Several Interior agencies are responsible for carrying out the Secretary’s Indian trust responsibilities. These agencies include the Bureau of Indian Affairs (BIA) and its Office of Trust Responsibilities (OTR), which is responsible for resource management and land and lease ownership information; BIA’s 12 Area Offices and 85 Agency Offices; the Bureau of Land Management (BLM) and its lease inspection and enforcement functions; and the Minerals Management Service’s (MMS) Royalty Management Program, which collects and accounts for oil and gas royalties on Indian leases. In addition, an Office of the Special Trustee for American Indians was established by the American Indian Trust Fund Management Reform Act of 1994. This office, implemented by Secretarial Order in February 1996, has oversight responsibility over Indian trust fund and asset management programs in BIA, BLM, and MMS. The Order transferred BIA’s Office of Trust Funds Management (OTFM) to the Office of the Special Trustee for American Indians and gave the Special Trustee responsibility for the financial trust services performed at BIA’s Area and Agency Offices. At the end of fiscal year 1995, OTFM reported that Indian trust fund accounts totaled about $2.6 billion, including approximately $2.1 billion for about 1,500 tribal accounts and about $453 million for nearly 390,000 Individual Indian Money (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. OTFM uses two primary systems to account for the Indian trust funds—an interim, core general ledger and investment system and BIA’s Integrated Resources Management System (IRMS). OTR’s realty office uses the Land Records Information System (LRIS) to record official Indian land and beneficial ownership information. BLM maintains a separate system for recording mineral lease and production information and MMS maintains separate royalty accounting and production information systems. Our assessment of BIA’s trust fund reconciliation and reporting to tribes is detailed in our May 1996 report, which covered our efforts to monitor BIA’s reconciliation project over the past 5 and one-half years. As you requested, we also assessed Interior’s trust fund management improvement initiatives. In order to do this, we contacted the Special Trustee for American Indians, OTFM officials, and OTR’s Land Records Officer for information on the status of their management improvement plans and initiatives. We also contacted tribal representatives for their views. We focused on Interior agency actions to address recommendations in our previous reports and testimonies and obtained information on new initiatives. BIA recently completed its tribal trust fund reconciliation project which involved a massive effort to locate supporting documentation and reconstruct historical trust fund transactions so that account balances could be validated. BIA provided a report package to each tribe on its reconciliation results in January, 1996. Interior’s prototype summary reconciliation report to tribes shows that BIA’s reconciliation contractor verified 218,531 of tribes’ noninvestment receipt and disbursement transactions that were recorded in the trust fund general ledger. However, despite over 5 years of effort and about $21 million in contracting fees, due to missing records, a total of $2.4 billion for 32,901 receipt and disbursement transactions recorded in the general ledger could not be traced to supporting documentation and only 10 percent of the leases selected for reconciliation could be verified. In addition, BIA’s reconciliation report package did not disclose known limitations in the scope and methodology used for the reconciliation process. For example, BIA did not disclose or discuss the procedures included in the reconciliation contract which were not performed or could not be completed. Also, BIA did not explain substantial changes in scope or procedures contained in contract modifications and issue papers, such as accounts and time periods that were not covered and alternative source documents used. Further, BIA did not disclose that the universe of leases was unknown or the extent to which substitutions were made to the lease sample originally selected for reconciliation. In order for the tribes to conclude on whether the reconciliation represents as full and complete an accounting as possible, it was important that BIA explain the limitations in reconciliation scope and methodology and the procedures specified under the original contract that were not performed or were not completed. At a February 1996 meeting in Albuquerque, New Mexico, where BIA and its reconciliation contractor summarized the reconciliation results, tribes raised questions about the adequacy and reliability of the reconciliation results. The American Indian Trust Fund Management Reform Act of 1994 required that the Secretary of the Interior report to the House Committee on Resources and the Senate Committee on Indian Affairs by May 31, 1996, including a description of the methodology used in reconciling trust fund accounts and the tribes’ conclusions as to whether the reconciliation represents as full and complete an accounting of their funds as possible. During BIA’s February 1996 meeting with tribes to discuss the reconciliation reports and results, several tribes stated that they would need significant time to review their reconciliation reports and the supporting documents. OTFM planned five regional meetings between March 1996 and July 1996 to serve as workshops to assist individual tribes in reviewing their reconciliation results. Because BIA has not yet held all of the scheduled meetings to discuss account holder issues and comments and many account holders have not communicated their acceptance or dispute of their reconciled account balances, the Secretary has provided an interim report on account holders’ communications through April 30, 1996. The Secretary plans to submit a final report on account holder attestations of their acceptance or dispute of their reconciled account balances by November 15, 1996. According to the Secretary’s May 31, 1996, report 3 tribes, including 2 tribes for which additional pilot reconciliation procedures were performed, have disputed their reconciled account balances; 2 tribes with nominal balances have accepted their reconciled account 275 tribes, including 3 tribes that had additional pilot reconciliation procedures performed, have not yet decided whether to accept or dispute their account balances. Tribal representatives have told us that they are still reviewing their reconciliation report packages and that they have a number of questions and concerns about the results. If Interior is not able to reach agreement with tribes on the reconciliation results, a legislated settlement process would prove useful in resolving disputes about account balances. Our March 1995 testimony suggested that the Congress consider establishing a legislated settlement process. Our September 1995 report provided draft settlement legislation for discussion purposes. The draft legislation would provide for a mediation process and, if mediation does not resolve disputes, a binding arbitration process. The proposed process draws on advice provided us by the Federal Mediation and Conciliation Service and the rules of the American Arbitration Association. Both of these organizations have extensive experience in the use of third party facilitators to provide alternative dispute resolution. The proposed process offers a number of benefits, including flexibility in presentation of evidence and, because the decision of the arbitrators would be binding and could not be appealed, a final resolution of the dispute. In addition, arbitration has generally been found to be less costly than litigation. BIA’s reconciliation project attempted to discover any discrepancies between its accounting information and historical transactions that occurred prior to fiscal year 1993. While it is important for the Congress to consider legislating a settlement process to resolve discrepancies in account balances, unless the deficiencies in Interior’s trust fund management that allowed those discrepancies to occur are corrected, such discrepancies could continue to occur, possibly leading to a need for future reconciliation and settlement efforts. Since 1991, our testimonies and reports on BIA’s efforts to reconcile trust fund accounts have recommended a number of corrective actions to help ensure that trust fund accounts are accurately maintained in the future. While OTFM and OTR have undertaken a number of corrective actions, progress has been slow, results have been limited, and further actions are needed. OTFM, Interior, and OTR have initiated several trust fund management improvements during the past 3 years. These include acquiring a cadre of experienced trust fund financial management staff; issuing trust fund IIM accounting procedures to BIA field offices, developing records management procedures manuals, and issuing a trust fund loss policy; implementing an interim, core general ledger and investment accounting system and performing daily cash reconciliations; studying IIM and subsidiary system issues; reinstating annual trust fund financial statement audits; and initiating improvements to the Land Records Information System. Our 1991 testimonies and June 1992 report identified a lack of trained and experienced trust fund financial management staff. Previous studies and audits by Interior’s Inspector General and public accounting firms also identified this problem. Our June 1992 report recommended that BIA prepare an organization and staffing analysis to determine appropriate roles, responsibilities, authorities, and training and supervisory needs as a basis for sound trust fund management. In response to our recommendation, in 1992, OTFM contracted for a staffing and workload analysis and developed an organization plan to address critical trust fund management functions. The appropriations committees approved OTFM’s 1994 reorganization plan. As of October 1995, OTFM had made significant progress in hiring qualified financial management and systems staff. However, during fiscal year 1996, 27 BIA personnel displaced by BIA’s reduction-in-force were reassigned to OTFM. This represents about one-third of OTFM’s on board staff. Some of these reassigned staff displaced OTFM staff, while others filled vacant positions that would otherwise have been filled through specialized hiring. As a result, OTFM will face the challenge of providing additional supervision and training for these reassigned staff while continuing to work with BIA’s Area and Agency Office trust accountants to monitor corrective actions and plan for additional improvements. Our April 1991 testimony identified a lack of consistent, written policies and procedures for trust fund management. We recommended that BIA develop policies and procedures to ensure that trust fund balances remain accurate once the accounts are reconciled.