           19     erroneous distributions or actual theft of IIM funds?

           20     A.  Yes, there were several reports that referred to identified

           21     theft and some erroneous distributions.

           22     Q.  And the Court has already seen the 1914 report that talked

           23     about that.  Do you recall that one?

           24     A.  Yes.

           25              MR. SMITH:  If we could just look at some more recent

                                                                               423



            1     examples.  1974, item 210.

            2     BY MR. SMITH:

            3     Q.  What is this document?

            4     A.  This is an audit done by the Bureau of Indian Affairs on the

            5     Crow Indian Agency in Montana in 1974.

            6     Q.  And if you could turn to the link page.  And could you

            7     describe for the Court what this is?

            8     A.  What this is showing is a number of unauthorized checks

            9     written on that account totaling $4,500.

           10     Q.  And if you go to the next page, they actually have some

           11     details on those particular checks.  Is that correct?

           12     A.  Right.

           13              MR. SMITH:  And if we could go, I believe it's five

           14     pages after that, page nine of the document.

           15     BY MR. SMITH:

           16     Q.  And can you describe for the Court what this is?

           17     A.  This is a summary of the forged disbursements, so first

           18     line, for example, on August 12th, there are 42 forged checks;

           19     on the 21st there were three batches of forged checks.

           20     Q.  If you could look at the comment on the bottom of the page,

           21     what does that indicate?

           22     A.  It says the administrative officer stated that the

           23     signature, apparently his signature on the check wasn't actually

           24     his.

           25     Q.  If we could look at another recent example, 1982, item

                                                                               424



            1     number 216.  And if we could link on the first page.

            2              And is this another GAO report?

            3     A.  Yes, it is.

            4     Q.  It's a document you identified?

            5     A.  It's a document I reviewed.

            6     Q.  A document you reviewed.  I'm sorry.

            7              MR. SMITH:  If we could go back to the link page and

            8     focus in on the first paragraph.

            9     BY MR. SMITH:

           10     Q.  Is there an indication there that money in fact was going to

           11     people who had no authority to receive it?

           12     A.  It shows that names of 173 individuals who received trust

           13     fund checks were not shown on the list of authorized trust fund

           14     recipients.

           15     Q.  Okay.  Another example, 1990, number 293.  And is this a

           16     1990 report from Arthur Andersen?

           17     A.  Yes, it is.

           18     Q.  And again, one of the documents you reviewed?

           19     A.  Yes.

           20     Q.  Does it indicate as well that there's evidence of money

           21     being misappropriated?

           22     A.  Yes.

           23              MR. SMITH:  If we could go to the link page and focus

           24     in on, I believe, the third paragraph.

           25     BY MR. SMITH:

                                                                               425



            1     Q.  And what does that reflect?

            2     A.  It says there have been instances of misappropriated funds

            3     due to inadequate safeguards over Treasury checks, and poor

            4     internal control over disbursement in general.

            5     Q.  And again, are these a handful of the items that you saw

            6     that reflected money going to the wrong people or being

            7     embezzled?

            8     A.  Correct.

            9     Q.  We've talked about your concerns about the disbursements.

           10     Let me change the focus a little bit.  And in your review of

           11     these audits, did you identify instances where money was not

           12     disbursed?

           13     A.  Yes.

           14     Q.  For whatever reason?

           15     A.  Yes.

           16     Q.  And let's talk about some of the earlier years.  Let's say

           17     pre-1930, what kinds of things did you identify?

           18     A.  Well, apparently there was a policy described in these

           19     reports in which the Trust simply did not pay money out to

           20     beneficiaries, or if they did, they paid very little, regardless

           21     of what the balance was in the account.

           22     Q.  And if you could, as an example, look at 1909, item number

           23     2.

           24              MR. SMITH:  1909, I'm sorry.

           25     BY MR. SMITH:

                                                                               426



            1     Q.  And can you describe for the Court what this document is?

            2     A.  This is a report of the Department of Interior dated

            3     June 30th -- or for the fiscal year ended June 30, 1909.

            4              MR. SMITH:  And if you could go back to the linked page

            5     and focus in on the second paragraph.

            6     BY MR. SMITH:

            7     Q.  And generally what does this describe?

            8     A.  What this describes is a procedure in which they were only

            9     paying $10 monthly allowances to certain Indians, and the

           10     writer's belief that -- and the instructions were issued to

           11     discontinue even the $10 payments.

           12     Q.  Except in certain circumstances?

           13     A.  Right.

           14     Q.  And was this typical of some of the reports you saw in

           15     earlier years?

           16     A.  Yes, there were several reports that talk about this sort of

           17     thing in the earlier years.

           18              MR. SMITH:  If we could look at 1915, item number 16.

           19     Go a little further.

           20     BY MR. SMITH:

           21     Q.  Let's go ahead.  Maybe we can figure out that one.

           22              In some of the later years, did you find instances

           23     where money was supposed to be disbursed but it just for

           24     whatever reason was not?

           25     A.  Yeah, there were examples where balances had accumulated,

                                                                               427



            1     that there were problems distributing funds that had

            2     accumulated, there were problems with minors who had aged out

            3     and were unaware that funds were available to them.

            4     Q.  Let me give you an example.  1935, number 23.  And what is

            5     this document?  I believe it's dated November 28, 1935.

            6     A.  Yeah, it's a report on IIM funds at --

            7     Q.  Does it appear to be the Colville agency?

            8              MR. SIEMIETKOWSKI:  Objection, Your Honor, leading.

            9              THE COURT:  Well, I think that's foundational.  He's

           10     trying to get him to read a fuzzy word at the top of the page.

           11     I think it says Colville.

           12     BY MR. SMITH:

           13     Q.  Does it appear to be Colville?

           14     A.  It looks like Colville.

           15     Q.  If you could move to the actual linked page and focus in on

           16     the third full paragraph.

           17     A.  It's referring to an effort to exercise restraint in paying

           18     out funds to individual beneficiaries.

           19              MR. SMITH:  Let's look at item number 57, 1955.

           20              THE COURT:  After this one we're going to take a short

           21     break.

           22     BY MR. SMITH:

           23     Q.  Could you describe what this document is?

           24     A.  This is a GAO report on audits at Anadarko, Oklahoma for the

           25     year ended June 30, 1955.

                                                                               428



            1     Q.  Is this one of the documents you reviewed as well?

            2     A.  Yes.

            3     Q.  And under the first paragraph, what is indicated there?

            4     A.  They're looking at some of the accounts and they've found

            5     that 14 separate accounts totaling about $5,000 were as much as

            6     eight years old.

            7     Q.  Okay.

            8              MR. SMITH:  Does Your Honor want to take a break?

            9              THE COURT:  Yeah, just a couple of observations on

           10     particularly the recent stuff you've been showing him,

           11     Mr. Smith.  Reluctance in 1909 to pay $10 to Indians because it

           12     might make them lazy, which I think is what that whole thing is

           13     all about.

           14              MR. SMITH:  That's the implication.

           15              THE COURT:  Or restraining themselves from making

           16     payments in later years doesn't mean -- doesn't affect the

           17     disbursement schedules.  It may affect the policy by which the

           18     schedules are made, but I don't see how it impacts the

           19     legitimacy of the disbursement numbers.

           20              And as to the many examples you've shown me of fraud,

           21     waste, and abuse, and all of the subcategories of it, that's

           22     kind of a double-edged sword, isn't it?  I mean, if the money

           23     was paid out, how was it held for the benefit of the government?

           24     Think about that and let's talk about it later.  We'll be in

           25     recess for 10 minutes.

                                                                               429



            1              (Recess taken at 3:17 p.m.)

            2              THE COURT:  Okay, Mr. Smith, proceed.

            3              MR. SMITH:  Your Honor, do you want me to respond to

            4     your questions or proceed with the examination?

            5              THE COURT:  No, let's proceed with the witness.  We can

            6     talk about the question later.  I just wanted to sort of throw a

            7     marker down and we'll talk about it later.

            8              MR. SMITH:  Okay.  That's great.

            9     BY MR. SMITH:

           10     Q.  Mr. Pallais, we've looked at a lot of examples, and is it

           11     fair to say you could point to other examples where money was

           12     not disbursed from the IIM Trust?

           13     A.  Yes.

           14     Q.  And that goes throughout the decades?

           15     A.  Yes.

           16     Q.  As an accountant, what kinds of issues does this raise with

           17     you?

           18     A.  Well, it raises questions about whether the money is going

           19     out, to who it's supposed to be going to.  And if it's not going

           20     out, what's happening to it.

           21     Q.  In light of the pervasive problems that you saw over the

           22     hundreds of years of the Trust, what conclusions did you reach

           23     regarding the ability to rely on Interior's own distribution

           24     data?

           25     A.  I think you can't really rely on their distribution numbers

                                                                               430



            1     to represent valid payments to valid individual Indian

            2     beneficiaries.

            3     Q.  And were the problems that you noted, were they better

            4     pre-1972 or post-1972, or were they the same?

            5     A.  There were problems throughout.  They were sometimes

            6     different problems, but there were problems throughout.

            7              MR. SMITH:  Your Honor, I have no further questions.

            8              THE COURT:  Cross-examine, Mr. Siemietkowski?

            9              MR. SIEMIETKOWSKI:  Good afternoon, Your Honor.

           10              THE COURT:  Good afternoon.

           11                            CROSS-EXAMINATION

           12     BY MR. SIEMIETKOWSKI:

           13     Q.  Good afternoon, Mr. Pallais.

           14     A.  Good afternoon.

           15     Q.  You're an expert in accounting and accounting procedure and

           16     methods, are you not?

           17     A.  Yeah, I suppose.  Yeah.

           18     Q.  You're not an expert in government records, are you?

           19     A.  No.

           20     Q.  You're not an expert in federal Indian relations, are you?

           21     A.  No, sir.

           22     Q.  You're not an expert in federal Indian records, are you?

           23     A.  No.

           24     Q.  You have not reviewed any of the actual government records

           25     underlying the IIM accounts, have you?

                                                                               431



            1     A.  No.

            2     Q.  You just reviewed reports about those records, as you've

            3     discussed in your direct examination.  Correct?

            4     A.  That's correct.

            5     Q.  So, for instance, you have not reviewed Treasury settlement

            6     packages?

            7     A.  That's correct.

            8     Q.  You have not reviewed GAO settlement packages?

            9     A.  Correct.

           10     Q.  You have not reviewed any statements of differences.

           11     Correct?

           12     A.  That's correct.

           13     Q.  Do you know what a statement of difference is?

           14     A.  I'm not sure I do.  I'm going to say I don't, although I'm

           15     thinking there might have been an example in the October -- in

           16     some of the materials I looked at in October.  But I'm not

           17     sufficiently confident to describe it.

           18     Q.  You have not reviewed any statements of accountability, have

           19     you?

           20     A.  Statements of accountability?  You mean individual

           21     statements to Indians, or the IIM's accountability, the

           22     financial statements?

           23     Q.  Statements of accountability as prepared by BIA in the

           24     context of the IIM system.  Have you seen any of those?

           25     A.  I don't believe I've seen what you're probably referring to.

                                                                               432



            1     I mean, the financial statements of the IIM would be a statement

            2     of accountability, but I don't think that's what you're talking

            3     about.

            4     Q.  You haven't reviewed any statements of funded checking

            5     accounts, have you?

            6     A.  No, sir.

            7     Q.  Do you know what those are?

            8     A.  Statements of funded checking accounts?  I could surmise,

            9     but I haven't actually looked at one.

           10     Q.  You have not reviewed any Osage documents, have you,

           11     Mr. Pallais?

           12     A.  No, I have not.

           13     Q.  You have not reviewed any judgment and per capita documents,

           14     have you?

           15     A.  No.

           16     Q.  You have not reviewed any electronic fund transfers records,

           17     have you?

           18     A.  No.

           19     Q.  Beyond the reports which you testified about on direct

           20     examination, you have not actually looked at any receipts data,

           21     have you?

           22     A.  Not any original data.  I clearly have seen AR-171, for

           23     example, and other things that have been introduced at trial,

           24     but I haven't seen any original detail data.

           25     Q.  Likewise, Mr. Pallais, you have not actually looked at any

                                                                               433



            1     original disbursement data, have you?

            2     A.  Not a lot.  There have been copies of things in reports, but

            3     I have not seen any outside of reports.

            4     Q.  Now, regarding the reports, Mr. Pallais, which reports that

            5     you have reviewed provide evidence of what percentage of monies

            6     collected by the IIM system have been disbursed to

            7     beneficiaries?

            8     A.  I don't believe any of the reports describe that particular

            9     statistic.

           10     Q.  Similarly, which reports that you have reviewed provide

           11     evidence of what percentage of monies collected by the IIM

           12     system ought to have been disbursed to beneficiaries?

           13     A.  Again, I don't believe any of the reports say that.  What

           14     the reports talk about is the lack of reliability of the

           15     recorded amounts, but they don't provide the statistic you are

           16     requesting.

           17     Q.  And can you point to any particular reports, Mr. Pallais,

           18     that you have reviewed that provide evidence of a benefit to the

           19     government conferred by the IIM?

           20     A.  No.

           21     Q.  Now looking at what I believe was PPX-61, your list of 10

           22     major disbursement problems, do you recall that No. 7 was "Lack

           23     of address of account holders"?

           24     A.  Yes.

           25     Q.  Are you familiar with Interior's efforts to find WAU?

                                                                               434



            1     A.  No.

            2     Q.  Do you know what WAU refers to?

            3     A.  I could guess, but I don't --

            4     Q.  Do you know what it stands for?

            5     A.  I could guess what it stands for, but I don't know for sure

            6     that's what it stands for.

            7     Q.  I have another question, please --

            8              MR. SIEMIETKOWSKI:  Thank you, Antonio.

            9     BY MR. SIEMIETKOWSKI:

           10     Q.  I have another question, please, about your direct

           11     examination.  You talked about all the reports in this

           12     historical compilation being in the NORC database.  And how do

           13     you know that those reports are in the NORC database?

           14     A.  I don't know.  I have not spoken to NORC.  I was given disks

           15     and informed of their provenance, but I have not actually spoken

           16     to NORC and I have not audited the database.

           17     Q.  And just to be clear, you did not actually prepare the

           18     73-page historical compilation from which you testified.

           19     Correct?

           20     A.  That's correct.

           21     Q.  Do you know who selected those particular reports, as

           22     opposed to selecting other reports?

           23     A.  No, I don't.

           24              MR. SIEMIETKOWSKI:  If I could please see page five of

           25     the historical compilation.

                                                                               435



            1              THE COURT:  Who is showing page five?  Catina?  Okay,

            2     it's up.

            3              MR. SIEMIETKOWSKI:  Thank you for your indulgence, Your

            4     Honor.

            5     BY MR. SIEMIETKOWSKI:

            6     Q.  Mr. Pallais, that refers to, you see those two bullets in

            7     the center of that page, 1928?

            8     A.  I see two bullets, yes.  Do you want me to read them?

            9     Q.  No, no.  You've read those two extracted quotations from the

           10     1928 letter from the comptroller general, have you not?

           11     A.  I believe so.

           12     Q.  Have you read the entire letter from the comptroller

           13     general?

           14     A.  I don't know if I read this entire letter or not.  I read a

           15     number of entire reports, many, but I'm not sure.

           16     Q.  Well, let me then show you DX-467, and specifically page 104

           17     of the same comptroller general letter.

           18              MR. SIEMIETKOWSKI:  If we could please enlarge the

           19     highlighted portion for Mr. Pallais to read.

           20     BY MR. SIEMIETKOWSKI:

           21     Q.  Could you please read the highlighted portion, Mr. Pallais?

           22     A.  To myself, or --

           23     Q.  Out loud, please.

           24     A.  "The check register was however carefully scrutinized, and

           25     all large payments and payments listed for the purposes that

                                                                               436



            1     were of an unusual nature were inquired into.  The impression

            2     prevailed that, with few exceptions, the disbursements were on

            3     the whole reasonable, and as a rule made for the purposes

            4     beneficial to the Indian concerned."

            5     Q.  Thank you.  Now, were you aware this quote existed in the

            6     same 1928 letter from which those two extractions in the

            7     historic compilation were found?

            8     A.  I might have been.  I don't know.  I just don't recall

            9     whether I read this entire report or not.

           10              THE COURT:  Let me see the quoted portions again.

           11              MR. SIEMIETKOWSKI:  From our DX, Your Honor?

           12              THE COURT:  From the compendium.  No, I mean from

           13     the -- your point is that they were taken out of context.  I

           14     want to see what the context is.  1928.  Okay.

           15              MR. SIEMIETKOWSKI:  Now if the Court will indulge me, I

           16     would like to switch back to a plaintiffs' exhibit briefly one

           17     more time before switching back to defense exhibits.  If it

           18     would possible to show, I believe it's number 23 in the

           19     Historical Compilation, the 1935 report which Mr. Pallais

           20     testified to. The 1935 report, number 23 in plaintiffs' Historic

           21     Compilation.  And if it's possible to cursor down to the bottom

           22     of page three, I believe it is.  Is it possible to cursor down a

           23     bit further, please?  Is it possible to look at the next page,

           24     please?  And a bit further, please, if possible.

           25              My apologies to the Court, Your Honor.  I cannot find

                                                                               437



            1     the quote I was looking for.  And we will be using defense

            2     exhibits from now on.

            3     BY MR. SIEMIETKOWSKI:

            4     Q.  Now, Mr. Pallais, you testified regarding several reports

            5     listed on pages 19 to 33 of your historical compilation.  And

            6     those discuss BIA -- or those are quotes from BIA auditor

            7     reports between 1956 and 1966.  Do you recall testifying about

            8     some of those BIA auditor reports during that time frame?

            9     A.  Yes.

           10     Q.  Now, you have not reviewed all of those auditor reports,

           11     have you?

           12     A.  If it was in the compilation, I have looked at every one of

           13     them.  If they were in the database provided for the October

           14     trial, I read all of them.

           15              So I think that answers your question.

           16     Q.  It does, thank you.

           17              But you're not familiar, are you, with the BIA standard

           18     procedures associated with those audits?

           19     A.  No.

           20     Q.  Did you know that BIA's audit division visited these area

           21     offices annually?

           22     A.  No.

           23     Q.  Did you know, for instance, that auditors usually spent one

           24     to three weeks at an agency, reviewing IIM records?

           25     A.  No.

                                                                               438



            1     Q.  Did you know that the auditors conducted an exit interview

            2     with the area officer at the conclusion of the visit?

            3     A.  I didn't know that.  I would have assumed it.

            4     Q.  Are you aware that the auditors submitted their reports to

            5     the Commissioner of Indian Affairs?

            6     A.  I would not have -- I would not know who the reports were

            7     actually sent to.

            8     Q.  Did you know that the commissioner's office submitted the

            9     auditor's findings back to the area office?

           10     A.  No, but that makes sense.

           11     Q.  And were you aware that those submissions typically

           12     contained instructions to correct the deficiencies noted?

           13     A.  No, I did not know that.

           14     Q.  Now, on pages 34 and 35 of the compilation --

           15              MR. SIEMIETKOWSKI:  And if it's possible to show those,

           16     I would like to as well.  Thank you.

           17     BY MR. SIEMIETKOWSKI:

           18     Q.  On pages 34 and 35, Mr. Pallais, do you see reports

           19     referenced in 1969 and 1972?

           20     A.  I see something for 1969 and for 1972.

           21     Q.  Okay.  And those are OSR reports, are they not?

           22     A.  The ones for 1972 are.

           23     Q.  Are you aware that the 1972 report was a follow-up to the

           24     1969 report?

           25     A.  If I knew that, I don't recall it.

                                                                               439



            1     Q.  You do know, though, that OSR stands for Office of Survey

            2     and Review?

            3     A.  That's what it says, yes.

            4     Q.  Did you know that that was a precursor to the Office of the

            5     Inspector General?

            6     A.  No, I did not.

            7     Q.  I would like to show you DX-76, if I could, please.  And

            8     specifically, page seven of DX-76.  This is the 1972 OSR report.

            9              MR. SIEMIETKOWSKI:  If we could enlarge that so the

           10     Court and the witness could see that, please.

           11     BY MR. SIEMIETKOWSKI:

           12     Q.  Would you please read that to yourself, Mr. Pallais, and

           13     tell me when you're finished reading it.

           14     A.  (Witness complies.)  I have read them.  You just want the

           15     three highlighted?

           16     Q.  Excuse me?

           17     A.  You just want the three highlighted?

           18     Q.  Yes, please.

           19     A.  Yes, I've read those.

           20     Q.  Now, at the time you reviewed those extracted quotes in the

           21     compilation, were you aware that this language also existed in

           22     the 1972 OSR report?

           23     A.  I don't recall being aware of that.

           24     Q.  I would like to take you from page seven of this same

           25     exhibit to page two of this same exhibit, please.

                                                                               440



            1              MR. SIEMIETKOWSKI:  If we could please expand that so

            2     the Court and the witness could see it.

            3     BY MR. SIEMIETKOWSKI:

            4     Q.  Could you please read the yellow highlighted section to

            5     yourself and tell me when you're finished, Mr. Pallais?

            6     A.  (Witness complies.)  I've read that.

            7     Q.  Were you aware that language existed at the time you

            8     reviewed the compilation of quotes from that same report?

            9     A.  I don't recall seeing this one before.

           10     Q.  Now, on page 35 of your compilation, Mr. Pallais, you cite,

           11     and earlier I believe you discussed a 1974 accountant's report

           12     for the Crow Agency.  Do you see that on the screen,

           13     Mr. Pallais?

           14     A.  I see that.  You keep referring to "my report" and "that I

           15     referred to."  But it's not my report and I didn't make this

           16     reference.  But I do see it.

           17     Q.  Right, this is not your compilation, as you testified.  But

           18     you do see the 1974 bullet there?

           19     A.  Yes.

           20              MR. SIEMIETKOWSKI:  If I could please show the witness

           21     DX-469, and specifically page two.

           22     BY MR. SIEMIETKOWSKI:

           23     Q.  You recall testifying about these forgeries.  Right?

           24     A.  Yes.

           25     Q.  On direct examination?

                                                                               441



            1     A.  Right.

            2     Q.  Once it comes up large enough on the screen, Mr. Pallais,

            3     would you please read out loud the yellow highlighted portion?

            4     A.  "The irregularities reported on herein are currently under

            5     investigation by representatives of the Federal Bureau of

            6     Investigation and the Secret Service."

            7     Q.  Were you aware of this particular portion of the report when

            8     you earlier discussed the other portions in your direct

            9     examination?

           10     A.  I don't know if I was or not.  I'm not certain this would

           11     have affected my perception at all.  So if I had read it, it

           12     would not have mattered to me.

           13     Q.  Now, page 35 of the compilation also cites a 1981 OIG

           14     report, and the gist of that was that IRMS was a mistake.  Do

           15     you see that on your screen?

           16     A.  Yes, I do.

           17     Q.  Were you aware that in that very same report that the

           18     statement is made that IIM was excluded from review?

           19     A.  No.

           20     Q.  Would that change any weight you gave to that particular

           21     bullet on the screen now?

           22     A.  No, not at all.  I didn't refer to this in my testimony.

           23     Whether IIM was included or not, would not have been affected by

           24     that piece of information.

           25     Q.  Let me move if I could to page 47 of the historic

                                                                               442



            1     compilation.  This is the last example I'll discuss with you,

            2     Mr. Pallais, of one of the reports cited in the 73-page

            3     compilation.

            4              Now, at page 47 do you see the reference, and if it

            5     could be enlarged a bit, do you see the reference to the 1989

            6     Arthur Andersen audit?

            7     A.  I'm sorry, which bullet should I be looking at now?

            8     Q.  I believe you testified to it earlier.  The bullet regarding

            9     the 100 percent with the negative confirmation.  Yes, that one

           10     right there.  Do you recall testifying about that in your direct

           11     examination?

           12     A.  Yes, sir.

           13     Q.  Now, you testified about this on direct but I want to

           14     clarify a few things.  This particular bullet states that

           15     negative confirmation messages were typed on the December 1988

           16     statements that went to account holders. That's what it says.

           17     Right?

           18     A.  Right.

           19     Q.  And the bullet further states that 100 percent of the

           20     account holders had complaints about the statements they

           21     received, or generally about mismanagement.  Right?

           22     A.  100 percent of the responses they got back, yes.

           23     Q.  Correct, exactly.  100 percent of the responses received.

           24     Correct?

           25              Now, I just want to make sure I understood your direct.

                                                                               443



            1     A negative confirmation is one of three types of confirmation

            2     requests that an auditor might send a recipient or customer.

            3     Correct?

            4     A.  One of three kinds?

            5     Q.  Yeah.  The other two being positive and blank?

            6     A.  Okay.  Yeah, I would consider blank to be a kind of

            7     positive.  But yeah, if you want to divide it up that way, yes.

            8     Q.  And just to be clear, in a negative confirmation,

            9     Mr. Pallais, the recipient or customer replies only if the

           10     recipient disagrees with the balance provided or with the

           11     information provided.  Correct?

           12     A.  Correct.

           13     Q.  Thank you.

           14              MR. SIEMIETKOWSKI:  Thank you, Matthew.

           15     BY MR. SIEMIETKOWSKI:

           16     Q.  Now, regarding the reports more generally cited in the

           17     73-page compilation, none of those reports discuss loss from the

           18     IIM system of, say, a billion dollars, do they?

           19     A.  I don't recall any of them referring to a loss of a billion

           20     dollars, that's correct.

           21     Q.  None discussed loss of a million dollars, do they?

           22     A.  There is a substantial number that discuss amounts that have

           23     been diverted.  Whether it's a loss to any individual entity, I

           24     guess I would have to look at each of the comments in context to

           25     determine whether any of them are phrased that way.

                                                                               444



            1     Q.  But you don't recall seeing any kind of numbers on that

            2     magnitude, do you?

            3     A.  Of loss?  Certainly not a billion dollars, no.

            4     Q.  Now, I want to turn again to some of your testimony

            5     regarding your major disbursement problems.  Number one on that

            6     list is "Lack of authorization for disbursements to

            7     beneficiaries and third parties."  Do you remember testifying

            8     about that?

            9     A.  Yes.

           10     Q.  And in fact, also in your expert report of last August, you

           11     also discussed that on page 26.  Do you remember that?

           12     A.  No.

           13              MR. SIEMIETKOWSKI:  Would you please show page 26 of

           14     Mr. Pallais' August 2007 report?

           15     BY MR. SIEMIETKOWSKI:

           16     Q.  All right.  Would you please read for the record,

           17     Mr. Pallais, the second and third highlighted portions of that?

           18     A.  I'm sorry, to myself or into the record?

           19     Q.  Out loud, please.

           20     A.  "Tests of disbursements are subject to the following

           21     potential weaknesses.  The tests do not include obtaining any

           22     evidence of authorization by the account holder except in the

           23     case of payments to third parties."

           24     Q.  Now, that's consistent with your testimony today, is it not?

           25     A.  I'm not sure I'm getting your point.  This has to do with

                                                                               445



            1     the tests the auditors were going to do, and my testimony today

            2     had to do with IIM procedures.

            3     Q.  Right.  But similarly to what you say in your report, today

            4     you identified as a major disbursement problem lack of

            5     authorization for disbursements.

            6     A.  Yes, I did.

            7     Q.  And that was identified as number one on your list.

            8     Correct?

            9     A.  That was the first one on the list.

           10     Q.  I understand.  I understand.  Now, are you aware,

           11     Mr. Pallais, that funds in IIM accounts are automatically

           12     disbursed to the beneficiary upon reaching $15?

           13     A.  No, I was not.

           14     Q.  Are you aware that for oil and gas payments, such automatic

           15     disbursements go to the beneficiary upon reaching $5?

           16     A.  No.  I didn't audit these amounts.  All I can tell you is

           17     what the auditors observed as weaknesses in the system.  So I

           18     presume, if the auditor was criticizing lack of authorization,

           19     they were aware of whatever these rules were.

           20     Q.  So you wouldn't be aware, for example, that's been the

           21     practice at least since the 1960s?

           22     A.  No, I wouldn't.  I don't know whether those were the

           23     disbursements being criticized by the auditors over the years or

           24     not.

           25     Q.  And in fact, you have not actually spoken to any Indian

                                                                               446



            1     beneficiaries about disbursements, have you?

            2     A.  No, I have not.

            3     Q.  Likewise, you have not spoken to any individual

            4     beneficiaries about receipts, have you?

            5     A.  That's correct.

            6     Q.  The only documents that you reviewed were those provided to

            7     you by plaintiffs' counsel.  Correct?

            8     A.  Yes, that's correct.

            9     Q.  You did not research and find any documents on your own, did

           10     you?

           11     A.  No, I did not.

           12     Q.  You have not met any OHTA accountants?

           13     A.  No.

           14     Q.  You have not met any OHTA contractor accountants?

           15     A.  I don't believe so.

           16     Q.  You have never been to Lenexa?

           17     A.  You asked me that in October.  I have not been there since

           18     October.

           19     Q.  Right, thank you.  You have not analyzed the LSA report,

           20     have you?

           21     A.  No.

           22     Q.  So of course you're not aware of the LSA error rate, are

           23     you?

           24     A.  No.

           25     Q.  You have not been to any Interior facilities in Albuquerque,

                                                                               447



            1     have you?

            2     A.  No.

            3     Q.  You have not been to any Federal Records Centers, have you?

            4     A.  No.

            5     Q.  Nor to any National Archives facilities?

            6     A.  No.

            7     Q.  In the documents you've reviewed, Mr. Pallais, you haven't

            8     seen any direct evidence of unaccounted-for accumulation of

            9     funds, have you?

           10     A.  I'm going to say no, the way you phrased that.

           11     Q.  In a similar vein, in the documents you've reviewed, you

           12     have not seen any direct evidence of the government benefitting

           13     from any accumulation of IIM funds, have you?

           14     A.  I have no idea what the government might have benefitted

           15     from or not.  The audit reports don't talk about that.

           16     Q.  In fact, none of the reports in this 73 pages talk about

           17     that, do they?

           18     A.  I'm not sure that's true.

           19     Q.  Can you point to any that do?

           20     A.  No, I can't offhand.  But I cannot say that the statement

           21     you made is true.  It may be, but I don't know.  I did not

           22     review the reports with that in mind.  And I can envision

           23     situations where that would not be the case, but I just can't

           24     testify that it is.

           25     Q.  Now, you're aware, are you not, Mr. Pallais, that plaintiffs

                                                                               448



            1     in many instances rely upon the same historic documents in

            2     calculating both their collections and disbursement figures?

            3     A.  They might.  I have not made much of a study of how

            4     plaintiffs calculate receipts or disbursement figures.

            5     Q.  So you're not aware of which documents they pulled their

            6     figures from?

            7     A.  I might have read it, but it's not something that I paid a

            8     lot of attention to.

            9     Q.  Well, let me ask you this, Mr. Pallais:  Are you aware at

           10     all that the plaintiffs used government records in calculating

           11     the $58 billion which they seek?

           12     A.  I believe that --

           13              MR. SMITH:  Objection.  This is outside the scope of

           14     direct, and irrelevant to his testimony.

           15              THE COURT:  I'm sorry, repeat the question.

           16     BY MR. SIEMIETKOWSKI:

           17     Q.  Are you aware, Mr. Pallais, at all, that the plaintiffs have

           18     used government records in calculating the $58 billion which

           19     they request?

           20              THE COURT:  I'll sustain the objection.

           21              MR. SIEMIETKOWSKI:  No further questions, Your Honor.

           22              THE COURT:  Okay.  Mr. Smith?

           23              MR. SMITH:  Just a few questions, Your Honor.

           24                          REDIRECT EXAMINATION

           25     BY MR. SMITH:

                                                                               449



            1     Q.  You were asked about whether you knew if the documents were

            2     provided to you from the NORC database.  Do you recall that?

            3     A.  Yes.

            4              MR. SMITH:  And if you could just pull up, for example,

            5     Document 18, 1928.

            6     A.  Yes.

            7     BY MR. SMITH:

            8     Q.  And is there a Bates stamped number NORCMA?

            9     A.  Yes.

           10     Q.  And was that on a number of these documents that you

           11     reviewed, either NORCMA or NORCMAP?

           12     A.  Yes, I recall seeing those.

           13     Q.  Next question:  You were asked about the selection of the

           14     documents in this report.  Of all the audits that you reviewed,

           15     and you said you've reviewed 300-some back in October, and you

           16     reviewed even more now, how many of those audits would you

           17     describe as positive audits?

           18     A.  I would say of the 300 I reviewed in October, there weren't

           19     more than a handful, five perhaps, that did not have criticisms

           20     of internal control at the IIM facilities.

           21     Q.  Okay.  There's a document that you were shown regarding the

           22     1928 report.

           23              MR. SMITH:  Could we pull that up?  It's a defendant's

           24     exhibit, the highlighted language.  1928 report, 467.  I'm

           25     sorry, 469.  I'm sorry, that's not the one.  We were looking at

                                                                               450



            1     1928.

            2              Your Honor, I'll move ahead.

            3     BY MR. SMITH:

            4     Q.  Do you recall, you were asked about the 1928 document, and

            5     there's a reference to check registers for major disbursements?

            6     A.  I remember answering a question about that, but I would have

            7     to look at the document.  It's not something I saw before today.

            8              And frankly, I never really got the chance to look at

            9     the additional document I was shown today to see how if at all

           10     it related to the comments in the compilation.  But I didn't get

           11     a chance to do that.  I was only asked whether I was aware of

           12     it.

           13     Q.  You were asked by Mr. Siemietkowski whether you were aware

           14     that after an audit there would be instructions to the agency to

           15     correct the problems.  Do you recall that?

           16     A.  Yes.

           17     Q.  In your review of the audits, as a routine matter, were the

           18     problems corrected or did they recur?

           19     A.  Most of the problems continued to recur past -- certainly

           20     past the 1970s, when this policy apparently was in place.

           21     Q.  Okay.  And you were asked about a 1972 audit where it was

           22     suggested there were matters that significantly improved.  Do

           23     you recall that?

           24     A.  Yes.

           25     Q.  What happened by 1982, when Arthur Andersen stepped in?  I'm

                                                                               451



            1     sorry, the GAO looked at it, or the comptroller?

            2     A.  Well, there continued to be problems.  There were --

            3     regardless of what improvements there might have been, the story

            4     across 30 years after that was that there continued to be

            5     problems over controls on disbursements.

            6     Q.  Okay.  And finally, you were asked about accumulation of IIM

            7     funds, and you expressed some hesitancy the way the question was

            8     worded.  What was your hesitancy?

            9     A.  I don't recall specifically that the -- there were comments

           10     in the reports about amounts not being paid out, and there was

           11     some question in my mind whether his question encompassed those

           12     or not.  And ultimately I concluded that I didn't think his

           13     question technically encompassed that, so I agreed with

           14     Mr. Siemietkowski's proposition.  But it requires a certain

           15     level of sentence parsing to get there.

           16     Q.  Okay.  But is it fair to say that you did identify instances

           17     within the audits where money was supposed to be paid out that

           18     was not?

           19     A.  That's correct.

           20              MR. SMITH:  No further questions, Your Honor.

           21              THE COURT:  All right.  Mr. Pallais, I think that

           22     completes your testimony.  Thank you.  You may step down.

           23              Mr. Dorris?

           24              MR. DORRIS:  Your Honor, we have some administrative

           25     matters in terms of moving in some exhibits.  I don't know if

                                                                               452



            1     you want it before we rest, if you want to take that up now, or

            2     you prefer to move on with a witness and us take that up at some

            3     other point.

            4              THE COURT:  You're through with witnesses?

            5              Does the government have a witness?

            6              MR. KIRSCHMAN:  Yes, Your Honor.

            7              THE COURT:  Let's call -- let's deal with the

            8     administrative matters later.  Thank you.  But are you telling

            9     me that except for those administrative matters, the plaintiffs

           10     rest?

           11              MR. DORRIS:  That is correct, Your Honor.

           12              MR. KIRSCHMAN:  Your Honor, and with that, I want to

           13     inform the Court that defendants plan to file a Rule 52(c)

           14     motion later today, and would like --

           15              THE COURT:  It will be deemed filed now.

           16              MR. KIRSCHMAN:  And we would like an opportunity to

           17     argue that briefly tomorrow.

           18              THE COURT:  All right.

           19              MR. DORRIS:  Your Honor, may I approach the witness

           20     stand to get an exhibit?

           21              THE COURT:  Don't hurt anybody up there.

           22              MR. DORRIS:  Is that a yes?

           23              THE COURT:  That's a yes.

           24              MR. DORRIS:  Thank you, Your Honor.

           25              MR. KIRSCHMAN:  Your Honor, to let you know, our first

                                                                               453



            1     witness will be Michelle Herman.  And following her will be

            2     Dr. Ed Angel, both of whom you have heard from in October.

            3              THE COURT:  All right.

            4              MR. QUINN:  Good afternoon, Your Honor.  Michael Quinn

            5     for the defendants.

            6              THE COURT:  Mr. Quinn.

            7              MR. QUINN:  We would like to call Ms. Michelle Herman

            8     to the stand.

            9              THE COURT:  Very well.

           10                 (Oath administered by Courtroom Deputy.)

           11       (MICHELLE HERMAN, DEFENDANT witness, having been duly sworn,

           12                          testified as follows:)

           13                           DIRECT EXAMINATION

           14     BY MR. QUINN:

           15     Q.  Good afternoon.  Would you please state your name for the

           16     record?

           17     A.  Michelle Herman.

           18     Q.  Welcome back.  You testified and spent some time with us and

           19     the judge in the hearing last October.  Is that right?

           20     A.  Yes, I did.

           21     Q.  If you could just refresh our memory here, collective

           22     memory, and give us just a brief recap of the topics you

           23     testified about last October.

           24     A.  Yes.  I testified about our data completeness validation

           25     reports, the accounting reconciliation tool, the litigation

                                                                               454



            1     support accounting effort, and the land-to-dollar testing, as

            2     well as our work on throughput.

            3     Q.  I'm sorry, what was the last part?

            4     A.  Our work on the throughput estimate.

            5     Q.  Are you referring to a document that was numbered as AR-171?

            6     A.  Yes, I am.

            7     Q.  Are you still employed with FTI Consulting?

            8     A.  Yes, I am.

            9     Q.  And your title currently today?

           10     A.  Managing director.

           11     Q.  Is that the position you held last October when you

           12     testified?

           13     A.  Yes, it is.

           14     Q.  And if you could just briefly remind us of the area of the

           15     company in which you work.

           16     A.  I work within the technology practice in a group referred to

           17     as financial and enterprise data analytics.

           18     Q.  And how long have you been with FTI?

           19     A.  Since November 2003.

           20     Q.  And I believe you testified last fall you had been involved,

           21     employed by other consulting firms.  Is that right?

           22     A.  Yes.  Prior to FTI, I was employed by KPMG.  And prior to

           23     KPMG, by Arthur Andersen.

           24     Q.  And while employed with those firms and now with FTI, have

           25     you had occasion to work on matters pertaining to the Individual

                                                                               455



            1     Indian Money accounts?

            2     A.  Yes, I have.

            3     Q.  Did your work involve the study of IIM account data,

            4     bookkeeping records, as well as Interior's bookkeeping practices

            5     for IIM historically?

            6     A.  Yes, I have.

            7     Q.  Would you say that most of your professional career has been

            8     devoted to the examination and study of the Indian Trust records

            9     and Interior's bookkeeping practices historically?

           10     A.  Yes, it has.

           11     Q.  In fact, how long have you been working with respect to

           12     individual Indian accounting and data?

           13     A.  Since January 1997.

           14     Q.  And does that include work involving detailed financial

           15     examination of the IIM system?

           16     A.  Yes, it has.

           17     Q.  Your college education, your business degree came from what

           18     school?

           19     A.  The University of California at Berkeley.

           20     Q.  And your degree is in what field?

           21     A.  In business administration.

           22     Q.  I know this is a very broad question, but could you just

           23     list the major projects that you've participated in since 1997

           24     that relate to the IIM system in some way or another?

           25     A.  Our initial work with the information was gathering data

                                                                               456



            1     from the IRMS system that was located on backup tapes, and

            2     restoring that data and creating a database with all of the

            3     information from February of '85 forward.

            4              Our next --

            5     Q.  What system was that where the data was coming from?

            6     A.  The IIM subsystem within the IRMS system.

            7     Q.  Okay.

            8     A.  Our next major project was a document search and collection

            9     effort that was referred to as Paragraph 19.  Subsequent to the

           10     Paragraph 19 collection effort, we worked with OHTA on designing

           11     and executing their historical accounting plan.

           12     Q.  Okay.  And the Paragraph 19, when you described that, what

           13     was the -- what did the project entail that you were doing?

           14     A.  We worked both with the Interior Department and the Treasury

           15     Department to locate documents related to the five named

           16     plaintiffs and their agreed-upon predecessors.

           17     Q.  Do you remember how many agreed-upon predecessors were

           18     involved in that examination?

           19     A.  Approximately 31.

           20     Q.  Were you looking just for accounting information relating to

           21     these individuals?

           22     A.  No.  Any information that we could locate relative to those

           23     individuals.

           24     Q.  And then you mentioned you worked in connection with the

           25     Office of Historical Trust Accounting?

                                                                               457



            1     A.  That's correct.

            2     Q.  What did you -- what were you engaged to do for them?

            3     A.  We've worked with OHTA on numerous projects, ranging from

            4     assisting with writing the plans that they've submitted to data

            5     completeness validation and accounting projects.

            6     Q.  Could you describe the accounting projects that you've been

            7     involved in?

            8     A.  The Litigation Support Accounting, which was the

            9     reconciliation of sampled and high-dollar transactions.

           10     Q.  And what types of work did you do specifically with respect

           11     to that?

           12     A.  We assisted in designing the tool that was utilized to

           13     actually perform the accounting work, as well as reconciling

           14     transactions that had been selected.

           15     Q.  Are you referring to the ART program?

           16     A.  That's correct.

           17     Q.  Is that the computer program you demonstrated for the Court

           18     last fall?

           19     A.  Yes, it is.

           20     Q.  And what is that?  Again, briefly, what is that used for?

           21     A.  The ART program itself contains the financial transactions,

           22     as well as the supporting documentation and the resulting

           23     product of the accounting firm's analysis.

           24     Q.  For what class of information?

           25     A.  For the sampled -- well, all of the transactional data is

                                                                               458



            1     contained within the ART, documents that have been gathered over

            2     time, both in connection with the LSA project and other projects

            3     that OHTA has performed, in addition to the results from the

            4     accounting firm, specifically from the LSA project.

            5     Q.  What specifically were you doing in connection with the

            6     account reconciliation?

            7     A.  I assisted in designing the tool itself, and actually

            8     reconciled transactions.

            9     Q.  As part of the LSA?

           10     A.  Yes.

           11     Q.  As part of that project, about how many reconciliation -- I

           12     don't know how you count them, but how many reconciliations of

           13     accounts did you -- were you involved in?

           14     A.  We reconciled approximately 6,500 transactions.

           15     Q.  And then I think you mentioned data completeness validation.

           16     Could you describe what that task involved?

           17     A.  Yes.  We were measuring the completeness of the electronic

           18     data as it exists today relative to the data when it was process

           19     the historically.

           20     Q.  And where was that data -- what data were you testing?

           21     A.  Initially, we were testing the IRMS data, and later we added

           22     the TFAS data to that database.

           23     Q.  Did you produce -- provide some reports that were entered as

           24     exhibits at your testimony last fall?

           25     A.  Yes, I did.  We produced six regional reports and one

                                                                               459



            1     overall report last year.

            2     Q.  As part, up to that report date last October, are the report

            3     dates September?

            4     A.  September 2007.

            5     Q.  As of that date, the report date, about how many

            6     transactions had you and your team studied?

            7     A.  Approximately 114 million.

            8     Q.  114 million?

            9     A.  That's correct.

           10     Q.  Through last October.  Is that project continuing?

           11     A.  Yes, it has.

           12     Q.  Are you anticipating FTI will provide additional reports?

           13     A.  Yes.  We're going to provide eight regional reports this

           14     September, and a new overall report.

           15     Q.  So does that mean that there are two new regional reports in

           16     this next round of reporting?

           17     A.  Yes.  There are two new regional reports, plus the

           18     additional work that we've performed on the initial six regions.

           19     Q.  I take that to mean then that you have continued to work on

           20     the DCV testing since you testified last fall.  Is that correct?

           21     A.  That's correct.

           22     Q.  About approximately how many transactions have you examined

           23     as of today?

           24     A.  As of today, it's just over 119 million.

           25     Q.  You're up to 119 million?

                                                                               460



            1     A.  That's correct.

            2     Q.  Did you have any involvement in land-to-dollar pilot

            3     testing?

            4     A.  Yes, I did.

            5     Q.  Can you describe what that testing involved?

            6     A.  We were involved in the pilot test at the Horton Agency, and

            7     the purpose of that test was to evaluate whether or not funds

            8     had been collected that were not in fact posted to the IRMS or

            9     TFAS systems.

           10     Q.  And have you more recently been requested to undertake

           11     analysis of collections, further analysis of collections into

           12     the IIM system?

           13     A.  Yes, I have.

           14     Q.  And what was the purpose of that project?

           15     A.  To update AR-171 to provide a better estimate of collections

           16     and disbursements.

           17     Q.  And have you prepared an update to AR-171, that table?

           18     A.  Yes, I have.

           19              MR. QUINN:  Could we put up AR-171?

           20     BY MR. QUINN:

           21     Q.  With respect to the preparation of the original AR-171 that

           22     you testified about last fall, do you recognize that document?

           23     A.  Yes, I do.

           24     Q.  What work did you do leading up to the preparation of the

           25     document that got filed with the Court?

                                                                               461



            1     A.  AR-171?

            2     Q.  Yes.

            3     A.  Our firm had gathered information from both NORC and Morgan

            4     Angel and Clifton Gunderson for some of the earlier years, and

            5     we had performed work from '86 forward using the IRMS and TFAS

            6     data.

            7     Q.  Just so the record is clear, you've identified three

            8     organizations.  Could you specify what their role was?

            9     A.  Yes.  The information from 1909 through 1971 was an estimate

           10     initially provided by NORC of total collections.  And from 1972

           11     through 1985 was information gathered by Clifton Gunderson.

           12     Q.  And who are they?

           13     A.  They are another accounting firm employed by OHTA.  And some

           14     of the balance data at that point had been gathered by Dr. Angel

           15     and Morgan Angel & Associates.

           16     Q.  And what kind of work did they do?

           17     A.  They gathered historical records that they provided to me.

           18     Q.  Are they accountants?

           19     A.  Clifton Gunderson is, but the other two firms are not.

           20     Q.  What do you understand Morgan Angel, their firm to be?

           21     A.  Morgan Angel & Associates is a historian firm.

           22     Q.  With your appearance today, how many times have you

           23     testified in this case?

           24     A.  This is the third time.

           25     Q.  And besides last October, when else did you testify?

                                                                               462



            1     A.  In what's referred to as Trial 1.5.

            2     Q.  Do you remember approximately when that was?

            3     A.  No, I'm sorry, I do not.

            4     Q.  In each case before, have you testified as a fact witness?

            5     A.  Yes, I have.

            6     Q.  And are you here today to testify based on your own personal

            7     knowledge and experience in working with the Department of

            8     Interior over the last 11 years?

            9     A.  Yes, I am.

           10     Q.  Let's see if we can give the Court of a preview of your

           11     testimony at this hearing.

           12              What matters have you and FTI been working on since you

           13     testified last year, besides the data completeness validation

           14     work you've described?

           15     A.  We continued work on the paper era accounting, and we've

           16     continued work to update AR-171.

           17     Q.  Okay.  What work has FTI done with respect to updating

           18     AR-171?

           19     A.  We've worked with Morgan Angel & Associates to gather

           20     additional historical documents with NORC to assist in preparing

           21     the early year estimates, and to refine our double-counting

           22     analysis during the later years.

           23     Q.  And have you in fact prepared an updated table?

           24     A.  Yes, I have.

           25     Q.  And are you prepared to talk about that in the course of

                                                                               463



            1     this hearing?

            2     A.  Yes, I am.

            3     Q.  Have you also been asked by Department of Interior to study

            4     consolidated records relating to the IIM system?

            5     A.  Yes, I have.

            6     Q.  And when did you undertake that research?

            7     A.  That began several months ago.

            8     Q.  Could you briefly describe the kinds of research that you've

            9     conducted since you began the project?

           10     A.  We've worked with Morgan Angel & Associates in an attempt to

           11     identify historical reports that would report IIM collections

           12     and disbursements at an aggregate level.

           13     Q.  Are you prepared to testify today about your personal

           14     knowledge from your experience in working with the IIM data, and

           15     from your research into the historical records about IIM

           16     accounting, concerning the historical flow of funds in the IIM

           17     system?

           18     A.  Yes, I am.

           19     Q.  Did you happen to prepare a diagram relating to your study

           20     of the flow of funds?

           21     A.  Yes, I have.

           22     Q.  There's a poster over here to your right.  Is that a diagram

           23     that you prepared?

           24     A.  Yes, it is.

           25              MR. QUINN:  Your Honor, for purposes of identification

                                                                               464



            1     in the record, we have marked a paper copy of the same diagram

            2     as Defendant's Exhibit 370.  It's the exact same, just a

            3     paper-sized version of the chart.  I would like to offer it to

            4     the Court.  It might be easier to read.

            5              THE COURT:  All right.

            6     BY MR. QUINN:

            7     Q.  Are you prepared today to describe what you've observed in

            8     the historical flow funds through the IIM system as represented

            9     in your diagram?

           10     A.  Yes, I am.

           11     Q.  Let's talk about your chart.  We'll come back to some of the

           12     other topics you may address later.

           13              What did you study in the IIM system that led you to

           14     the diagram that's up here on the poster and in Exhibit DX-370?

           15     A.  The primary information that we studied was the IRMS and

           16     TFAS data from 1985 through 2000, supplemented by the historical

           17     reports gathered by Morgan Angel & Associates.

           18     Q.  And what were you looking for?

           19     A.  To identify the ways that monies were collected into, moved

           20     within the system, and were disbursed from the system.

           21     Q.  How is that historical flow of funds relevant to the issue

           22     of collections and disbursements, the throughput issue?

           23     A.  It helps explain how monies come into the system, how they

           24     may be double counted within the system, and how to classify the

           25     monies within the system into different revenue categories.

                                                                               465



            1     Q.  And when you talk about the system, the IIM system, how

            2     would you describe your understanding of that term?  What do you

            3     mean when you say IIM system?

            4     A.  All the monies that come into IRMS or TFAS, regardless of

            5     the source of those monies.

            6     Q.  And what's your understanding of those fund flows based on?

            7     A.  Based on the 11 years of work that I've performed for the

            8     Interior Department.

            9     Q.  And you mentioned the additional work you've been

           10     conducting.  Is it also based on the work you've done that you

           11     mentioned since March?

           12     A.  Yes, it is.

           13     Q.  By your personal work on the IIM records and data over the

           14     last 11 years, and the additional work you said you've done

           15     recently, have you gained an understanding of how the IIM system

           16     is operated historically?

           17     A.  Yes, I have.

           18     Q.  And that's reflected in what's been marked for

           19     identification as DX-370?

           20     A.  Yes, it is.

           21     Q.  And that's the same as what's on our poster over here?

           22     A.  Yes, it is.

           23     Q.  What does the diagram represent generally?

           24     A.  The collection of money into, the movement within, and the

           25     disbursement from the IIM system.

                                                                               466



            1     Q.  And the information and experience you've had with the data,

            2     you're relying on -- what are you drawing on in terms of

            3     identifying those fund flows?  What experiences?

            4     A.  Not only the data completeness validation work, but the

            5     accounting work that we've performed through the LSA project,

            6     some of the work that we performed with the Special Deposit

            7     Accounts, as well as historical records that we've analyzed

            8     through the Paragraph 19 effort and our work with Dr. Angel

            9     recently.

           10     Q.  I don't think we talked -- you mentioned the SDA work,

           11     Special Deposit Account work you just mentioned now.  Could you

           12     describe what you were doing?

           13     A.  OHTA was tasked with distributing monies from Special

           14     Deposit Accounts that had a balance as of 2002, and we worked

           15     with them to identify monies in some of the higher-value

           16     accounts and the appropriate owners of those monies.

           17     Q.  And what information did you have to research?  What records

           18     did you have to research in order to make -- provide that

           19     research assistance?

           20     A.  We had to create a complete account history for each Special

           21     Deposit Account that we were analyzing.  To the extent that that

           22     wasn't contained within the electronic era, we had to go back

           23     and locate the paper ledgers, and then we had to identify the

           24     funds that had been distributed already from those accounts and

           25     the monies that were remaining in those accounts.

                                                                               467



            1     Q.  Have you looked at other paper records more generally as --

            2     going back into the paper era, as part of your task of trying to

            3     understand the flow of funds historically?

            4     A.  I've looked at several audits that Dr. Angel located from

            5     the 1940s, some Commissioner of Indian Affairs reports from the

            6     early 1900s, some documents that we had located from the 1970s,

            7     in addition to the documents that have been collected to date

            8     for the paper ledger accounting.

            9     Q.  I would like to show you one of the exhibits.

           10              MR. QUINN:  Excuse me, Your Honor.  We have a set of

           11     copies of exhibits we'll be using for plaintiffs.

           12              Could you zoom in on the top part of that, just so the

           13     witness can see it better?

           14     BY MR. QUINN:

           15     Q.  All right.  This has been marked for identification as

           16     Defendant's Exhibit 485.  Can you identify, describe what

           17     that -- have you seen this document before?

           18     A.  Yes, I have.

           19     Q.  Is this the sort of document that you just referring to,

           20     things that you looked at?

           21     A.  Yes, it is.

           22     Q.  Could you just describe generally what this is?

           23     A.  This is a review performed by a BIA clerk of the Winnebago

           24     Agency, an audit of IIM accounts at that agency for the time

           25     frame of June 1st, 1938 through December 31st, 1939.

                                                                               468



            1     Q.  And you looked back -- when you say you looked back into the

            2     paper era in terms of understanding fund flows, were you looking

            3     at documents similar to this?

            4     A.  Yes, I was.

            5     Q.  And in fact, do you have some examples to share with the

            6     Court later today about the fund flows indicated in this

            7     exhibit?

            8     A.  Yes, I do.

            9     Q.  We'll come back to those records in a moment.

           10              MR. QUINN:  If you could put up DX-33.  It's in

           11     evidence.  Zoom in on just the cover so we can see the cover

           12     better.

           13              I believe this has been mentioned already in court,

           14     Your Honor, Defendant's Exhibit 33 in evidence, titled

           15     "Commissioner of Indian Affairs" -- "Report of the Commissioner

           16     of Indian Affairs," and the date for the fiscal year ended

           17     June 30, 1910.

           18     BY MR. QUINN:

           19     Q.  Ms. Herman, have you seen this document before?

           20     A.  Yes, I have.

           21     Q.  Is this another sort of the paper era record you would have

           22     looked at as part of getting an understanding of the fund flows,

           23     looking at those in comparison to what you've seen in the

           24     electronic era?

           25     A.  Yes, I did.

                                                                               469



            1     Q.  We'll come back to that in a moment.

            2              Let's get an overview of what your diagram is

            3     displaying.  I see it's divided into roughly three general

            4     parts.  And let's just talk for a second about what the left

            5     side, the green section, is intended to show by your diagram.

            6     A.  The left section of the diagram is meant to reflect

            7     collections into the system.

            8     Q.  Okay.  And the middle part, the middle section which is

            9     mostly blue, what is that intended to depict?

           10     A.  Transfers of monies within the system.

           11     Q.  And then the right third of your diagram, the gray boxes on

           12     the right, what is that intended to depict?

           13     A.  Disbursements from the system, and the people or parties to

           14     whom those funds are disbursed.

           15     Q.  Did you prepare some slides that can help step us through

           16     your diagram?

           17     A.  Yes, I did.

           18     Q.  Ms. Herman, we've put up on the screen here slide one.  Is

           19     this the first slide in your slide show?

           20     A.  Yes, it is.

           21     Q.  Did you prepare this slide?  Not the graphics, but the

           22     information that went into the slide presentation?

           23              THE COURT:  I think all of those formalities, you can

           24     sort of skip through those.  This is her deal, she put it

           25     together.  I understand that.

                                                                               470



            1              MR. QUINN:  Fine, Your Honor.  Let's go.  Get the show

            2     on the road.

            3     BY MR. QUINN:

            4     Q.  Could you tell us about the very first box that's here, and

            5     what that represents?

            6     A.  The first box lists the type of income collected into the

            7     system; other receipts including timber, oil and gas, typical

            8     land-based income; Tribal IIM; judgment and per capita monies;

            9     Osage annuity payments; and interest monies.

           10     Q.  And there's a notation on the slide here at the bottom.

           11     Could you describe what that is intended to show?

           12     A.  The total collections into the system, which is reflected in

           13     the update to AR-171, from the period 1887 through 2007, were

           14     14.3 billion.

           15     Q.  And you have a subsection there, 1985 to 2000, of

           16     4.6 billion.  What does that indicate?

           17     A.  That's the amount of money collected during that time frame,

           18     which was the starting point for the analysis of these -- of

           19     this chart.

           20     Q.  Is that the era that you most closely studied?

           21     A.  Yes, it is.

           22     Q.  Why didn't you study the entire 120-year history?

           23     A.  There would be a significant number of documents that you

           24     would have to gather to do that, and there simply wasn't enough

           25     time.

                                                                               471



            1     Q.  In any case, you used the period through 2000.  Why didn't

            2     you look into the more recent era as part of your investigation?

            3     A.  Beginning in August of 1998 there was a conversion to the

            4     TFAS system, and beginning in March of 1999, the Tribal Trust

            5     and the individual trusts were held within the same system.  And

            6     so it's a much more time-consuming effort to appropriately

            7     categorize those monies as tribal or individual.

            8     Q.  But if you had the time, you could take that and include

            9     that as part of your analysis?

           10     A.  Yes, I could.

           11     Q.  Based on your 11 years' experience studying the IIM system

           12     records, does your diagram also reflect historical flow of funds

           13     in the paper era, as well?

           14     A.  For the documents that I've analyzed to date, yes.

           15     Q.  Is your understanding -- that's based on the historical

           16     records you've looked at?

           17     A.  Yes, it is.

           18     Q.  Let's talk about exactly what's in the box, the green box in

           19     the left third, that green section.

           20              The labels in there look familiar to me.  What do those

           21     represent?

           22     A.  Those are the labels from AR-171, as well as our update,

           23     DX-371.

           24     Q.  Are you saying these categories here refer back to these

           25     columns in the collections? (Indicating.)

                                                                               472



            1     A.  Yes, they do.

            2              MR. QUINN:  And if we can zoom in to the top part, the

            3     left edge of the document, please.  That's great.

            4     BY MR. QUINN:

            5     Q.  The first in the "Collections" category, Column B, is

            6     labeled "Interest."  Could you describe what that covers?

            7     A.  That would include interest earned on individual and

            8     non-individual accounts in the IIM system.

            9     Q.  Is all interest that's been collected into the IIM system

           10     over its history appear in that category on your table?

           11     A.  No.  Only the interest that we were identified, because it

           12     was coded as such.

           13     Q.  What do you mean, coded as such?

           14     A.  Within the electronic system there's a revenue code that

           15     indicates the type of income, and in many instances that labels

           16     the income as miscellaneous.

           17              So this only includes income that's been labeled as

           18     interest or, to the extent that we had an investment report,

           19     interest in those reports.

           20     Q.  If there's some interest that's not in the interest column,

           21     does it appear elsewhere in the table?

           22     A.  It would be included in other receipts.

           23     Q.  That's Column F of AR-171?

           24     A.  That's correct.

           25     Q.  So if you ignore Column B, the interest column, in totaling

                                                                               473



            1     up the collections, does that total still contain interest?

            2     A.  It would contain some interest.

            3     Q.  The next column, Column C in AR-171, is labeled "Osage

            4     quarterly annuity."  What does that cover?

            5     A.  That covers payments from the Osage tribe to headright

            6     owners that enter into the IIM system.

            7     Q.  Is all Osage headright income represented in that column?

            8     A.  No, it is not.

            9     Q.  Could you describe what is not -- what Osage headright

           10     income is not in that column?

           11     A.  There are some payments that are made directly from the

           12     Tribal Trust to owners of head rights, and that money would not

           13     be included in this column.

           14     Q.  So there's some money -- when you, on your diagram, look at

           15     the green box, look over here, is that the Osage annuity you're

           16     referring?

           17     A.  Monies paid directly from the Tribal Trust system would not

           18     be included in that green box.

           19     Q.  So what does that box represent, the Osage annuity in the

           20     box?

           21     A.  Only funds that were actually collected into the IIM system.

           22     Q.  If I were to try to draw on this chart the Osage headrights

           23     income paid directly out of the Tribal Trust, where would I show

           24     it?

           25     A.  You would need to create another funds flow to represent

                                                                               474



            1     monies moving from the Tribal Trust.

            2     Q.  The next column in AR-171 is listed as "judgment/per

            3     capita."  What does that cover?

            4     A.  That includes judgment funds and per capita payments from

            5     tribes that actually enter into the IIM system.

            6     Q.  And for years prior to, I think it looks like 1986, there

            7     isn't an entry in the "judgment/per capita" column.  Is that

            8     right?

            9     A.  That's correct.

           10     Q.  Does that mean there was no judgment or per capita money

           11     earned in those years, or received in those years?

           12     A.  No, it only means that we weren't able to separately

           13     identify them.

           14     Q.  So for an earlier period, if there is a judgment/per capita

           15     receipt, where would that be reflected on AR-171?

           16     A.  In the "other receipts" category.

           17     Q.  Column E in AR-171 is the Tribal IIM, and I think you

           18     testified about this last fall.  Could you briefly describe what

           19     that includes?

           20     A.  That includes collections into what I refer to as Tribal IIM

           21     accounts.  Those accounts typically have a T in the fourth

           22     character of the account number.

           23     Q.  You're talking about the letter "T," that's what they go by?

           24     A.  Yes.

           25     Q.  Is all tribal money that's in the IIM system in a T-labeled

                                                                               475



            1     account?

            2     A.  No, it is not.

            3     Q.  So does the Column E, Tribal IIM in AR-171, does that

            4     include all tribal money that's flowing through the IIM system?

            5     A.  No, it does not.

            6     Q.  Have you found examples of other Indian tribe money that is

            7     not Tribal IIM denominated as Tribal IIM?

            8     A.  Yes, I have.

            9     Q.  And you have examples that we'll walk through later?

           10     A.  Yes, I do.

           11     Q.  Other tribal money that's not here in the Tribal IIM column,

           12     where would it show up in your table?

           13     A.  In other receipts.

           14     Q.  That brings us to "Other receipts," F, in table AR-171. What

           15     collections fall into "Other receipts"?

           16     A.  As we discussed, to the extent that interest or judgment

           17     funds or per capita monies aren't specifically identified, they

           18     would be included in other receipts, in addition to what we

           19     refer to as land-based revenues.  So land sales, oil and gas

           20     collections, timber payments, things of that nature.

           21     Q.  Are there other types of collections you've seen that come

           22     in that would fall into the other receipts total?

           23     A.  Yes.  To the extent that bid deposits or bonds or things of

           24     that nature came into the system, they would be reflected in

           25     other receipts.

                                                                               476



            1     Q.  How about money earned from a school play?  Have you seen

            2     that?

            3     A.  Yes, I did.

            4     Q.  Do you have an example of that to share with the Court

            5     later?

            6     A.  Yes, I do.

            7     Q.  How about money that's being held as part of a cemetery

            8     fund?  Have you seen that in the IIM system?

            9     A.  Yes, I have.

           10     Q.  So in the course of your experience, have you come across

           11     such a variety of types of collections over the years?

           12     A.  Yes, I have.

           13     Q.  So in going back to 370, if we could put slide one back on

           14     the screen, DX-370, and your green box of collections on the

           15     right, you've used the same labels in categorizing the types of

           16     selections.  Is that right?

           17     A.  Yes, I have.

           18     Q.  Why are they in reverse order from your table?

           19     A.  "Other receipts" is the primary category of revenue within

           20     the examples, so I've labeled that first.

           21     Q.  If we could go to slide two and ask you about the next part

           22     of your diagram.  Going from the green box, you have two arrows,

           23     two green arrows.  What do they represent?

           24     A.  In some instances, monies are posted directly to the

           25     individual accounts themselves when they're collected.  In other

                                                                               477



            1     instances, the monies are posted to what I've referred to as

            2     non-individual accounts.

            3     Q.  That's the box at the top?

            4     A.  That's correct.

            5     Q.  In the blue box.  The entire blue section, what does that

            6     represent?

            7     A.  The IIM system itself.

            8     Q.  And let's talk about the different parts that make up that

            9     center blue box.  Does this represent the internal workings of

           10     the IIM system?

           11     A.  Yes, it does.

           12     Q.  And you have two boxes, an upper box labeled "Non-Individual

           13     accounts" and lower, "Individual accounts."  Why did you present

           14     it this way?

           15     A.  As I mentioned, in some instances monies post directly to

           16     those individual accounts, and in other cases the monies post to

           17     the non-individual accounts, at which point funds may transfer

           18     or may be disbursed.

           19     Q.  And let's look at the top box for a moment, labeled

           20     "Non-Individual accounts."  You have some labels inside that

           21     box.  Could you describe what those mean?

           22     A.  "SDA" stands for Special Deposit Account; "Tribal IIM"

           23     refers to the T accounts that we were discussing earlier; and

           24     "Other administrative accounts" is a catch-all for the rest of

           25     the administrative accounts within the system.

                                                                               478



            1     Q.  Could you give an example or two of the other administrative

            2     accounts that you've seen?

            3     A.  For instance, interest accounts within the system or

            4     mislabeled accounts within the system.

            5     Q.  Are there such things as bid deposit accounts?

            6     A.  Bid deposits could be within the SDA account or an escrow

            7     account.

            8     Q.  Could there be administrative accounts for collection of

            9     government fees?

           10     A.  Yes, that's possible.

           11     Q.  In your diagram where you say, "Non-Individual," what do you

           12     mean by that?

           13     A.  Monies that may or may not actually transfer to an

           14     individual account at the end of the day.

           15     Q.  So in this part of the process, do you know that they're

           16     individual?

           17     A.  No, not at that point.

           18     Q.  Do you know for sure that they're going to a trust account?

           19     A.  No, you do not.

           20     Q.  You have a circle around the "SDA" and "Tribal IIM" and

           21     other administrative -- an arrow in a circle.  What does that

           22     reflect?

           23     A.  That there are actually transfers between administrative

           24     accounts within the system.

           25     Q.  You have a label on the arrow, "Admin-to-admin transfers."

                                                                               479



            1     Right?

            2     A.  That's correct.

            3     Q.  Could you describe a typical type of

            4     administrative-to-administrative transfer that you've seen?

            5     A.  For instance, when range payments are going to be paid out,

            6     in some cases you'll see a debit from all of the various range

            7     accounts for that particular agency, and a credit of all of

            8     those funds into one singular Special Deposit Account, to

            9     facilitate distribution.

           10     Q.  And did you bring some examples showing these kinds of

           11     administrative-to-administrative transfers?

           12     A.  Yes, I did.

           13     Q.  And we'll talk about those after we get through your slides

           14     here.

           15              Let's look at the lower part of the blue box that's

           16     labeled "Individual accounts."  What funds are represented by

           17     that box?

           18     A.  Monies that are actually credited to individuals within the

           19     system.  So land-based accounts refers to accounts where the

           20     primary source of revenue would be a lease, for instance.

           21     Q.  Would these be accounts in the name of a particular

           22     recipient?

           23     A.  Yes, they would.

           24     Q.  And you have in there labeled "Land-Based," "Judgment," and

           25     "Per Capita."  Could you describe what you're intending to

                                                                               480



            1     depict there?

            2     A.  Land-based accounts would contain monies primarily from the

            3     use of land.  So land sales, farm and pasture leases, range

            4     income, things of that nature.

            5              Judgment accounts would typically be accomplished for a

            6     minor or someone deemed to be incompetent to receive judgment

            7     monies; similar to that would be per capita accounts.

            8     Q.  And you have a circle -- or an arrow in a circle going

            9     around those identified types of accounts that says,

           10     "Individual-to-individual transfers." What are you depicting

           11     there?

           12     A.  In some instances you'll see transfers among individual

           13     accounts.  A typical example would be either a probate or a land

           14     sale.

           15     Q.  Actually, a movement of money from one individual account to

           16     another?

           17     A.  That's correct.

           18     Q.  One arrow we haven't discussed is the one in the middle

           19     between the two boxes that says, "Transfers." Could you describe

           20     what that depicts?

           21     A.  Yes.  To the extent that the monies collected into the

           22     non-individual section at the top of the chart are deemed to be

           23     individual monies, they're transferred down to the individual

           24     accounts.

           25     Q.  Is it possible that tribal money could move -- be

                                                                               481



            1     transferred that way as well?

            2     A.  Yes, that is possible.

            3     Q.  Have you seen that happen?

            4     A.  Yes, I have.

            5     Q.  Could you give an example that you've seen of that type of

            6     tribal money moving into an individual account?

            7     A.  The most typical example would be a loan from the tribe to

            8     individual.

            9     Q.  A loan?

           10     A.  Yes.

           11     Q.  Why is it important to have an understanding about all the

           12     different types of internal transfers that you've described?

           13     A.  Such that you can reduce potential double-counting in your

           14     collection estimate.

           15     Q.  Last fall when you were talking about your DCV study, I

           16     believe you testified about a similar double-counting issue when

           17     studying postings.  Is that right?

           18     A.  That's correct.

           19     Q.  I would like to look back at that one exhibit that we

           20     discussed last October.

           21              MR. QUINN:  If we could go to DX-152A in evidence, at

           22     page 15.  Can we zoom in on that?

           23     BY MR. QUINN:

           24     Q.  Do you recall your testimony about this example, Ms. Herman?

           25     A.  Yes, I do.

                                                                               482



            1     Q.  Describe what you were talking about here with respect to

            2     counting transactions as part of the data completeness analysis?

            3     A.  This is when we were discussing the manner in which we count

            4     throughput for the data completeness validation reports.  And we

            5     were discussing in essence that we would count each movement of

            6     money instead of the unique collection and the unique

            7     disbursement.

            8     Q.  Now, when you're over here talking about the collection and

            9     disbursement of funds over the history of the IIM system, do you

           10     want to count this way?

           11     A.  No, you do not.

           12     Q.  So what needs to be understood then about these internal

           13     transfers?

           14     A.  You need to be able to identify the transfers such that you

           15     can eliminate the double-counting.

           16     Q.  Going back to the upper box --

           17              MR. QUINN:  We can put the slide back up on the screen.

           18     Thanks.

           19     BY MR. QUINN:

           20     Q.  The upper box labeled "Non-Individual accounts," why is it

           21     important, as far as understanding collections into the system

           22     and disbursements out, to have an understanding what happens to

           23     funds in the upper box on your diagram?

           24     A.  Some of those monies will eventually be transferred down to

           25     individual accounts, but some of those monies will be paid out

                                                                               483



            1     of the non-individual accounts.

            2              MR. QUINN:  If we could put DX-33 back up on the screen

            3     for just a moment.  It's in evidence.  And go to the right-hand

            4     chart at the top.  Zoom in at the top, please.

            5     BY MR. QUINN:

            6     Q.  Ms. Herman, you've seen this document before.  Right?

            7     A.  Yes, I have.

            8     Q.  And could you interpret this document in terms of your

            9     diagram, what it's showing in terms of the disbursements and

           10     where money is going in terms of your diagram?

           11     A.  Could you move it down, please, a little bit?  Thank you.

           12              This diagram is referring to the category of

           13     collections for this particular year.  And there were total

           14     collections of $7.65 million, and of those it gives three

           15     categories of disbursements; one, paid directly to Indians by

           16     disbursing officers; two, monies returned to unsuccessful

           17     bidders; and three, checks drawn by Indians on bank accounts.

           18     Q.  Out of that example, is there any part of those

           19     disbursements that fall into your upper box?

           20     A.  At minimum, the monies referred to as returned to

           21     unsuccessful bidders would be included in that upper box.

           22     Q.  Do you have a sense of what percentage that makes up of the

           23     total disbursements in that year?

           24     A.  It's roughly 35 percent.

           25     Q.  Let's go to your third slide and talk about the right third

                                                                               484



            1     of your diagram.  Describe what this slide shows.

            2     A.  This slide illustrates the disbursements from the IIM system

            3     and the type of entity that may be receiving those monies.

            4     Q.  And at the bottom you have a notation about "Total

            5     disbursements."  Could you explain what your notation means?

            6     A.  From 1887 through 2007, there's approximately $13.7 billion

            7     disbursed from the Trust, and from 1985 through 2000,

            8     approximately 4.6 billion.

            9     Q.  And that subset you're referring to, the $4.6 billion in

           10     disbursements, what does that refer to?

           11     A.  Again, that refers to the primary area we focused on from

           12     the electronic time frame.

           13     Q.  This time period, '85 to 2000, is that the same period you

           14     focused on in terms of collections?

           15     A.  Yes, it is.

           16     Q.  And are the same reasons you stopped it, in terms of the

           17     focus of your efforts in 2000 data year, for the same reasons

           18     you described in terms of the collections?

           19     A.  Yes.

           20     Q.  On the upper right-hand side there are three arrows pointing

           21     out from the IIM system.  Could you describe what they

           22     represent?

           23     A.  The first is third parties, the second is the Tribal Trust,

           24     and the third is stakeholders.

           25     Q.  But what do the arrows represent going to those boxes?

                                                                               485



            1     A.  I'm sorry, the movement of money from the IIM system to

            2     those categories of individuals or entities.

            3     Q.  Are you indicating there that that's movement of money out

            4     of non-individual accounts?

            5     A.  That's correct.

            6     Q.  This is money going out of the IIM system from

            7     non-individual accounts?

            8     A.  That's correct.

            9     Q.  So the converse of that is, that's money that not going out

           10     of individual Indian accounts in the IIM system?

           11     A.  Yes.  Those funds would not have been transferred down to

           12     individual accounts.

           13     Q.  Let's go over the three boxes and what they represent in

           14     terms of the disbursements.  The box at the top right is labeled

           15     "Third parties."  Who are third parties?

           16     A.  That would represent the return of bid deposits to an

           17     unsuccessful bidder; return of bonds, for instance upon

           18     completion of a lease; payment of administrative fees to the

           19     government for managing the lease.  Things of that nature.

           20     Q.  Any other examples you can think of, sitting here?

           21     A.  I've seen payments of wages by a tribe to an employee.

           22     Q.  Have you seen indications of disbursements to Boy Scouts or

           23     Girl Scouts?

           24     A.  Yes, I have.

           25     Q.  I have a sense of the Tribal Trust, but could you describe

                                                                               486



            1     what that depicts, the next box down?

            2     A.  There's significant amount of money transferred out to the

            3     Tribal Trust from the IIM system.

            4     Q.  And when you say Tribal Trust, you're talking about that

            5     other trust system set up for handling tribal money?

            6     A.  That's correct.

            7     Q.  The last box in that top set of three are stakeholders.

            8     Describe what this box refers to.

            9     A.  This includes direct payments.  One of the larger categories

           10     would be of judgment or per capita monies or direct pay leases

           11     that are made from the non-individual section of the system.

           12     Q.  Are there other types beyond judgment/per capita?

           13     A.  I've seen leases paid directly from the non-individual

           14     accounts.

           15     Q.  How about, have you seen loan proceeds?

           16     A.  I'm sorry, I'm not clear on the question.

           17     Q.  I'm sorry.  Have you seen land sale proceeds paid that way?

           18     A.  Yes, I have.

           19     Q.  Last fall we heard testimony about direct pay arrangements.

           20     When you talk about stakeholder -- payments to stakeholders, are

           21     you referring to the direct pay arrangement?

           22     A.  No, not in this same context.

           23     Q.  How are they different?  How are these different from direct

           24     pay arrangements, to your knowledge?

           25     A.  These are monies that actually entered into the IIM system,

                                                                               487



            1     and are being paid out from the non-individual accounts.

            2     Q.  But how are they similar to direct pay arrangements?

            3     A.  The funds are never transferred to an individual money

            4     account, a land-based account, for instance.

            5     Q.  The last box, the lower -- bottom box on your right-hand

            6     side says, "IIM beneficiaries."  Could you describe what that

            7     illustrates?

            8     A.  These would be payments made from individual accounts to IIM

            9     beneficiaries or on their behalf.

           10     Q.  And what do you mean by "on their behalf"?

           11     A.  For instance, if an account holder is a minor, you may see a

           12     payment for school clothing or medical care.

           13     Q.  Now, on your slide -- it's not on your poster, but on your

           14     slide, the last frame there, you have a large bracket around all

           15     three boxes, with the indication of "Total disbursements."  Can

           16     you describe what that illustrates?

           17     A.  That illustrates that the total disbursements for all four

           18     of those categories is 13.7 billion from 1887 through 2007.

           19     Q.  So is it correct, then, when you talk about total

           20     disbursements, you're talking about total disbursements out of

           21     the IIM system?

           22     A.  That's correct.

           23     Q.  Let's see if we can just recap on your illustration.  With

           24     respect to the collections in your green box, does that include

           25     money, some money coming into the IIM system that is never

                                                                               488



            1     destined for deposit into an individual IIM account?

            2     A.  That's correct.

            3     Q.  Would I be correct to say that based on your own

            4     observation, that many credits that are posted to the IIM system

            5     involve the upper box, the non-individual accounts?

            6     A.  That's correct.

            7     Q.  And when something posts as a credit to the non-individual

            8     account box, does that mean it's, in that sense, in that

            9     transaction, not a posting to an individual IIM account?

           10     A.  That's correct.

           11     Q.  In terms of your description here and your diagram, you have

           12     the non-individual accounts.  And when you talk about the

           13     character of money being non-individual, how is that determined?

           14     I mean, how do you classify something as non-individual?

           15     A.  It's determined based on the type of disbursement.  So if

           16     the monies flow down to an individual account, it would be

           17     considered individual.  Or if it's moving out of the system to a

           18     third party or the Tribal Trust or a stakeholder, it would be

           19     considered non-individual.

           20     Q.  So that in a sense, then, the non-individual character of

           21     the money is determined by its destination?

           22     A.  That's correct.

           23     Q.  And that non-individual money includes money going to third

           24     parties?

           25     A.  That's correct.

                                                                               489



            1     Q.  And to tribes?

            2     A.  That's correct.

            3     Q.  Unsuccessful bidders --

            4     A.  That's correct.

            5     Q.  -- and so forth?  Okay.

            6              Why is it useful to understand this part of the flow of

            7     funds through the IIM system?

            8     A.  To be able to determine the amount of monies that are

            9     actually deposited at the end of the day to individual accounts

           10     within the system.

           11              MR. QUINN:  Could we put up DX-365 for a moment?

           12     BY MR. QUINN:

           13     Q.  I just want to ask you about one document that was discussed

           14     at the last trial, DX-365.

           15              MR. QUINN:  Could we zoom in on the top half of the

           16     box, so we get the label?

           17     BY MR. QUINN:

           18     Q.  Can you see that Ms. Herman?

           19     A.  Yes, I can.

           20     Q.  Have you seen this document before?

           21     A.  Yes, I have.

           22     Q.  Let's talk about it in terms of your document AR-171 and the

           23     work you've done, as far as the update to it that we'll be

           24     presenting to the Court.

           25              Did you use any calculations from DX-365 in revising

                                                                               490



            1     the table, doing the revising of information on AR-171?

            2     A.  No, I did not.

            3     Q.  Have you -- looking at the table, on the far upper part of

            4     the chart, A, it has a column identified as "Total collections."

            5     Do you see that?

            6     A.  Yes, I do.

            7     Q.  And at the bottom number it has a number of 13,186,000,000.

            8     Right?

            9     A.  That's correct.

           10     Q.  What's your understanding of what that number includes?

           11     A.  That that's the total collection number from AR-171, less

           12     Tribal IIM monies.

           13     Q.  So less Tribal IIM.  Does that mean we're talking about that

           14     one column that was in AR-171 as -- denominated as Tribal IIM?

           15     A.  That's correct.

           16     Q.  So based on your study of the flow of funds through this

           17     system, does this total that's indicated here, does that exclude

           18     or include the other tribal monies you've seen through this

           19     system that are not denominated as IIM?

           20     A.  This would include those other tribal monies.

           21     Q.  That would include those other tribal monies.

           22              Would it include things such as bid deposits?

           23     A.  Yes, it would.

           24     Q.  Would it include undifferentiated interest, interest that

           25     you couldn't determine was interest at the time you did the

                                                                               491



            1     calculation?

            2     A.  All interest is included in this number.

            3     Q.  So in terms of your -- of this collections figure, it

            4     doesn't exclude everything that's in the non-individual accounts

            5     that you've identified in terms of fund flows over the history

            6     of the IIM system.  Is that right?

            7     A.  That's correct.

            8     Q.  Can you think of other things that didn't get deducted out

            9     of that total collections number, as far as you know?

           10     A.  For instance, the direct payments for judgment monies that

           11     were made that we were referring to, the stakeholder payments,

           12     things of that nature would not have been deducted.

           13     Q.  As a consequence of including these other non-individual

           14     monies in the collections figure on this DX-365 figure, what

           15     does that do to the total collections number?

           16     A.  It would overstate collections to individual accounts.

           17     Q.  So is it fair -- if you go down to the bottom chart, in

           18     Part B there's a list, do you see that, of estimated credits to

           19     IIM accounts?

           20     A.  Yes, I do.

           21     Q.  Of 10 billion.  Are those numbers comparable to one another?

           22     A.  No, they are not.

           23     Q.  Did you participate in -- did you prepare this DX-365 chart?

           24     A.  No, I did not.

           25     Q.  Have you used the computations in here as part of your

                                                                               492



            1     update to AR-171?

            2     A.  No, I have not.

            3     Q.  Based on what you know about the calculations you've made in

            4     AR-171, does the chart in DX-365 also include

            5     individual-to-individual transfers?

            6     A.  Yes, it does.

            7     Q.  In your flow of funds chart, DX-375 -- or 370, excuse me,

            8     does that diagram indicate how total collections as represented

            9     in DX-365 could overstate the amount of individual Indian

           10     account money that was in the system?

           11     A.  Yes, it could.

           12              THE COURT:  Mr. Quinn, it's 5:00 o'clock and I have

           13     another matter that I have to attend to.  And besides which, you

           14     have about reached my plateau with these numbers.

           15              MR. QUINN:  I try to make it interesting, Your Honor.

           16              THE COURT:  Well, it's fascinating.  But at 9:30

           17     tomorrow morning, we will start again.  And I think I'm going to

           18     need a little bit of re-grounding in what this exhibit is, the

           19     one you've got up on the screen.

           20              MR. QUINN:  Okay.

           21              THE COURT:  Because I'm not quite sure I -- frankly, I

           22     think I missed where this comes from and how it relates to the

           23     other stuff.  So let's start with that fresh at 9:30.

           24              Thank you, everybody, for your attendance today.  We'll

           25     be in recess until 9:30 tomorrow morning.

                                                                               493



            1              MR. QUINN:  Thank you, Your Honor.

            2              THE WITNESS:  Thank you, Your Honor.

            3              (Proceedings adjourned at 5:06 p.m.)

            4

            5

            6

            7

            8

            9

           10

           11

           12

           13

           14

           15

           16

           17

           18

           19

           20

           21

           22

           23

           24

           25

                                                                               494



            1                 CERTIFICATE OF OFFICIAL COURT REPORTER

            2

            3              I, Rebecca Stonestreet, certify that the foregoing is a

            4     correct transcript from the record of proceedings in the

            5     above-entitled matter.

            6

            7

            8

            9     _______________________________              _________

           10     SIGNATURE OF COURT REPORTER                  DATE

           11

           12

           13

           14

           15

           16

           17

           18

           19

           20

           21

           22

           23

           24

           25