In response to tribes’ concerns that BIA had not consistently provided them with statements on their account balances, that their trust fund accounts had never been reconciled, and that BIA planned to contract with a third party for management of trust fund accounts, the Congress established the requirement in the Interior Department’s fiscal year 1987 supplemental appropriations act that BIA reconcile trust fund accounts before they could be transferred to a third party. In Interior’s fiscal year 1990 appropriations act, the Congress required that BIA reconcile the accounts to the earliest possible date. In a March 1990 decision interpreting this requirement, we concluded that “Congress’s evident purpose is to obtain, to the greatest extent possible, reliable baseline balances in the various accounts.” In 1990, BIA decided to address the legislative requirement that it reconcile trust fund accounts by contracting for a reconstruction of historical transactions, to ensure that tribal and individual accounts were reconciled as accurately as possible back to the earliest possible date based on available records. In May 1991, BIA awarded a reconciliation contract valued at $12 million over a 5-year period to a major independent public accounting firm. Following a preliminary assessment of the feasibility of reconciling accounts to the earliest date possible, BIA’s reconciliation contractor reported in March 1992 that records were available to research tribal accounts for fiscal years 1973 through 1992. BIA’s contractor also reported that due to the level of effort and associated cost and the potential for missing documentation, it was not feasible to reconcile Individual Indian Money (IIM) accounts for individual Indians. In addition, BIA determined that its contractor should use alternative procedures, rather than specific transaction testing, to verify tribal account balances where insufficient documents were available to reconstruct the accounting or where more efficient approaches were identified. In addition to requiring that the accounts be reconciled to the earliest possible date, Interior’s fiscal year 1990 appropriations act required an independent certification that the reconciliation resulted in the most complete reconciliation possible. In September 1993, BIA awarded a certification contract for $1.2 million to another major independent accounting firm to verify that the reconciliation procedures were performed in accordance with the reconciliation contract. BIA terminated the certification contract as of November 30, 1995. As of February 14, 1996, BIA had obligated over $21 million for the 5-year reconciliation effort, including $18.3 million for reconciliation work and $2.8 million for certification work. The American Indian Trust Fund Management Reform Act of 1994 required the Secretary of the Interior to provide tribes with reconciled account statements as of September 30, 1995. To meet this requirement, BIA included reconciled account statements, which it prepared for fiscal years 1993 through 1995, in the reconciliation report package for each tribe. The act also requires the Secretary of the Interior to report to the Senate Committee on Indian Affairs and the House Committee on Resources by May 31, 1996, (1) methodologies used to reconcile the accounts, (2) whether tribes accept or dispute their reconciled account balances, and (3) how the Secretary plans to resolve any disputes. BIA’s Office of Trust Funds Management (OTFM) was responsible for carrying out the reconciliation and certification effort. As of the end of fiscal year 1995, OTFM reported that it managed and accounted for approximately $2.6 billion in Indian trust funds—about $2.1 billion for about 1,500 tribal accounts and about $453 million for nearly 390,000 IIM accounts. The balances in the trust fund accounts have accumulated primarily from payments of claims; oil, gas, and coal royalties; land use agreements; and investment income. Fiscal year 1995 reported receipts to the trust accounts from these sources totaled about $1.9 billion, and disbursements from the trust accounts to tribes and individual Indians totaled about $1.7 billion. To provide our observations on the results of the reconciliation and certification efforts, we reviewed reconciliation and certification contracts and issue papers, contractor status reports and memoranda, and prototype reconciliation report drafts. We met with Interior, BIA, and Office of Management and Budget (OMB) officials, including BIA’s Special Assistant to the Deputy Commissioner of Indian Affairs for the reconciliation project (Reconciliation Project Manager), Interior’s Special Trustee for American Indians, and representatives of the independent accounting firms that BIA contracted with to perform the reconciliation and certification to discuss our concerns about the reconciliation effort and the certification contract. To obtain tribes’ views on the reconciliation and certification efforts, we contacted representatives of the Intertribal Monitoring Association (ITMA), which represents a number of tribal account holders, and representatives of non-ITMA member tribes. We attended BIA’s February 1996 National Meeting in Albuquerque, New Mexico, to observe Interior’s and BIA’s presentation on the reconciliation procedures, reports, and results and the tribes’ responses. We conducted our work between April 1995 and March 1996 at BIA’s headquarters in Washington, D.C., and its Office of Trust Funds Management in Albuquerque, New Mexico. Our work was performed in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Interior Department’s Special Trustee for American Indians. On April 2, 1996, we received written comments from BIA’s Reconciliation Project Manager. These comments are discussed in the “Agency Comments and Our Evaluation” section of this report. While we are not reprinting these comments, copies are available from GAO. Although BIA identified about 20,000 boxes of accounting documents and lease records and spent about 5 years attempting to reconcile tribal trust accounts, sufficient records were not available to fully reconcile the accounts. For example, BIA’s reconciliation contractor verified 218,531 of tribes’ noninvestment receipt and disbursement transactions totaling $15.3 billion, or 86 percent, of the $17.7 billion in transactions that were recorded in the general ledger. However, due to missing records, the contractor was not able to verify 32,901 of these transactions totaling $2.4 billion (gross). In addition, BIA was not able to determine the total amount of receipts and disbursements that should have been recorded and had no reconciliation procedure to address the completeness of the accounting records. BIA’s contractor also specifically tested $21.3 billion, or 16 percent, of the investment transactions. According to BIA’s Reconciliation Project Manager, in order to achieve efficiencies, BIA decided to verify investment activity by asking its contractor to perform alternative procedures to review interest yields. BIA performed related procedures to reconcile investment system balances and BIA’s contractor identified deposit lag times (for information purposes only) on collections. However, the completeness of these procedures was also impacted by missing records. BIA’s contractor reconciled 692 leases with collections greater than $25,000 and collections for 227 months for 213 timber sales contracts for certain tribes. BIA’s contractor reported that $601 million, or 99 percent, of lease receipts tested were verified. However, this represented only 10.7 percent of the leases originally identified for testing. Because BIA did not know the universe of leases, it could not determine total lease revenue expected to be collected during a given period and, therefore, it could not reliably determine the percent of lease revenue that had been tested. Further, not all of the reconciliation procedures specified in BIA’s reconciliation contract were performed and others could not be completed due to missing records, the lack of an audit trail through BIA’s systems, and time and cost constraints. For example, BIA did not reconcile its subsidiary system to its general ledger and BIA could not complete the reconciliation of its Finance System (general ledger) transactions to Treasury records. Also, as stated earlier, because of the cost and level of effort and the potential lack of supporting documents, reconciliations of about 300,000 individual Indian accounts were not performed and no alternative procedures were developed. Appendix I contains detailed information on reconciliation procedures and results. In January 1996, BIA provided to each tribe a report package on the results of the reconciliation procedures performed by its contractor for fiscal years 1973 through 1992, BIA’s reconciliations for fiscal years 1993 through 1995, and a transmittal letter which described the information provided and BIA’s plans to meet with tribes to discuss the reconciliation results. We reviewed several drafts of BIA’s reconciliation report package and provided oral and written comments and suggestions to OTFM between May 1995 and January 1996. We suggested that the usefulness of their report could be increased by clarifying technical terms so that the report would be more understandable to nonaccountants. We also suggested that BIA identify methodological changes addressed in contract modifications and issue papers and disclose scope limitations as part of the reconciliation report package. BIA’s reconciliation contractor clarified technical language in the agreed-upon procedures report and stated the scope of the work performed. However, BIA did not disclose in the report package to tribes the procedures specified in the reconciliation contract which were not performed or could not be completed and the reasons. In addition, for the procedures which were performed, BIA did not fully disclose scope limitations or changes in methodologies, such as accounts and time periods that were not covered and alternative source documents used. While some scope limitations were discussed at the February 1996 National Meeting with tribes, BIA did not explain all methodological changes resulting from contract modifications and issue papers. BIA modified the reconciliation contract 29 times and approved approximately 140 issue papers—including about 90 which addressed changes in tribal reconciliation scope and procedures. For example, issue papers determined that certain adjustments relating to transfers would be reflected as of their general ledger posting date rather than the date that the original transaction occurred. Using the general ledger posting date instead of the transaction date could impact tribal interest calculations. Other issue papers determined that certain procedures could not be performed for specific tribes due to missing records. We suggested that substantial changes in the scope or procedures as a result of contract modifications and issue papers be explained in the report package transmitted to the tribes. BIA considered providing issue papers to tribes on compact disk.