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DC lawyer again blasts Interior over handling of Indian trust

COMMENTARY | January 25, 2006

Responding to spokesman Ross Swimmer’s posting on this Web site, Lee Helfrich portrays the Interior Department as “Blunderland” and questions the agency’s sincerity and competence.

By Lee Helfrich

Why should the Indian people, Congress and the public believe Interior now?

Interior deserves to have its point of view on Trust reform acknowledged by the media. [Click here to see an earlier piece on this Web site by Ross Swimmer of the Interior Department.] The press has reported on it, but not to the exclusion of the positions of the Cobell plaintiffs

As Interior’s spokesman on the Cobell v. Interior saga, Ross Swimmer surely knows that no press representatives are going to be as one-sided in their coverage as Interior may prefer. Still, Interior may be dismayed with editorial boards that have addressed the case, most of whom have called upon Interior to pay up and clean up.      

The editorials have largely focused on the poverty in Indian Country. Although Mr. Swimmer has suggested elsewhere that poverty is the result of socio-economic factors beyond Interior’s control, squandering valuable Indian land assets cannot be overlooked as a cause. From my perspective, even Indians in the top 1% deserve a full Trust Accounting, which is not what Interior is providing.

My earlier article, which Mr. Swimmer responded to, was aimed at giving the media more information than has been provided by Interior and the Cobell plaintiffs. Getting “underneath” the litigation is key to evaluating whether Interior’s efforts are adequate or misdirected. It also aids evaluation of the judicial response and the effectiveness of the lawsuit as a means of providing full reparations for Interior’s neglect.

A string of sound bites should be met with skepticism by journalists. Parsing requires putting them in fuller context. It means, in short, taking a trip down the rabbit hole to Blunderland.

Let’s start with trust accounting. Suppose a father sets up an investment trust for his children to be managed by a bank. If the bank decides to move blue chips to bonds, it, at a minimum, has to justify why this is in the best interest of the beneficiaries and, at least upon request, provide the documentation that supported its decision. Land based Trust Accounting is no different. Interior isn’t doing it.   

Interior sometimes refers to what it is doing as a reconciliation of accounts. Reconciliations are a much more modest exercise. Reconciliations are typically done on a continuous basis, which makes the process much simpler. Their bona fides depend, however, on correct opening balances. Beginning with the first balance or deposit, adjustments of receipts and disbursements are made on a forward basis, including assuring that all disbursements cleared and made it into the hands of the right recipient.

Interior is not doing reconciliations either. Instead it is only sampling some “transactions”, e.g., a receipt, to test that it was recorded properly. This might be termed a “partial reconciliation”, but is more accurately termed “data entry verification.” Interior is not checking, historically, whether cash was cleared.      

The problem of correct opening balances has been cited in every audit report of Indian accounts since 1988. From 1988 to 1990, these audit reports were completed by Arthur Anderson & Co. – a firm not noted for biting the hand that feeds it, but yet it bit Interior. Similar audit reports by different companies were issued between 1994 and 2005. Does this explain why Interior is not performing true reconciliations? Probably.

At the risk of some repetition, what follows is a fuller explanation of some of my previous points and some clarification of Mr. Swimmer’s. There are eight areas: court misstatements, Trust obligations, dilution of the Trust, document destruction, BIA employees, litigation delay, 100 million dollars, and the Office of Special Trustee. Feel free to skip down to whatever issue is of interest.

First, Mr. Swimmer does not deny Interior’s misrepresentations to the Court in the Cobell case. This past summer, a hearing was held on Interior’s credibility. Interior came up short. Some Interior employees conceded that Interior’s representations were akin to a public relations effort to make it appear that things were better than they are. Others testified that they took shortcuts because this was expected by Headquarters. Senator John McCain, in a hearing in 2002, bemoaned Interior’s lack of institutional credibility.      

Why should the public, the Indian people, Congress, the courts, the press – let alone the Cobell plaintiffs – believe Interior now?

Mr. Swimmer says that if there had been  “institutional” mishandling by Interior, it “could not survive over 100 years given all the scrutiny of the Indian trust.” Obviously, this statement is inconsistent with the decades of congressional and GAO reports on continuing neglect, the findings of the federal courts in Cobell, and the testimony of Interior officials that after 1996 – the year the Cobell suit was filed – they did not have a firm grasp of Trust duties.      

As many in Congress explained in 1994, the only thing that “all the scrutiny” produced was a temporary “flurry” of activity by Interior, which lapsed when investigators moved on to address other issues. Scrutiny is only as good as an agency’s response. For “100 years”, Interior’s response has been found wanting.

Mr. Swimmer’s assertion – like Associate Deputy Secretary James Cason’s confusion over the difference between the words “bulletproof” and “broken” – is an incredible overstatement.

Second, Mr. Swimmer does not address Congress’s and the GAO’s conclusions on “systemic problems”, fraud and theft in the accounting of Indian assets. Instead, from Interior’s data verification efforts, it concludes that there is no evidence of “institutional” fraud or mishandling of Indian accounts and suggests that Interior’s liability is minimal. These conclusions are wrong.

Interior’s Trust responsibility extends beyond assuring that receipts and disbursements were properly recorded. Interior’s Trust responsibility includes collecting what was owed for private development on Indian lands. To the extent that companies did not pay, did not pay correctly or did not disclose the correct production volumes – all findings of former Secretary Watt’s “blue ribbon” commission – the fact that the royalty rate for Indian lands is 16 1/3 %, something Mr. Swimmer lauds, is meaningless.      

Fact: Volumes x Value x Rate is the basic royalty equation – if volumes or values are understated, Indians have been short-changed. Sixteen and a third of nothing is nothing; 16 1/3 of $100 is less than 16 1/3 of $1000. Oh yes, as a postscript, companies have been known to use incorrect (lower) royalty rates in calculating what they owe.

Interior’s Trust responsibility also included adequate site security to assure that companies weren’t running dual pipes from wells on Indian land and paying on the production transported from only one. Interior’s Trust responsibility includes assuring that companies pay fair market value for rights-of-way over Indian land. Does Interior believe that Indians “fare better” when companies are allowed to erect billboards on Indian land free of charge? Does Interior believe that it is in the Indian’s “best interests” to be able to read large ads for restaurants or gas stations rather than being paid for that use of their land? Does Interior believe that Indian interests are served by accepting less than a fourth of the market value for rights-of-way for industry’s pipelines?

None of this well-documented neglect will be exposed by any partial reconciliation effort. By definition, the monetary consequences of this neglect will not show up as a “receipt” – if a company doesn’t pay, there is no “receipt.” Hardly rocket science. All of this neglect represents “institutional” mishandling of Indian assets. As a Trustee, Interior is liable for the damages resulting from these breaches of the Trust.

Now, granted, as my initial article explained, these mismanagement and true Trust Accounting issues are not currently on the courtroom table in Cobell because of a February 2005 ruling by U.S. District Judge Royce Lamberth. But Congress is also considering reparations and Trust reform and its reach is broader than what is currently in court.      

Interior keeps telling Congress that the damage is miniscule. Interior keeps telling Congress that the “parties” are too far apart, in terms of settlement, based on its partial reconciliation effort. According to congressional testimony, Interior’s legal advisors think its duty “is to limit the liability of the U.S. government,” not fulfilling its Trust duties.

Third, although Mr. Swimmer vehemently denies that it is “fighting hard to dilute its responsibilities” to Indians, he does not mention Interior’s position in Cobell. If Interior is not trying to dilute its duties, it should have a long and hard conversation with its lawyers.

Mr. Swimmer correctly notes that, early in the Cobell case, Interior admitted its breach of Trust. Since then, the issues have revolved around the remedy, for the past damage to Indian interests and to assure conformance with Trust principles in the future. For the past, the case has focused on the “historical accounting”; for the future the case has focused on issues such as computer security – an issue that Mr. Swimmer dismisses as a “delaying” tactic on the part of the Cobell plaintiffs, but which, in actuality, is part of Interior’s Trust obligation according to both the district and appellate courts.

By the way, the findings on Interior’s “broken” computer security were based on its failure to follow plain vanilla federal law applicable to all agencies’ computer systems, not any statute or duty uniquely applicable to Indians.

Interior’s consistent position in Court has been that its reforms should be evaluated under the Administrative Procedure Act (APA). The APA sets out the standards of review of agency actions for any member of the public. Generally, if an agency can provide a plausible, non-capricious rationalization for its actions, they will be upheld despite damage to the litigants’ interests. Federal agencies are given every benefit of the doubt, i.e., good enough for government work.

The duty owed to Indians is greater than an agency “owes” to Joe Average. As Chief Justice Benjamin Cardozo said: “Many forms of conduct permissible for those acting at arm’s length are forbidden to those bound by fiduciary ties. A Trustee is held to something stricter than the morals of the market place.” Thus, Indian interests should not be reviewed as if Indians are “any member of the public”.      

Indians should be concerned about Interior’s courtroom efforts to shove review of issues impacting their interests under the APA. Review under the APA, if the courts agree with Interior, whittles down – “dilutes” –  Trust obligations. The more often that Interior succeeds in its APA arguments, the closer Indians come to “termination” of Trust obligations. I’m not the first to notice this; Mr. Swimmer’s predecessor, Thomas Slonaker, noted it in his congressional testimony in September 2004.

Mr. Swimmer’s statements on Indian opposition to any termination of Trust obligations, and what he called “fairness” “to all parties involved, including every American taxpayer” also need clarification.

Indians do “steadfastly oppose” removal of the Trust, as they should. It is, however, incorrect to say that they oppose efforts to modify Interior’s unfettered control. In July 2002, “tribal leaders and Indian organizations” demanded that Congress establish an independent commission to oversee Interior. As reported by the Associated Press: “Tribal leaders want the commission to have the power to subpoena documents, audit the department’s accounting of … royalties and impose fines against the interior secretary to repair the history of mismanagement that has squandered an unknown amount of money.” This hardly jibes with Mr. Swimmer’s depiction of a warm and fuzzy relationship. Footnote: most Indian leaders opposed Mr. Swimmer’s appointment as Special Trustee.

Fairness to taxpayers is important, but what is fair is fair. Indians aren’t asking for federal largesse or welfare. Indians own the lands. Interior, through its mismanagement (which was charged to the taxpayer), lost funds owed Indians that had absolutely nothing to do with taxpayer funds. Taxpayers might be more upset to learn that their funds are being used to pay for private lawyers to defend Interior officials and employees in Cobell.

Mr. Swimmer, in essence, is arguing that Indians again should eat the loss of Interior’s neglect because making Indians whole now must come from taxpayer dollars; a situation that would not exist if the Trust obligations had been met in the first place or after the repeated warnings of Congress and the GAO, which would have limited the damage. Personally, I would prefer if the Indians were made whole through foreclosure on the assets of former “Teapot Dome” Interior Secretary Albert Fall’s predecessors and successors. But that isn’t going to happen. If the taxpayer is upset, the entity to blame is Interior.

Interior has no right to balance taxpayer interests against Indians interests. Mr. Swimmer might want to read the Supreme Court’s decisions in Ervien v. United States and Lassen v. Arizona for a start. In both, the Supreme Court held that public benefits are irrelevant to performance of Trust duties. To the extent that Mr. Swimmer equates the interested “parties” with industry, he also might read National Parks and Conservation Association v. Board of State Lands, among other authorities. There the Utah Supreme Court held that public Trustees breach their fiduciary duties by relying on company analyses of the worth of Trust properties, e.g., Anson Baker’s sole reliance on a single company offer to lease Indian lands.

Fourth, Mr. Swimmer says that the press should focus on those documents that Interior has managed to retrieve, rather than those that have been destroyed.

This begs the questions – how many have been destroyed and what are the practical ramifications of the document loss? Both of Mr. Swimmer’s predecessors as Special Trustee concluded that a complete Trust Accounting could not be done because full documentation no longer existed.      

Does Mr. Swimmer disagree with these gentlemen, both of whom were experienced Trust managers? If so, why? Can Interior conduct a bona fide statistical sampling of historic accounts – even a partial reconciliation of accounts – without that documentation? How can Indians be assured that the documents that remain are representative of all types and sizes of Indian accounts?

Some of the document destruction was intentional. Some remains inexplicable – no one yet knows, for example, the who and the why of the Indian documents found in the dumpsters and trash cans at the National Archives in 2005, at a facility that is responsible for maintaining documents of historic significance. The National Archives promptly reported the matter, which at least suggests that no one there was responsible.

Even some of Interior’s efforts to collect the documents that remain have been curious. Mr. Swimmer, wrapping soaked boxes of documents in plastic produces fading, if not paper mush. It also violates federal regulations on proper document retention and preservation.

Interior’s effort to get the Indian documents that remain out of leaky and rat-infested storehouses is a good thing. Yet, there is still cause for the press and Indians to be wary.

According to Interior’s progress report, the purpose of its collection effort is to provide access to Indians and Tribes to their “historical” account information. This dovetails nicely with the current congressional bills that, essentially, place the burden on Indians to document their share of any legislated settlement amount.

Reality check: If it actually took Interior $100 million to sample 10% of the transactions for the automated period in the land-based Indian accounts (1994 to 2000 according to the progress report) with the use of outside accountants from “Big 4” firms, does Interior seriously and in good faith expect that Indians will have the resources to trace transactions in their accounts?

Now let’s turn to fractionation that Mr. Swimmer, repeatedly, points to as a severe problem with Trust management. In the progress report, Interior says access will be granted “with permission of Interior” (read Mr. Swimmer). If I am one of the “1000 owners” of a land allotment and want to check out the validity of the receipts in my account, will Interior give me permission to review the remaining 999 accounts? The reality is that I can’t be assured that I received the proper payment without looking at the total payment on the land allotment and how that was disbursed to the remaining owners.

Mr. Swimmer may want to ask Interior’s Minerals Management Service (MMS) how it has dealt with a similar problem regarding divided ownership of unitized land, i.e, a single producing property that may contain a mix federal, state-owned, allotted, Tribal and possibly privately owned lands. MMS has said, apparently on the advice of Interior’s Solicitor’s Office, that because of the Trust obligation only Interior can look at all the pieces in the land puzzle.

If Interior follows the Solicitor’s path, the only entity that can see the big picture is Interior itself, not individual Indians that make the long trek to Lenexa, Kansas, rather than a short drive to their regional BIA office. Indian leaders have already highlighted this location problem.

Mr. Swimmer says that fractionation has been a known “problem” for “more than 75 years” and says this is so because “Congress and the tribes” have only “recently” taken it “seriously”. Has Interior even engaged in a “flurry” of activity to resolve it through proposals, legislative or otherwise? Or is this another “mountain” created by Interior’s long term neglect?

In discussing fractionation, Mr. Swimmer says that many Indian accounts currently have minimal balances and no activity for the last 18 months. Has Interior looked behind these anomalies to check whether there still are any producing properties or paying leases associated with those accounts? The answer is no.

Fifth, Mr. Swimmer says that it is “irresponsible” to blame BIA employees for continuing “detrimental practices” because BIA is largely staffed by Indians.      

As Mr. Swimmer knows, BIA is only part of the problem with Interior’s Trust management, some of which falls under the bailiwick of other Interior agencies, such as the MMS, the Office of Special Trustee and the Bureau of Land Management. As Mr. Swimmer’s predecessors and Judge Lamberth have noted, this lack of a coherent organization for Trust management plays a big role in Interior’s problem. The continuous turf battles and finger pointing among Interior’s various agencies, which the IG noted in one of his many reports, isn’t helping. The latter didn’t begin with the initiation of the Cobell lawsuit.

One of Mr. Swimmer’s predecessors, Paul Homan, told the Senate that “through no fault of their own”, BIA employees and managers “have virtually no effective knowledge or practical experience with the type of trust management policies, programs and best practices that are so effective, efficient and prevalent in [the] private sector.” BIA staff, he testified, lack background, training and experience.      

Contributing to this is the fact that individual responsibilities at BIA are compartmentalized – like an administrative assembly line. Even assuming that all BIA employees are generally aware of Interior’s Trust obligations because they are Indians, there is misunderstanding and confusion about how their jobs fall within the big picture. As noted, testimony in the Cobell case also exposed that even Interior Headquarter officials lacked a firm grasp on their Trust obligations and just last summer there was testimony that officials weren’t sure what was a Trust document and what was not.

In another IG report, it was found that a substantial percentage of Interior employees believe that “discipline” is not meted out fairly and policy disagreement is not countenanced. Evidence of this is the retaliation against Interior employees for revealing problems with Interior’s Trust management. Google the names Mona Infield, Deborah Lewis, Kevin Gambrell and Ronnie Levine for a start. While only two of these individuals are of Indian heritage, news of retaliation spreads through any Department or agency like wildfire. The chill is as severe as a prior restraint on the press.

BIA employees are in a different position than many other Indians. BIA employees have a job, a pension, benefits and the possibility of a bonus if they toe the line. Speaking out puts this all at risk.

Interior officials and apologists have been heard to say that the Cobell case and particularly Judge Lamberth are the reason that Interior employees feel demoralized and fearful. They have even said that some of Judge Lamberth’s actions have disrupted their friends’ ability to use the internet to arrange vacation plans. Advice: Use the phone, watch the weather channel.

The IG report and Interior’s retaliatory actions strongly suggest that Judge Lamberth is not the problem. To the extent that the judge shares some blame, maybe it’s because Interior employees have not been informed of his “Anti-Retaliation Order.” An Interior lawyer calls Cobell “that case we do not mention.” That might be part of the problem too.

Sixth, Mr. Swimmer says that the Cobell plaintiffs are responsible for delaying Interior’s reforms. That’s rich. The Cobell plaintiffs reduced their damage claim, for purposes of settlement, by over 80%, which would only lift from Interior’s shoulders the burden of its toughest task: sorting out its sordid past. This isn’t indicia of an effort to delay.

Mr. Swimmer refers to a laundry list of stuff that he thinks has caused the delay. The oddest of these is the claim that the Cobell plaintiffs are “delaying us from mailing historical accounting reports to Indian trust beneficiaries.”

What did this involve? Interior was sending account statements to minors, stating that if they did not contest the statements administratively, in a couple of months, further claims would be waived. In other words, these Indians could not recover from any damage award in the Cobell. Interior did not seek Court approval to do this, although the very adequacy of its “historical accounting” was under judicial review.      

Later, Interior appealed an order requiring it to provide notice to Indians that its trust account information “may” be “unreliable”. Interior didn’t disagree that its data was faulty; it just didn’t want the burden of cutting and pasting one paragraph into its letters.

Interior went so far as to assert that the paragraph would be a “disservice” because it might confuse Indians as to the nature the unreliability. Yet, there was nothing in the Court’s order or the plaintiffs’ papers that suggested that Interior would be barred from providing more detail and there was nothing in Interior’s papers that suggested that it could provide such. It couldn’t – the account statements were not audited or fully reconciled because Interior isn’t doing that.

Litigation is rarely a quick thing. It tends to be lengthier when one party challenges most document requests and deposition notices, appeals every major decision by the trial judge, sometimes on inexplicable grounds (at least according to the appellate court), and provides misleading or false reports to the Court. That party is Interior.

Seventh, the $100 million dollars is amazing amount of money, especially given that Interior is only sampling 10% of the receipts and disbursements in the land based accounts post-1994, which were, by that date, automated. Wow, even its current automated accounting systems must be a mess.

Apparently Interior felt it needed to hire four accounting firms for this effort, at least three of which had no prior experience with BIA’s accounting systems. That’s a lot of money on a learning curve. Of course, these firms are famous (and expensive), e.g., KPMG, and putting their names on Interior’s reform efforts is impressive in a PR sense and, possibly, politically appealing. Both Congress and the Administration like to hand out costly contracts under the guise of privatization and down-sizing government.

Mr. Swimmer is right that “in some cases” Interior tested transactions “back … as far as 1938.” These were the account statements of the five Cobell plaintiffs; Interior possibly did some tests of transactions in two types of accounts, which it also said, in its progress report, were simpler to sample and adjust. The real money, however, is in the land-based accounts.

The $100 million dollars! Without a breakdown, which can only be provided by Interior, this amount might be compared to the budgets of other Interior agencies – like Minerals Revenue Management (MRM). MRM is in charge of auditing all of the mineral revenue actually due, but not paid, from the leasing of federal onshore, offshore, Indian Allottee and Tribal lands. That’s a lot of land and ocean bottom, and a lot of money.      

MRM’s annual budget is less than $100 million and about 20 to 25% goes to a private consultant, another big firm, for fixing an automated “compliance” system that was badly designed and doesn’t work. MRM says that it provides “compliance review” coverage, similar to “data entry verification”, for about 70 to 90% of royalties owed on an annual basis. I’m not about to vouch for that statement or for the quality and efficiency of what MRM does. It also no longer conducts routine audits. Still, MRM’s goal sounds like more work than testing 10% of the receipts and disbursements in Indian accounts to assure that they were recorded right.

Eighth, a few words also should be added about the Office of Special Trustee (OST).

Mr. Swimmer is Interior’s Special Trustee for American Indians, a job he started in 2002. He was also Interior’s Assistant Secretary for Indian Affairs from 1985 to 1989.

The OST was created after Congress, in 1994, directed Interior to stop ignoring its Trust obligations to Indians. As set up by Interior, the OST had no authority independent of Interior’s hierarchy – it was expected to adhere to the “priorities” of the Administration. Even Mr. Swimmer is a second fiddle to Associate Deputy Secretary Cason. Prior to the OST, some of the Trust was the responsibility of the Assistant Secretary for Indian Affairs.

Interior didn’t want to hear what Mr. Swimmer’s predecessors’ had to say. Mr. Swimmer has done a much better job of conveying the Administration’s viewpoint.

The first Special Trustee was Paul Homan, an experienced Trust manager. Mr. Homan resigned in 1999 because Interior’s plans for Trust “reorganization” were not consistent with Trust principles.      

Mr. Homan was replaced by Thomas Slonaker, who has 36 years of private sector Trust experience. In July 2002, Secretary Gale Norton and then-Deputy Secretary Steve Griles gave Mr. Slonaker a letter of resignation to sign; the alternative, according to Mr. Slonaker, was being fired. According to press reports, this “transition” was due to Mr. Slonaker’s refusal to testify before Congress that Secretary Norton’s plan for Trust reform was sound.

Apparently, Interior, its lawyers and others in the Administration did not want Congress, let alone the Cobell courts, to hear Mr. Slonaker’s expert analysis on the Trust reform. During the July 2002 congressional hearing, Mr. Griles testified that Interior’s plan was hunky dory. Although he was the politico over BIA, Mr. Griles had no experience in Trust management, but considerable private experience in lobbying – the ultimate PR guy and a well-known friend to industry.

Both Mr. Homan’s and Mr. Slonaker’s jobs involved evaluating what was wrong with Interior’s Trust performance before 1994 so that they could recommend reforms.      

This raises questions. For example: What were you doing, Mr. Swimmer, in 1985 to 1989 to correct Trust Fund mismanagement? In 1983, Congress directed Interior to reconcile mineral revenue accounts. Did you make any efforts to assure that the partial reconciliation efforts that were tried after 1983 included Indian Allottee accounts? Where were you when Interior entered into its 1989 agreement with industry to cut off audits for the period prior to 1983? Is it fair to say, that whatever was done or not during your tenure as Assistant Secretary for Indian Affairs was responsible for Congress’ determination in 1994 that more concrete direction was needed? Is this why Tribal leaders opposed your return to Interior?

Mr. Swimmer says I am a victim of “commonly-held misunderstandings” about Interior and its role in the Cobell case. Thank heaven!  If I knew any more, I wouldn’t be able to sleep at night. If I misunderstand, mea culpa. So in closing let me just say, “You’re doin’ a good job, Brownie.”

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