As trustee, the Secretary of the Interior is responsible for administering the government’s trust responsibility to tribes and Indians. Several Interior agencies administer various portions of the government’s Indian trust responsibility, including the Bureau of Indian Affairs (BIA), the Bureau of Land Management (BLM), the Minerals Management Service (MMS), the Office of American Indian Trust, and the Office of the Special Trustee for American Indians (OST). In several instances these agencies’ lines of authority overlap or their functional areas of responsibility interrelate. See attachment I for a chart showing the current Interior organizations responsible for trust fund accounting and asset management functions. Attachment I also highlights those agencies which the Strategic Plan proposes to transfer to the American Indian Trust and Development Administration (AITDA). BIA performs land title and lease ownership determinations and maintains official ownership records. BIA also performs appraisals of some Indian assets and negotiates and executes leases and contracts for use or sale of nonmineral assets—such as timber, farming, grazing, real estate, and rights-of-way—and mineral assets such as oil, gas, and coal. In addition, BIA collects and accounts for Osage tribe mineral royalties. BLM assists BIA in preleasing activities associated with valuing mineral resources. BLM is also responsible for inspecting and enforcing the terms of Indian mineral leases and verifying production. MMS collects and accounts for mineral royalty payments on Indian leases and transfers the revenues to Treasury for deposit to the Indian trust funds managed by OST’s Office of Trust Funds Management (OTFM). In addition, MMS performs compliance audits that are directed at ensuring that Indian royalty payments are consistent with lease terms and production volume. MMS also provides funding to some tribes for cooperative agreements to perform their own compliance audits. OTFM, in the Office of the Special Trustee for American Indians, accounts for nonmineral revenues and distributes mineral royalties received from MMS to tribal and individual Indian accounts, based on lease and ownership information. OTFM disburses unrestricted funds to account holders upon request. OTFM also invests IIM and tribal trust funds on behalf of account holders. While IIM accounts are currently maintained in BIA’s Integrated Records Management System as separate accounts, OTFM invests the cash balances in these accounts as a pool, primarily in U.S. Treasury and U.S. agency securities. OTFM invests tribal funds in government securities or collateralized accounts in federal depository banks. The Office of American Indian Trust, in the Office of the Secretary of the Interior, conducts annual reviews of tribes’ performance of trust functions assumed under the Tribal Self-Governance Act of 1994. The office prepares federal Indian trust protection standards and guidelines and reviews significant decisions affecting American Indian trust resources, including treaty rights. To describe the trust asset management problems that the Strategic Plan proposes to resolve, we reviewed the problems identified in the Strategic Plan and relied on our past work and the work of independent public accountants that Interior contracted with to perform financial statement audits and reviews. To summarize the Strategic Plan, we reviewed the Plan, its accompanying appendixes, and other supporting documents. We met with Office of Special Trustee officials, including the Special Trustee for American Indians, and officials in BIA, BLM, and MMS to obtain clarification on certain aspects of the Plan. To explain the basis for the cost estimates contained in the Strategic Plan, we reviewed its budget document and the cost data it provided. We contacted OST officials for further information, as necessary. As agreed with your office, we did not attempt to validate the estimates presented in the Plan or their underlying assumptions, nor did we assess whether the estimates included all necessary costs of full implementation of the Plan. To identify implementation issues, we analyzed the Plan in detail and relied on our past work on Indian trust fund accounting and asset management issues. We also met with Department of the Interior officials, the Special Trustee for American Indians, and officials in BIA, BLM, and MMS and contacted the Director of Interior’s Office of American Indian Trust to obtain their views on the Plan. In addition, we reviewed tribal comments on the Plan, which were provided to the Special Trustee as a result of his consultation meetings with the tribes. Although our work identifies key issues that the Congress needs to consider in deciding whether to approve the initiatives described in the Plan, it is by no means all inclusive and there are other issues yet to be identified. We conducted our work between April and July 1997 in accordance with generally accepted government auditing standards. As we have reported in the past, Interior’s Indian trust fund accounting and asset management problems are long-standing and permeate all facets of the trust fund management business cycle. They include (1) the lack of accurate, up-to-date information on ownerships to ensure that revenue is distributed to the correct account and the increasing workload associated with fractionated ownerships, (2) inadequate management of natural resource assets resulting in a lack of assurance that all earned revenues are collected, (3) weaknesses in trust fund management systems and internal controls and policies and procedures that result in a lack of assurance about the accuracy of trust fund balances, and (4) the failure, in the past, to consistently and prudently invest trust funds and pay interest to account holders. These overall weaknesses preclude account holders from having assurance that their account balances are accurate and that their assets are being prudently managed. Currently, trust fund accounting and asset management are complicated by the lack of adequate numbers of trained field staff. In fiscal year 1996, the Congress transferred the funding for BIA’s Financial Trust Services to OST. As a result, on February 9, 1996, a Secretarial Order made OST responsible for accounting for IIM receipts and, as a result, a number of BIA staff were transferred to OTFM. However, at a number of area and agency offices, small staffs handle a wide variety of duties of which trust activities are only one part. Consequently, there are insufficient field staff at present to provide separate, full-time collection and accounting functions for OTFM and separate, full-time leasing and ownership recordkeeping staff for BIA. As a result, depending on the agency office, either OTFM or BIA performs IIM accounting functions and procedures for processing receipts, leasing activities, paying allowed claims, administering IIM accounts (including establishing new accounts), monitoring leases, performing guardianship activities, and billing and printing checks. In addition, lines of supervision and accountability are sometimes blurred. This problem has not yet been resolved. Moreover, continued fractionation of Indian land and lease ownerships has seriously complicated trust fund accounting and asset management. According to the Strategic Plan, Interior may soon be unable to cope with the recordkeeping of land titles and accurate distribution of income due to the worsening fractionation. The Plan contains a proposal for dealing with this problem. Interior officials agree that fractionation must be reduced and eliminated to ensure the success of Indian trust fund accounting and resource management reforms. Interior has submitted a legislative proposal for congressional consideration. The Strategic Plan proposes a two-phase change to Interior’s current organizational and management structure for Indian trust management. The first phase would establish a single organization for trust management activities—the American Indian Trust and Development Administration (AITDA)—independent of the Interior Department. The proposed organization would be in the form of a government-sponsored enterprise (GSE). The AITDA would be organized by function—such as accounting or land titles—and would be managed by a full-time Chairman and Chief Executive Officer and a five-member Board of Directors appointed by the President and confirmed by the Senate. Three members are to be proposed by the Indian community and two members—the Chairman and Chief Executive Officer—are to have financial and trust management expertise and may also be American Indians. Board members would serve staggered terms of 12 years. Attachment II provides a chart showing AITDA and identifies those organizational components of AITDA and lines of coordination with Interior agencies. The Plan proposes that AITDA assume the federal government’s Indian trust authority related to Indian trust funds and assets. It also proposes that certain organizations and related funding be transferred to AITDA—including OST and OTFM, BIA’s Land Title and Records Office, and Interior’s Office of American Indian Trust—along with various Interior agency records management functions related to trust fund accounting and asset management. Specifically, the Plan proposes that responsibility for and funding of various Interior asset management and compliance functions be transferred to AITDA. These transfers include the following: BIA’s leasing activities and its Land Title and Records Office to AITDA’s Trust Resources Management Division. BLM’s lease inspection, enforcement, and production verification activities to AITDA’s Trust Resources Management Division. MMS’ compliance and valuation function to AITDA’s Risk Management and Control Division. Interior’s Office of American Indian Trust to AITDA’s Risk Management Control Division. According to the Plan, AITDA would use the funds transferred from BIA, BLM, and MMS to contract with these agencies or with tribes to perform the related trust asset management activities. Also, it would use funds transferred from MMS to contract with MMS for compliance and control functions and perform oversight of self-governance tribes, respectively. However, AITDA would have the option to contract with other entities for these services. In addition, the Plan would create the following three new organizations within AITDA: the National Indian Fiduciary Records Center, responsible for controlling and preserving all Indian trust-related records, to be located in Albuquerque, New Mexico, near OTFM; a trust risk management unit to conduct operational audits, credit and compliance reviews and audits of outside servicers (including BIA, BLM, MMS, and tribes) and to perform appraisals and other asset management functions; and a centralized technical center for data processing.