TRIBAL TRUST FUNDS SETTLEMENT PROJECT: PHASE I METHODOLOGY

A Cooperative Project Between InterTribal Monitoring Association And Office of Historical Trust Accounting

July 30, 2008

Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Overview and Introduction ..............................................................................................3 Accounts and Account Information .................................................................................5 Investments ...................................................................................................................10 Documents ................................................................................................................10 Procedures.................................................................................................................11 Disbursements...............................................................................................................14 Completeness ................................................................................................................16 Documents ................................................................................................................16 Procedures.................................................................................................................17 Universe Identification ..........................................................................................17 Transaction Testing ...............................................................................................20 Tribal IIM and Special Deposit Accounts ......................................................................22 Outstanding Issues.........................................................................................................23 Interest Calculations ..................................................................................................23 Implementation .........................................................................................................23 Appendix A – TTFSP Participants.................................................................................25 Appendix B - History ....................................................................................................28 Appendix C - Sampling .................................................................................................31 TRP...........................................................................................................................31 Completeness ............................................................................................................31 Appendix D - Glossary..................................................................................................32

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Overview and Introduction The InterTribal Monitoring Association ("ITMA") is an organization composed of 65 Federally recognized Indian Tribes established by its member Indian Tribes to monitor and recommend improvements in the Federal government's management of Indian trust funds, to develop new approaches for the management of these funds, and to assist Tribes in settlements of alleged historical mismanagement of trust fund accounts.

In November 2004, ITMA and Interior’s Office of Historical Trust Accounting (“OHTA”) entered into a Cooperative Agreement to establish a project to facilitate resolution of tribal claims without litigation. The project has been commonly referred to as the Tribal Trust Funds Settlement Project ("TTFSP"). The TTFSP is divided into two phases. Phase I is the development of one or more methodologies that would provide possible approaches for Indian Tribes and the United States to employ in specific negotiations to reach partial agreements on or a comprehensive settlement of Tribal account balances for the period between 1972 and 1992. Phase II is the potential implementation of the Phase I Methodology, as outlined in the Outstanding Issues section beginning on page 25 below.

Seven Tribes agreed to participate (the “Participating Tribes”) in the development of the Phase I Methodology.1 This document presents the Phase I Methodology (the “Methodology”) as cooperatively developed with the Participating Tribes representatives, ITMA staff and consultants, and OHTA representatives. The purpose of this document is to provide a Tribe and the Government with a methodological framework for gathering and considering Tribe specific facts and circumstances that are likely to facilitate the prompt and fair resolution of disputed account balances and other claims. Tribes may have other concerns that are not within the scope of this Methodology.2

1

Appendices A and B include information about the Participating Tribes, their designated Participating Tribal Representatives, and the development of this methodology. 2 Each of the Participating Tribes identified a number of historical and current concerns that may relate directly to their Tribes’ trust accounts, but which do not fall within the scope of this Methodology. The

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

This document is organized into six sections: •

Accounts and Account Information

•

Investments

•

Disbursements

•

Completeness – Receipts

•

Tribal IIM and Special Deposit Accounts

•

Outstanding Issues

most common theme of these concerns relates to alleged mismanagement of trust assets. These Tribes and ITMA agree that, while this project will not identify or quantify alleged asset mismanagement claims, neither will the results of this project jeopardize those claims nor protect them from jeopardy from other sources such as the possible loss of records, the possible running of the statute of limitations, etc. With that understanding and in order to preserve valuable information regarding the concerns that have surfaced to date in this project, the Tribal concerns have been recorded and retained by ITMA at its headquarters as support to the work performed in this project.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Accounts and Account Information 1. Overview of Accounts. This section describes the accounts and initial information that a Tribe and the Government will address or utilize as part of this Methodology. Account information will be provided for the following accounts, as described below: a. Tribal Trust Accounts - (Proceeds of Labor and Judgment/Award accounts) b. IIM – Tribal Accounts c. IIM – Special Deposit Accounts (SDA) d. Indian Money Proceeds of Labor (IMPL) Accounts.

2. Tribal Trust Accounts. With regard to Tribal Trust Accounts, OHTA will provide the Tribe with a copy of the Twenty-Year Tribal Trust Funds Reconciliation Project (“TRP”) deliverables for the Tribe, including images of supporting transaction documents provided as part of the TRP, and images of documents collected after the TRP as part of that certain follow on work regarding disbursement transactions. 3 The Tribal Trust Account balances as of July 1, 1972, as presented to Tribes as part of the TRP, are to be used as the beginning balances. In using these amounts as the beginning balances, a Tribe is not accepting the balances as correct. The balances simply represent a starting point to compute amounts for settlement purposes for the period from July 1, 1972, through September 30, 1992.

OHTA also will provide an electronic database, including transactions for the period July 1, 1972, to September 30, 1992, for Tribal Trust Accounts. The electronic database is known as the Common Dataset. OHTA created the Common Dataset to provide a single, uniform set of data in which to assemble the transaction records from distinct historical systems.4 The Common Dataset is prepared in Microsoft 3

In particular, the information provided will generally include (1) images of account statements listing the transactions in Tribal Trust Accounts for the 1972-1995 period (receipts, interest earnings, disbursements, balances, etc.), (2) an image of the report describing the procedures performed for the 1972-1992 period and the results thereof, and (3) electronic images of source documents that supported certain 1972-1992 transactions. 4 The Department of the Interior has four electronic sources of historical Tribal Trust Account transaction data: Twenty-Year Tribal Trust Funds Reconciliation Project (TRP), Trust Funds Management System

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 Access and written to a CD for an individual Tribe. Transaction records have been mapped from the various data sources to uniform data fields within the Common Dataset. The Common Dataset CD also contains reference and lookup tables, 5 field definitions, and daily account balance (invested and cash) tables for each account. Certain Tribes may determine that they do not require all or some of the information contained in the Common Dataset. Common Dataset information requirements can be handled between the Tribe and OHTA on a case-by-case basis.

3. Tribal IIM Accounts. Initially, OHTA will provide an account listing of potential Tribal IIM Accounts from the electronic era (generally 1985 – forward),6 that includes the following information: account number, account name, first transaction date, last transaction date, debit and credit amounts, throughput amount, and number of transactions. The accounts identified are not necessarily owned by a given Tribe. (Finance), OmniTrust ES (OMNI), and Trust Funds Account System (TFAS). The TRP database was created from TFMS (Finance) data and hard-copy TFMS reports. The TRP database includes the results of reconciliation procedures performed for BIA and OST by Arthur Andersen LLP as part of the TRP, as well as the results of follow-on reconciliation work performed by Chavarria, Dunne & Lamey, LLC. The Tribal Trust Account records maintained in these systems consist of certain records related to revenues received, disbursements paid, and other transactions posted to an account, along with dates, reference codes, and other information. While the types of records maintained within each system are similar, the actual format of the records differs by system (e.g., different account number conventions, etc.). Because of these format differences among the four systems, OHTA considered it helpful to assemble the transaction records into a single, uniform dataset in order to (1) facilitate a unified understanding of the transaction records, (2) enable more seamless data analysis, and (3) simplify the presentation of the transaction records. Such data constitute the consolidated Tribal Trust Account history for the period July 1, 1972 – present (i.e., a Common Dataset). 5

Reference tables include code descriptions sufficient to provide for historical investment income identification. 6

In summary, OHTA will review the electronic era IIM system data to identify accounts that meet the following criteria: 1. Accounts with an Account Classification Code of “T” that contain the Tribe’s Tribal Code(s) in the account number, irrespective of the account title; 2. Accounts that OHTA classifies as special deposit accounts (SDA) that contain the Tribe’s Code(s) in the account number; 3. Accounts that contain the Tribe’s name, a variation of the Tribe’s name, or the name of a known Tribal enterprise in the account title; and 4. Accounts in which the majority of the funds in the account transfer to a known Tribal Trust Account (as per OHTA’s Tribal Trust Account Common Dataset). This category of accounts does not include individual Indian accounts which may have transferred funds to a Tribal Trust Account. This type of transfer may have occurred as a result of a return of a per capita payment or a loan repayment.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 Analysis and research may be required to confirm account ownership. The initial account listing will be used to address whether more detailed information is to be provided.7 For accounts that have limited amounts of activity, the Tribe will be willing to initially accept a summary of the relevant data about the accounts, including the opening date, overall throughput or balance by year and transactional volumes. Following review and request by the Tribe and discussions with the Government, OHTA will provide electronic transaction data from the Integrated Records Management System (IRMS) for certain potential Tribal IIM accounts that are agreed upon by both parties. For information on potential Tribal IIM accounts prior to the electronic era, an effort to collect paper era manual ledgers may need to be undertaken. The Tribe will consider accepting images of the manual ledgers for periods before approximately 1985 for certain accounts that were not originally maintained electronically and for accounts where electronic data is no longer available. 4. IMPL Accounts. Before 1930, IMPL funds, which were under the control of specific BIA field agencies, included both income derived from activities associated with Indian agency and school operations such as rental of government buildings and revenue generated from the leasing and sale of tribally-owned natural resources. IMPL was carried as a single account on Treasury books and in many sub-accounts by BIA. After 1930, under the Act of June 13, 1930 (46 Stat. 584), Congress separated revenue from the use and sale of tribal resources into discrete “proceeds of labor” Treasury accounts for the respective Tribes and mandated that interest be paid on Proceeds of Labor accounts when they exceeded $500. The funds associated with Indian agency and school operations, however, remained IMPL accounts, and expenditures were made at the discretion of the Secretary of the Interior. Treasury 7

It is important to note that the identification of relevant accounts can often involve more than a basic electronic search of account numbers and account names. Searching for and analyzing paper account ledgers (or analyzing electronic transaction data) may be necessary to identify SDAs that contained funds that were eventually transferred to the Tribe. Because the amount of time and resources involved in gathering information for these accounts can be substantial, the parties should, at a minimum, identify a scoping process for selecting initial accounts. The legal status of SDAs should be addressed before committing too much time and resources to gather and analyze them; for example, it may be that funds held in timber-related SDAs were not tribally-owned funds until such time as timber was harvested.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 continued to classify the IMPL funds as a government trust fund and, after 1930, IMPL funds were not considered Tribal Trust Accounts.

OHTA will provide images of General Ledger Detail List (GLDL) Reports for IMPL accounts for approximately 1972 through 1985 and/or images of documents concerning closure of IMPL Accounts. The parties, as an initial step to determine what issues will be addressed for IMPL Accounts, should review the records documenting the closure of IMPL Accounts. The parties will need to discuss the laws applicable to IMPL accounts, including Interior regulations and Federal statutes promulgated and enacted in the early- to mid-1980s which concern the closure of IMPL accounts.8

5. In addition to all accounts identified by OHTA, the Tribe will provide a listing of known accounts that it believes should be available for review to ensure that accounts not listed but known to the Tribe are also considered.

6. Information for the Tribe should be reviewed by the Tribe to determine that: a. The records received are for the intended Tribe, especially when receiving IIM account information. The Tribal IIM account search as described in Accounts and Account Information, Step 3 above, does not guarantee that all of the Tribes’ IIM accounts will be identified. In some cases, the history of the Tribes may be useful to determine that the data obtained are for the intended Tribe and inclusive of all accounts.9 b. After considering Accounts and Account Information Steps 2, 3, and 4 above, if the Tribe has specific Tribal issues or questions, the Tribe may request, in writing,

8

See, e.g., 25 C.F.R. Part 103b (1981) and Act of Dec. 23, 1981, Pub. L. No. 97-100, 95 Stat. 1391, 1400 and Act of Sept. 19, 1982, Pub. L. No. 97-257, 96 Stat. 818 (1982 Act). Pursuant to these laws, many IMPL accounts were closed, and BIA disbursed residual balances to Tribes in exchange for formal release and waivers pursuant to the 1982 Act. 9 Listening conferences or meetings with Tribal elders or the use of professional historians may be useful in some circumstances.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 information or research for those specifically identified Tribal issues or questions. OHTA will respond to those requests in a reasonable period of time.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Investments Documents The following is a list of documents that may be used in the investment component of this Methodology.

1. The Common Dataset, IRMS transaction data, and paper (manual) account records; see Accounts and Account Information Step 2. 2. MoneyMax and other investment reports, in addition to the Common Dataset, sufficient to provide information about investments held for each of the periods. (Periods of less than one year intervals are preferable.) Such information at a minimum would include the following, to the extent applicable and reported for a specific Tribe: a. Type of investment security, including maturity characteristics. b. Amount held in “cash” and invested at either the statutory or overnighter rate, depending on the time period. 3. Any financial reports maintained at the Agency or the Tribe that might contain information about investments held at reporting periods, to the extent the information is not provided in Investments-Documents Step 2 above. 4. Financial related documents and correspondence maintained at the Agency or the Tribe that contain information about investments held at reporting periods and other information that might be relevant to investment decisions such as projected cash flow needs and actual cash flows by reporting period. This information would include Tribal financial information related to trust as well as non-trust accounts and assets held outside Interior or Treasury, including, without limitation, non-trust (Enterprise) activities. 5. Annual Tribal budgets and/or Tribal resolutions; 6. Documentation of asset investment restrictions or instructions that may not be described in annual budgets; 7. Judgment Account instructions including distribution plans;

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 8. OST, BIA, and Tribal policies; 9. General statutory objectives for Tribal investment; 10. Authorized investments and rates obtained from: a. Treaties, statutes, and regulations identifying authorized investments; b. Unique investment authority or restrictions based on legal proceedings; c. Independent sources and indices that contain historical rate information for the investments authorized by law; including publicly available source documentation (newspapers, published indices, etc.) which reveal the yield, rate and return on such investments.

Procedures 1. Review historical transactions: a. Common Dataset and manual records represent the universe of the Tribe’s accounting transactions and balances for the period from July 1, 1972, to September 30, 1992. Receipts and disbursements included in these data will be tested in accordance with the Disbursements and Completeness sections of this Methodology. As for account balances, for purposes of this test, the data included in the Common Dataset will generally be used without further testing. If the Tribe has other documentation available that could be used to verify selected balances on a test basis, at its option such procedures can be performed. Such other documentation could include contemporaneous transaction reports and financial statements. b. Calculate periodic actual rates of return (at least annual) using accepted methodologies (e.g. Modified Dietz Method). 2. Compare the actual rates of return calculated in Investments-Procedures Step 1 above to a rate of return using investments with 90-day maturities. [Note: Comparison of actual investment performance as defined in Investments-Procedures 1(b) above to a 90-day T-bill rate is for illustrative purposes. It in no way suggests that a Tribe endorses the historical investment of funds in such short-term instruments.] In any event, the process will proceed to Investments-Documents Step

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 3 below. The Tribes may use an investment expert to assist them in applying the following steps. 3. If applicable to the Tribe, undertake a review of the information gathered in Investments-Documents Steps 1 through 9 above to identify specific periods of time within the overall period (July 1, 1972, to September 30, 1992) for which the information at the time shows that dollar amounts were available to be invested in securities with maturities longer than 90 days. The goal is to identify circumstances and data available or apparent at the time, not in hindsight. This information will be used in a fact specific approach, not a generic model. Examples of such circumstances and data include: a. Account restrictions such as Judgment/Award Account distribution plans that restrict distribution of principal for a specific period of time. b. Explicit timing of Tribal plans for use of funds as shown in budgets and resolutions. c. Implicit timing for use of funds as shown in the historical frequency of disbursements. For example, a Tribe’s use of only a portion of available funds over a period of prior years would be data to be taken into consideration by a prudent manager of such funds. d. Special instructions or events that are Tribal specific. 4. The review in Investments-Procedures Step 3 above may identify dollar amounts that were available, based on information available at the time, for investment in securities with maturities longer than 90 days. The dollar amounts and time periods so identified will then be grouped into maturity ranges, e.g., one to three years, three to five years, five to ten years, and longer than ten years to the extent appropriate to the needs and objectives associated with each account. 5. Suitable authorized investment instruments will be identified for maturity periods identified in Investment-Procedures Step 4 above. Such instruments should be historically appropriate and reflect an appropriate balance of risk tolerance10 and income optimization. 10

There are many different forms of risk with regard to the investment of funds in fixed-income (i.e., debt) instruments. These include, but are not limited to, the following:

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 6. Using the authorized investment instruments identified in Investment-Procedures Step 5 above and the dollar amounts identified in Investment-Procedures Step 4 above, calculate the return for the period July 1, 1972, to September 30, 1992 for pertinent accounts. 7. Compare the results of Investment-Procedures Step 6 above to the results as developed in Procedures step 1 above. The comparison will be in both dollars and percentage returns.

It should be noted that this Methodology does not include the use of the BIA “All Tribes” annual average interest rates as a benchmark (as included TRP Agreed-Upon Procedures Report (Report)) for determining the proper amount of interest that should have been earned for the invested funds. Further, calculations of interest on negative account balances are not expected to be included in the amounts for settlement.11

• • • •

Liquidity risk – the risk that liquid funds will not be available when needed, resulting in the possibility of incurring principal loss on the sale of a security; Reinvestment risk – the risk that as securities mature, changes in interest rates result in reinvestment opportunities at lower earnings rates; Credit risk – the risk of credit impairment (i.e., the inability to pay an investor based on the terms of the security) on the part of the issuer of a debt instrument. [Generally not applicable when investments are in securities of the United States government and its agencies.]; and Market risk – the risk that a security’s value will change as interest rates change.

11

The Tribes believe that the BIA was acting in a fiduciary capacity and, as such, should never have allowed negative account balances to occur. The Tribes contend that the timing of deposits and the timing of disbursements, which created the negative balances, were fully under the control of the BIA, and the Tribes believe they should not be penalized as a result of the BIA’s errors in managing the funds entrusted to them. Accordingly, negative offsets to positive earnings are considered unacceptable to Tribes. Because OHTA does not necessarily agree with these positions, the parties may need to negotiate a resolution of this issue.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Disbursements Testing of disbursement transactions, including disbursement work previously performed during the TRP, will be accomplished with a new test of disbursement transactions for that period. The following describes the process and information that will be available for the Tribe to use in its negotiations.

1. OHTA has designed and is performing a national (or system-wide) test of disbursements (the “Tribal Disbursement Test”) that should provide information to a Tribe about (i) the accuracy of recorded disbursement transactions and (ii) the extent to which disbursement transactions were authorized. 2. The Tribal Disbursement Test procedures will test the accuracy of the recorded transaction amount, date and account number using the U.S. Treasury (Treasury) processed SF-1166 (Voucher and Schedule of Payments), agency confirmation (GOALS) reports of processed SF-1166s, journal vouchers, and/or other relevant disbursement documentation. 3. The Tribal Disbursement Test will use the SF-1034, tribal resolutions, and/or other authorizing documentation to determine whether recorded disbursement transactions were authorized. 4. Exceptions were identified in the TRP. Such exceptions have been considered in the Tribal Disbursement Test. The Tribal Disbursement Test will use statistically valid sampling techniques to randomly select disbursement transactions for testing. Additionally, the Tribal Disbursement Test will include all Proposed or Passed Exceptions, all transactions with an absolute value of $5 million or more, and certain cleared transactions over $1 million. 5. Finding the documentation for each disbursement transaction of each Tribe over a twenty-year period is a vast and very expensive undertaking. As a consequence, the National Disbursement Test examines a random sample of the transactions rather than each disbursement transaction. Hence there will be uncertainty, after the results of the sample are analyzed, about the potential amount of adjustment needed for a

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 Tribe’s accounts. In order to display this uncertainty, the result of the random sample will be displayed as a probability distribution specifying each of the possible amounts owed, and the likelihood of each value.12 The Tribe will receive its own distribution information from the government. This probability distribution can be used in settlement negotiations between the Tribe and the government. The uncertainty reflected in the probability distribution is a result of the use of a random sample rather than an examination of every transaction. In other such circumstances, the government compensates those on whom sampling uncertainty is imposed by choosing a point on the distribution favorable to the other party. For example, the Internal Revenue Service13 and HUD14 use the 95th percentile of the distribution, which means that the taxpayer or person being audited is 95% sure of not overpaying. DHHS15 uses the 90th percentile in similar circumstances, which is slightly less favorable to those being audited.

12

The ITMA and OHTA statistical consultants anticipate publishing the methodology used to produce these probability distributions in a peer-reviewed journal. Such publication will provide reassurance to the Tribes and to the government of the professional quality of that work. 13 IRS Internal Revenue Manual, 4.47.3.3.1. 14 Http://www.HUD.gov/offices/adm/hudclips/letters/mortgagee/90-7ml.txt. 15 DHHS Centers for Medicare and Medicaid Services, Program Integrity Manual, Section 3.10.5.1.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Completeness The primary objective of the completeness component of this Methodology for Tribal receipts is to provide reasonable assurance that all payments for leases and other contracts concerning Tribal ownership interests were collected, were the proper contractual amount, were properly recorded in Tribal accounts, and were recorded by the contractual due date. The steps identified below represent a general methodology in which specific procedures can be tailored for each Tribe. Detailed procedures within each of these steps will vary depending on unique tribal practices as well as specific requests from a Tribe.

The completeness component of this Methodology addresses receipts for the following productive resources: •

Agriculture & Water

•

Grazing

•

Minerals and Mining, Excluding Oil & Gas

•

Other Surface Leases

•

Timber

Due to the multitude of variables associated with oil and gas receipts as opposed to those related to other areas (e.g., grazing, timber, etc.), oil and gas completeness testing is excluded from this Methodology. Those Tribes with oil and gas productive assets that have completeness or other claims regarding those assets are encouraged to propose a specific approach for their oil and gas assets.

Documents The following is a list of documents that are expected to be used in the completeness component of this Methodology. Documents supporting the appropriate revenue amounts, depending on the revenue source, will vary. To the extent the leases and other contract terms set forth source data other than the leases and other contracts for the determination of the amount due, those data will be used in the testing. For example, a

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 lease or contract may refer to another data source in setting the terms of the lease or contract.

1. Leases and other contracts for Tribal resources 2. Lease log books created by BIA field staff (e.g., Agency and/or Regional Realty Offices) and those maintained at Tribal offices 3. Maps of timber, agricultural, or grazing areas 4. Ownership, encumbrance, and other data extracted from BIA’s Trust Asset and Accounting Management System (TAAMS) 5. Tribal Resolutions 6. Common Dataset and paper (manual) records, (see Accounts and Account Information Step 2) 7. SF-219

Certificate of Deposit

8. SF-215

Deposit Ticket

9. DI-1040

Bill for Collection

10. SF-1047

Public Voucher for Refunds

11. BF-349

BIA Intra-Bureau Cash Transaction Authorization

12. DI-1017

Journal Voucher

13. Schedule of Collections (alternatively for receipt dates, when other documentation is not available)

Procedures Universe Identification A key component for this method is the identification of the total universe of income that should have been received by the Tribe. Tax and production data from public or private entities provide one approach for identifying the universe of income, as do documents such as leases and contracts, which could serve as the population from which a sample could be drawn for completeness testing.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 1. Prepare a listing of all the Tribe’s productive resource leases and contracts that were in existence during the 1972 to 1992 time period. There are different methods that can be used to approach this work. Methods include (i) identifying the universe through Tribal records, e.g., Tribal Resolutions, (ii) identifying the universe using GIS and other mapping sources, (iii) using the actual transaction data contained in the Common Dataset, (iv) collection of contracts and leases, and (v) lease log books. The following describes approaches to obtaining information and documentation of the complete universe of revenue that should have been collected by certain productive asset types:

a. Agriculture and Water i.

Through Tribal Resolutions or other BIA sources, identify final contracts approved by the Tribal Council. Use the contracts to extract the following information: •

Leases approved by Tribal Council (the universe)

•

Number of acres under lease (acre feet)

•

Purpose of lease (crops, crop shares, etc.)

•

Lease terms (number of years)

•

Lease type (Commercial use or true agricultural use)

•

Dollar value of contracts (e.g. per acre or per board foot)

Include special circumstances and historical information through Tribal consultation to supplement BIA and Tribal records. ii. Determine the average crop production of the type of crop produced on the Tribe’s parcels using information from USDA Agricultural Extension Office/Universities iii. Determine the extent of change, if any, of the Trust Land Base. Determine whether the Tribe acquired/lost trust land during this period.

b. Grazing i. Obtain from the BIA (Realty) or Land Leasing Departments the inventory of leases / contracts by year and when possible by Tribal Resolution: Page 18 of 35

Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 •

Leases (the universe)

•

Number of acres under lease

•

Lease type (range units, surface leases and development)

ii. Determine the dollar value per acre (or Animal Unit Month (AUM)) of the income producing crop. If possible, use a source other than leases to assist in the timely computation of an amount of the income producing activity (crop). Such other sources could include: •

BIA reported market value for an area

•

Tribal Resolutions (for example some Tribes include in their resolutions the specific per acre value when approving a lease agreement).

c. Timber - The following lists in more detail sources and how they could be used to develop the complete universe of receipts: i. Identify each timber sale from the 1972-1992 Reservation Map Per Year ii. Identify timber revenues per year from Tribal Resolutions iii. Identify species, stumpage, market value, purchaser (Tribal and personal) from BIA/Tribal information iv. Identify the market value by species, using public information. v. Identify million board feet for actual sale in the Tribal Forest Management Plan adopted by Tribal Resolution vi. Identify the timber receipts from production reports and audit reports through Tribal Enterprises for logging and sawmill vii. Identify the timber receipts from production reports and audit reports from contracting parties (3rd party reports/receipts) viii. Identify areas of concern through Listening Conference with Tribal Elders (Historical Information) ix. Identify the requirements of the logging and sawmill with the financial information relating to the Tribal income by review of the BIA transaction model: Logging and sawmills 2. Compare the compiled lease and contract information to the Common Dataset and or other account statements with sufficient information to make such a comparison. The Page 19 of 35

Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 primary purpose for such a review is to determine whether or not the account information correlates to information obtained in the universe identification process. Perform analytical procedures to provide additional evidence that the total universe of income producing transactions (total receipts) is complete. An example of such analytical procedures is the use of the BIA 10% Administration Fee (or other applicable administrative fee rate) on Timber/Lease receipts. Each Tribe’s “total universe” of income producing transactions will differ based on the unique incomeproducing assets (e.g., timber, grazing, etc.). Before using the BIA Administrative Fee in such an analytical procedure the Tribe should develop an understanding of the accounting for such fees for the Tribe’s specific accounts. 3. Obtain tribal concurrence of the universe identification results. Once the universe of tribal expected payments has been identified, the population and its origin should be provided to the Tribe for concurrence prior to selecting a sample. The parties involved should agree to the documents that will be utilized as various documents could possibly affect the level of assurance provided through transaction testing.

Transaction Testing 1. Select a sample of lease and other contracts. The sample will be a statistically valid random sample of the leases and other contracts identified in the universe determination section, above. Prior to any testing related to this sample, the sampling plan and sample methodology will be agreed upon by the Tribe and OHTA. 2. Collect documents that support the sample items. Supporting documentation will vary depending on the revenue and/or payment type (e.g. fixed/variable) and is anticipated to fall into one or more of the following categories: a. Contract/Permit b. Production c. Ownership d. Financial e. Accounting

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 3. Compare and verify expected payments for the sample transactions to cash received and credited as documented in the Common Dataset, IRMS data, or paper account ledgers. This step will test the completeness of the receipts recorded as well as the accuracy of the amounts recorded. As such, this will provide a separate and independent review of the accuracy of the TRP results. 4. For each sample item, compare the date recorded in the Common Dataset, IRMS data, or paper account ledgers to the date the receipt should have been recorded based upon the terms contained in the lease/contract. Determine the average days of deposit processing time (includes the time between the date the amounts were received or should have been received and the date the amounts were deposited). This step will provide a separate and independent review of deposit processing time from the information previously reported in the Tribe’s TRP results. 5. Identify exceptions between what should have been received and the actual receipt, and: a. Request other sources of information that may be available to validate the transaction (M & O charges, confirmation with lessees, etc.). Many of these documents may be found in Lenexa, Kansas (AIRR), at BIA field offices (Agency and Regional), at Archives facilities, or at Tribal Offices. b. Un-cleared exceptions will be reviewed to determine the impact of the exceptions on the overall sampling plan. 6. Prepare a summary of the results of the sampling effort. 7. Once complete, a quantification of the results is made through inference to the remainder of account transactions or the universe of leases and contracts. The result of this is anticipated to be the basis for negotiation between the Tribe and OHTA for settlement purposes.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Tribal IIM and Special Deposit Accounts Tribal IIM and SDA (see Accounts and Account Information Step 4 above) testing will differ from the Tribal Trust Account testing described above. Suggested procedures include the following.

1. Review the 1985 to 1992 IRMS data and the 1972 to 1984 manual/paper account ledgers/cards for accounts identified in Accounts and Account Information. 2. For transfers, journal entries, or payments between Tribal Trust Accounts and IIM accounts, agree amounts in Common Dataset to the amounts in the IIM data described in Tribal IIM and Special Deposit Accounts Step 1 to demonstrate that the Tribes received the amounts that were tested as disbursements or transfers during the TRP. 3. Review per capita payments in total to determine if the amounts recorded agree to the expected amounts, according to Tribal records, including Tribal resolutions. 4. For transactions not considered by Tribal IIM and Special Deposit Accounts Steps 2 and 3 above, select the following type of transactions for review: a. Large dollar items relative to the transactions of the Tribe, b. Unusual transactions for the type of account, and c. Other transactions where Tribal history suggests an anomaly that requires review. For example, the amounts of receipts and/or payments for similar transactions recorded in periods before and/or after the identified transaction differ significantly from the amount of the identified transaction.

The Tribes believe this is a more reasoned approach than requesting a full accounting, a statistical sample, or other type of testing.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Outstanding Issues Interest Calculations Any amounts that are determined to be due from any of the procedures performed in this Methodology will be increased by an amount calculated as interest from the time that the amounts should have been received until the present (a date to be agreed upon in a tribespecific settlement). The rate to be used in the calculation will be negotiated by and between the parties taking appropriate considerations into account.

Implementation 1. Implementation of this Methodology implies that the parties will pursue a joint, cooperative approach. There should be an initial and concerted effort to define the precise scope of the work to be performed by the parties. As part of this task, the parties should identify the personnel who will be involved in the implementation of any joint methodology. It takes a substantial amount of time to identify, index, review for any applicable privilege, designate for imaging, coding, and ultimately produce electronic images of documents for use by a Tribe and the Government. Consequently, the parties should confer in advance, agree on the reasons for obtaining particular documents to the extent not identified in this Methodology, and set out the respective document collection and imaging roles/responsibilities of the parties, including cost sharing responsibilities. Once this information is known, the parties can prioritize the tasks associated with implementing this Methodology. Therefore, the parties will need to establish a schedule and cost estimate and allocate costs among the parties.16 Implementation of this Methodology shall be subject to the mutual agreement of a Tribe and OHTA and the availability of funds.

16

Cost sharing for implementing the Phase I methodology could not be agreed upon during the development of the methodology due in part to the varying circumstances associated with specific Tribes. The Participating Tribes believe the DOI must pay for the work that will be performed, or provide necessary manpower from federal personnel resources. They further believe that certain tasks must be performed by independent accounting consultants, not federal personnel. The possibility of cost sharing for Phase II Tribes will have to be negotiated on a case by case basis.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 2. After implementation of this Methodology (during settlement), the parties must still determine whether and, if so, how to (1) reach agreement on the July 1, 1972 account balances, and (2) whether and, if so, how to extrapolate all or part of this Methodology or results to other time periods as discussed below. Because this Methodology does not address the issue of the alleged interest benefit from the time a check was cut (or money was transferred) to the time the check was cashed or the check or money was received by the Tribe, this is an issue that the parties may need to address and resolve as well.

The work or the results of work performed related to the 1972 to 1992 period may be considered for extrapolation to other periods. Examples of work or results that could be considered are processing time, return on investments, and the failure to collect and/or properly post receipts. Factors affecting the extrapolation may include system changes, regulation changes, and investment returns.

3. Each Tribe will have the opportunity to 1) apply this Methodology and enter into a settlement negotiation independent of other Phase II Tribes, 2) obtain a resolution of any known errors in the Tribes’ accounts, and 3) agree upon subsequent reporting on the accounts. The timing and detail included in the reports to the Tribe will be agreed upon during negotiations.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Appendix A – TTFSP Participants Due to the length of the TTFSP there have been changes in Tribal representatives, ITMA staff and ITMA consultants. Current TTFSP participants are noted in bold.

Governor Quanchello

Winona Snake, CFO

[Former Governor Richard Mermejo]

[Lupita De Herrera, Former CFO]

Picuris Pueblo

Picuris Pueblo

PO Box 127

PO Box 127

Penasco, NM 87553

Penasco, NM 87553

(505) 587-2519 f (505) 587-1071

505) 587-2519 f (505) 587-1071

[email protected]

[email protected]

Julia Davis, Council Member

Julia Kane, Tribal Staff Attorney

[Robert Taylor, Former Council Member]

Heidi Gudgell, Staff Attorney

Nez Perce Tribe

Nez Perce Tribe

PO Box 305

PO Box 305

Lapwai, ID 83540

Lapwai, ID 83540

(208) 843-2253 f (208)843-7354

(208) 843-7355 f (208) 843-7377

[email protected]

[email protected]

Ernie Stensgar, Council Member

George Thurman, Principal Chief

[Catherine Layton, Former CFO]

Rusty Brown, Policy Analyst

Coeur d’ Alene Tribe

Sac and Fox Nation

850 A. St.

Rt. 2, Box 246

Plummer, ID 83851

Stroud, OK 74079

208) 686-1800 f (208) 686-8813

(918) 968-1141 f (918) 968-1142

[email protected]

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 John Allen, Council Member [Doreen Bell, Former Council Member]

Jim Vogel, Tribal Attorney

Ft. Belknap Ind. Comm. Council

Ft. Belknap Ind. Comm. Council

RR 1, Box 66

RR 1, Box 66

Harlem, MT 59526

Harlem, MT 59526

(406) 353-2205 f (406)353-4541

(406) 353-2205 f (406) 353-4541

[email protected]

[email protected]

John Stensgar, Council Member [Gail DeLaCruz, Former Council Member

[Jolene Francis, Accountant]

Colville Tribe

Colville Tribe

PO Box 150

PO Box 150

Nespelem, WA 99155

Nespelem, WA 99155

(509) 634-2208 f (509)634-4116

(509) 634-2854 f (509) 634-2869

[email protected]

[email protected]

Richard George, Council Member

Athena “Pebbles” Sanchey, Council Member

Yakama Nation

Yakama Nation

PO Box 151

PO Box 151

Toppenish, WA 98948

Toppenish, WA 98948

(509) 865-5121 f (509) 865-5528

(509) 865-5121 f (509) 865-5528

[email protected]

[email protected]

Mary Zuni, Executive Director

Daniel Little, Admin. Assistant

ITMA

ITMA

2800 San Mateo NE, Ste. 105

2800 San Mateo NE, Ste. 105

Albuquerque, NM 87110

Albuquerque, NM 87110

(505) 247-1447 f (505) 247-1449

(505) 247-1447 f (505) 247-1449

[email protected]

[email protected]

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Steve McHugh, Attorney Sandra Johnigan, CPA, CFE

David Harrison, Attorney

Johnigan, P.C.

ITMA Consultant

ITMA Consultant

Albuquerque, NM 87109

7640 W. Greenway 8K

(505)328-9771 f (505) 797-9888

Dallas, TX 75209

[email protected]

(214) 351-5999 f (214) 292-9467 [email protected] Dr. Joseph B. (Jay) Kadane

Kevin Nunes

Leonard J. Savage University Professor of Statistics, Emeritus

Rocky Hill Advisors

Department of Statistics

ITMA Consultant

Carnegie Mellon University

7 Essex Green Drive

ITMA Consultant

Suite 53-55

Pittsburgh, PA 15213

Peabody, MA 01960

(412) 268-8726 f (412) 268-7828

(978) 531-5900

[email protected]

[email protected]

David Riley, CPA [Jerry Bland, CPA]

[Art Ribail, CPA]

Bland & Associates, P.C., CPAs

Ribail, Stauffer & Assoc.

8712 West Dodge Road Ste. 200

2501 N. Fairway Lane

Omaha, NE 68114

Liberty Lake, WA 99019

(402) 397-8822 f (402) 397-8649

(509) 344-3200 f (509) 344-3202

[email protected]

[email protected]

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Appendix B - History Phase I Participating Tribal Representatives met at least six times to develop a framework or methodology that can be used by Tribes and the Government to resolve disputed account balances. During these meetings, the objectives of Phase I for the Cooperative Agreement have been summarized as follows:

1. To develop a methodology that can reasonably be used by Phase II Tribes to reach timely settlements with the U.S. Government. 2. To develop a methodology that includes all Tribal Accounts administered by DOI from July 1, 1972, through September 30, 1992. 3. To develop a methodology that includes all cash management claims for the July 1, 1972 to September 30, 1992, time frame with the understanding that the methodology will exclude other time periods and asset mismanagement claims.

The results of the application of the Phase I methodology adopted by Phase II Tribes will be a matter of independent review and approval by the Phase II Tribal Councils or their delegates.

The first two meetings (May 12-13, 2005, and July 6-7, 2005) were held to inform the Phase I Participating Tribal representatives about the:

1. TTFSP. 2. Procedures originally performed by Arthur Andersen LLP (AA). AA’s effort and reported results formed the basis for and the reported findings in the U.S. Department of Interior and Bureau of Indian Affairs Tribal Trust Funds Reconciliation Project Reports for the period July 1972 to September 30, 1992. (AA TRP Report), and the 3. Records available to support the Tribal Trust Accounts.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 At the July 2005 meeting, most of the Participating Tribes received a copy of the AA TRP work product in CD format. This information was provided to help the Participating Tribal Representatives better understand the exact nature of the work performed for their Tribe. Prior to the third meeting on October 13-14, 2005, accounting consultants worked with the Participating Tribal Representatives using the TRP information to help the representatives to develop a better understanding of the TRP and the work specifically performed by AA for the individual Participating Tribe. The results of the accounting consultant discussions are summarized in letters prepared by the accounting consultants and maintained by ITMA and each Tribe.

The October 2005 meeting was conducted with the Phase I Participating Tribal Representatives to gather and summarize the views of each of the participants. The result was the development of a methodology or framework. The framework included the following components:

1. Testing of the TRP to determine or assess: a. the accuracy of the procedures performed; in other words, a test to see that procedures were performed as described, b. the reliability of the documents used in the TRP and subsequent procedures; in other words, do these documents provide adequate information to draw conclusions about the period tested, and c. the potential for use of the results of the tests to draw conclusions about any of the periods that were not tested. 2. Investment returns during the TRP period. 3. Completeness of recorded receipts for productive assets during the TRP period. The methods discussed varied and included suggested estimation processes. Ultimately the Tribes agreed to a pilot test using the universe of leases and contracts for a Tribe.

A fourth meeting was held on January 10-11, 2006, to review and supplement the written draft that included the above described components. The fourth meeting also included a

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 consideration of the Administrative Accounting and Appeals Process section of draft DOI Regulations distributed to ITMA and Tribal leaders on December 27, 2005.

The Participating Tribes continued to meet to refine the approach during October and December 2006. Subsequent to December 2006, due to the filing of a number of lawsuits related to alleged losses to or mismanagement of trust funds and related claims, the project was delayed as the parties determined the ability to continue in the Cooperative Agreement notwithstanding the litigation. These issues were resolved during 2007 and as a result, a methodology was eventually finalized.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Appendix C - Sampling TRP Testing the accuracy of the TRP will be performed through two separate tests. 1. For disbursements, the OHTA Tribal Disbursement Test will provide an independent test of transactions during the AA TRP period. 2. For receipts, the testing will be performed as a component of the Completeness methodology for receipts from productive assets. See the following description of sampling considerations for receipts.

Completeness When testing is performed to determine the completeness of amounts, the testing is proposed to be performed on a stratified sample with an emphasis on dollar value. For example, the goal will be to provide sufficient dollar coverage of the amount that should have been recorded to allow the Tribes to conclude on the completeness or accuracy of the amounts. This will then require some further testing of the smaller amounts to determine that misstatement in the smaller dollars could not rise to a material level of misstatement. The test would therefore include: 1. Stratified dollar sample of all items over [$ amount TBD]. Factors that will affect the dollar amount selected include the frequency, volume, and dollar value of the amounts being tested. The universe could be reduced by items that the Tribes agree will not be tested. 2. Stratified dollar sample of all remaining items (universe less 1 above) to be tested in a systematic testing of these amounts. The size of this sample will be directly influenced by the dollar coverage obtained in 1 above. Stratification may also be based on identified areas of concern that require special attention. These will be identified on a case by case basis.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008

Appendix D - Glossary Accounting Standards Manual (ASM)- The compilation of standards used by OHTA and its contractors to provide uniform guidance on reconciliation of tribal and IIM accounts and transactions and examples of actual accounting and other documents in use in the historical accounting period

AIRR- The American Indian Records Repository is located in Lenexa, Kansas. AIRR is physically connected to a state-of-the-art Federal Records Center operated by the National Archives and Records Administration (NARA). Interior’s Indian Trust records are stored and maintained at this records repository.

BISS- Box Index Search System, an electronic index of the contents of [number] archival storage boxes at AIRR, which facilitates location of specific boxes by use of a “key word” search capability.

Common Dataset- A dataset containing transaction records and data mapped from various accounting systems. The Common Dataset is utilized to provide to the Tribe a single, uniform dataset related to Tribal Trust Accounts.

Data Completeness Validation (DCV)- Mathematical re-computation of electronic account data to ensure the transaction accuracy in comparison with Interior’s contemporaneously generated reports and account statements; and to ensure the account data roll forward over time (i.e. an account balance at the end of one reporting period matches the account balance at the beginning of the next reporting period).

Difference/Error- A difference or error would be noted when the actual transaction posting to an account is different from the amount expected to be posted based on the contemporaneous records.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 Difference Rate/Error Rate- This is how often a difference or error is observed, such as one difference/error per 100 transactions, or expressed as a percentage, one percent.

Dollar Difference- The observed amount, in dollars, between the actual account transaction posted and the amount of the transaction supported by contemporaneously prepared documents. For receipt transactions, this could be a positive dollar difference for an overpayment to the account, or a negative dollar difference for an underpayment to the account. For disbursement transactions, this could be a positive dollar difference for an under-recording to the account, or a negative dollar difference for an overrecording charged to the account.

Electronic Ledger Era- Beginning in February 1985, Interior retained an electronic back-up of IRMS transactions. Beginning in August 1998, and concluding in March 2000, IRMS was converted to the TFAS, the current accounting system. The combined electronic IRMS and TFAS data comprise the electronic ledger era.

Expected Posting- The amount of money that should be posted to a trust account as evidenced by the appropriate contemporaneous records showing payment receipts based on contracts for fixed or production-based receipts, and the allocation of receipts to the trust account(s). This term also applies to disbursements based on the appropriate contemporaneous records supporting the disbursement amount.

IIM- Individual Indian Money.

IMPL- Indian Money Proceeds of Labor.

ITMA- Intertribal Monitoring Association on Indian Trust Funds.

LTRO- BIA Land Title and Records Office.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 OHTA- Office of Historical Trust Accounting. OHTA was organizationally transferred from the Office of the Secretary to the Special Trustee for American Indians, effective July 1, 2007.

OMNI-ES- Tribal Trust Funds Accounting System covering the time period April 1, 1995 – February 28, 1999.

OST- United States Department of the Interior, Office of the Special Trustee for American Indians.

OTFM- OST’s Office of Trust Funds Management, located in Albuquerque, New Mexico.

OTR- OST’s Office of Trust Records, which is responsible for all Indian records not in current use by OST or a BIA Agency, Regional Office, or LTRO.

Paper Ledger Era (Paper Era)- The period prior to February 1985 when IIM transactions were recorded on paper or mechanical ledgers.

Special Deposit Account (SDA)- An account in which undistributed tribal and individual Indian, or non-Indian money is temporarily held until distribution to the correct account or owner.

SOL- United States Department of the Interior, Office of the Solicitor.

TAAMS- Trust Asset and Accounting Management System, which contains the combined electronic land and encumbrance data from the LTROs.

TFAS- Trust Funds Accounting System.

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Tribal Trust Funds Settlement Project: Phase I Methodology July 30, 2008 Tribal Disbursement Sample- A methodology for testing the overall accuracy of noninvestment disbursement transactions for the time period July 1, 1972, through December 31, 2000.

TRP- The twenty-year (1972-1995) Tribal Trust Funds Reconciliation Project in which the BIA hired Arthur Andersen & Co. to complete certain agreed upon procedures with respect to Tribal Trust Accounts, addressing transactions from the period fiscal year 1973 through fiscal year 1992.

TTFSP- Tribal Trust Funds Settlement Project.

Verification- The process of comparing the recorded amount for a transaction to the supporting documentation.

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