[Audit Report on Agricultural Leasing and Grazing Activities, Rosebud Agency, Bureau of Indian Affairs]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 99-i-123

Title: Audit Report on Agricultural Leasing and Grazing Activities,
       Rosebud Agency, Bureau of Indian Affairs

Date:  December 7, 1998




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U.S. Department of the Interior
Office of Inspector General


AUDIT REPORT


AGRICULTURAL LEASING AND GRAZING
ACTIVITIES,ROSEBUD AGENCY,
BUREAU OF INDIAN AFFAIRS


REPORT NO. 99-I-123

DECEMBER 1998






MEMORANDUM

TO:               The Secretary

FROM:             Eljay B. Bowron
                  Inspector General

                  SUBJECT SUMMARY:  Final Audit Report -
                  "Agricultural Leasing and Grazing
                  Activities, Rosebud Agency, Bureau of
                  Indian Affairs" (No. 99-i-123)

Attached for your information is a copy of the subject final
audit report.  The objective of the  audit  was to determine
whether agricultural and pasture leases and grazing  permits
on the Rosebud Sioux Indian Reservation were managed by  the
Rosebud  Agency  in  accordance  with regulatory, lease, and
permit requirements and whether farming and grazing revenues
in special deposit (suspense) accounts had been distributed.

We found that the Agency generally  managed agricultural and
pasture  leases  on  the  Reservation  in   accordance  with
applicable   regulatory,  lease,  and  permit  requirements.
Specifically,   the  Agency  (1)  advertised,  using  sealed
bidding procedures,  those lands  that  were  available  for
leases and permits; (2) initiated actions in a timely manner
to  ensure  that lease renewals were approved without a loss
of  revenue  to  the  landowners;  (3) usually  made  timely
distributions   of   rents  and  fees  collected  to  Indian
landowners; and (4) enforced bonding requirements stipulated
in the leases.  However,  we  also  found  that  some  lease
rents,   grazing  fees,  and  related  interest  which  were
deposited  into  special  deposit  accounts in the 1980s and
1990s had not been distributed to landowners.

This report did not contain any recommendations  because the
deficiencies identified are covered by subproject  plans  of
the  High Level Implementation Plan for the Trust Management
Improvement   Project  approved  by  the  Secretary  of  the
Interior on July  31, 1998.  Implementation of the Plan will
be  monitored  by  the   Assistant   Secretary  for  Policy,
Management and Budget.

If  you have any questions concerning  this  matter,  please
contact  me  at  (202)  208-5745  or Mr. Robert J. Williams,
Assistant Inspector General for Audits, at (202) 208-4252.


Attachment




                                          C-IN-BIA-002-97(E)




AUDIT REPORT


Memorandum


     To:  Assistant Secretary for Indian Affairs

   From:  Robert J. Williams
          Assistant Inspector General for Audits

Subject:  Audit Report on Agricultural Leasing
          and Grazing Activities, Rosebud Agency,
          Bureau of Indian Affairs (No. 99-i-123)


                        INTRODUCTION

This   report   presents   the   results  of  our  audit  of
agricultural and grazing activities  of the Bureau of Indian
Affairs Rosebud Agency.  The objective  of  the audit was to
determine whether the Agency adequately managed agricultural
leases and grazing permits for the Rosebud Sioux  Tribe  and
individual  Indian  landowners  on  the Rosebud Sioux Indian
Reservation.

BACKGROUND

According to the Code of Federal Regulations  (25  CFR  162
for leasing and 166 for grazing),  the  Bureau  of Indian
Affairs is responsible for approving leases and grazing
permits for individually owned land and tribal land held in
trust  that  are  negotiated by the landowners or their
representatives. The Bureau may also grant leases or permits
on  individually owned land on behalf of incompetent persons,
orphaned minors, undetermined heirs of estates, landowners
who have not been able to agree upon a lease or permit,
landowners who have given the Secretary of the Interior
written authority to execute leases or permits, and
landowners whose whereabouts are unknown.The  Code of Federal
Regulations also states that leases and permits may be
executed either through negotiation or advertisement and that
annual rents should provide for a fair annual return.
Specifically, the Code states  that (1) agricultural leases
are not to exceed 5 years for dry-farming land and 10 years
for irrigable land but that, when lessees are required to make
substantial improvements to the land for the production of
specialized crops, leases can be approved for 25 years and
(2) grazing permits are not to exceed 5 years except  when
substantial development or improvement is required, in which
case the maximum period "shall be" 10 years.

To improve the management,  productivity,  and use of Indian
agricultural lands and resources, the Congress  enacted  the
American  Indian  Agricultural  Resource  Management  Act in
December  1993.   The  Act  states  that the Secretary is to
manage  Indian agricultural lands to achieve  the  following
objectives:  (1) protect and maintain the highest productive
potential on the  lands,  (2) increase production and expand
diversity  on the lands, (3) manage  lands  consistent  with
integrated resource  management plans, (4) enable Indians to
maximize  the  potential   benefits  available  to  them  by
providing   technical   assistance,    (5) develop    Indian
agricultural  lands  to promote self-sustaining communities,
and (6) assist trust and  restricted  Indian  landowners  in
leasing their land for a reasonable annual return consistent
with  prudent management and conservation practices. To meet
the  objectives,   the  Act  requires  that  10-year  Indian
agricultural resource  management  and  monitoring  plans be
prepared  and  implemented  for  Indian  agricultural  lands
"within  three  years  of  the  initiation  of  activity  to
establish the plan."

The  Act stipulates that the management and monitoring plans
be developed by tribes under self-determination contracts or
self-governance  compacts  or by the Bureau if tribes choose
not to contract or compact for  the  plans.   The  Act  also
requires that the Bureau, by June 1994, contract with a non-
Federal  entity  to  conduct  an  independent  assessment of
Indian agricultural land management and practices, which was
to  include  a  comprehensive assessment of the improvement,
funding, and development  needs  for all Indian agricultural
lands.   However,  the  Bureau had not  contracted  for  the
assessment as of August 1998.  In addition, the Act required
the Bureau to issue final  regulations  to implement the Act
by December 1995.  In June 1996, the Bureau  issued proposed
regulations; however, the regulations had not been finalized
as  of  August 1998.  Further, the Act changed many  of  the
requirements  specified  in the Code of Federal Regulations.
For  example,  the  Act  (1) authorizes   the   leasing   of
agricultural  lands to the highest bidder at rates below the
appraisal  amount  after  "satisfactorily"  advertising  the
leases when such action would be in the best interest of the
landowner, (2) provides  preference  to  Indian operators of
agricultural leases when authorized by tribal resolution and
when  the  landowner received fair market value,  (3) waives
the  requirement   for   bonds  when  authorized  by  tribal
resolution and when other  collateral  was posted in lieu of
bonds,   and   (4) extends  the  maximum  lease   term   for
dry-farming land from 5 to 10 years.

The Rosebud Agency  of  the Bureau's Aberdeen Area Office is
responsible  for  leasing and  grazing  activities  for  the
Rosebud Sioux Tribe  and individual Indian landowners on the
Rosebud   Sioux   Indian   Reservation.    The   Reservation
encompasses  about  879,000 acres  in  South  Dakota,  which
consists of about 406,000  acres  of individual Indian-owned
lands, about 472,000 acres of tribal  lands,  and  about 700
acres of Government lands.  The ownership interests  in  the
individual  Indian-owned lands are severely fractionated.[1]
As of December  31,  1996,  the  Agency  administered  1,835
agricultural leases that encompassed about 331,000 acres  of
farm and pasture lands which had annual lease rents totaling
about $1.8 million and administered 208 grazing permits that
encompassed  about  439,000 acres of pasture lands which had
annual grazing fees totaling about $1.4 million.

The Rosebud Agency had nine individuals assigned to the real
estate services program  and  seven  individuals assigned to
the land operations program.  The work  load  of  realty and
land  operations staff included the following administrative
duties:    (1) approving   leases   and   issuing   permits;
(2) collecting  rents  and  fees, forwarding collections for
deposit,  and  distributing lease  rents  and  permit  fees;
(3) ensuring compliance  with  the  terms  of the leases and
permits; (4) processing land acquisitions and disposals; and
(5) processing probates.

The  Secretary  of the Interior has been designated  as  the
trustee of funds  held  in  trust  by the Government for the
benefit  of  Indian  tribes  and  individual  Indians.   The
Secretary's authority for the management  of trust funds was
delegated to the Assistant Secretary for Indian  Affairs  in
the  Departmental  Manual  (109 DM 8) and was redelegated to
the Bureau's Aberdeen Area Director  in the Bureau of Indian
Affairs Manual (10 BIAM, Bulletin 13).  On October 26, 1989,
Secretarial  Order  No.  3137 was issued  to  establish  the
Office of Trust Funds Management within the Bureau of Indian
Affairs.   The  Office  of  Trust   Funds   Management   was
responsible for providing oversight of some of the financial
trust   service   functions,   which   included  collecting,
investing, distributing, and accounting for the trust funds.
However,  the  Office  of the Special Trustee  for  American
Indians was authorized by  the  American  Indian  Trust Fund
Management  Reform  Act  of  1994  to provide more effective
management of and accountability for the proper discharge of
the Secretary's trust responsibilities  to Indian tribes and
individual   Indians.    Further,   on   February 9,   1996,
Secretarial  Order  No. 3197  was  issued  to establish  the
Office  of the Special Trustee for American Indians  and  to
transfer  the  Bureau's Office of Trust Funds Management and
other financial trust service functions to the Office of the
Special Trustee.

SCOPE

The audit was performed  at  the  Rosebud  Agency offices in
Mission  and  Rosebud, South Dakota.  During the  audit,  we
also contacted  Bureau  officials  from the Division of Real
Estate Services in Washington, D.C.,  and  the Aberdeen Area
Office.   Our  audit  focused  on  agricultural leasing  and
grazing  permit  activities  that occurred  during  calendar
years 1996 and 1997.  However,  we expanded the scope of our
review  to  include revenues in special  deposit  (suspense)
accounts to determine  whether  agricultural lease rents and
grazing fees were distributed to  landowners.   In addition,
in   testing   the   timeliness  of  disbursements  made  to
landowners, we did not  attempt  to  validate  or  test  any
specific  disbursement  transactions  to  determine  whether
funds  were  paid  to the proper landowners because of long-
standing problems associated  with  the  Bureau's land title
records system and its Integrated Records  Management System
land ownership subsystem.

Our  audit was conducted in accordance with the  "Government
Auditing  Standards,"  issued  by the Comptroller General of
the United States.  Accordingly,  we  included such tests of
records and other auditing procedures that  were  considered
necessary  under the circumstances.  As part of our  review,
we assessed  the  Bureau's  system  of internal controls and
found  weaknesses  related  to  clearing   special   deposit
accounts.   This  weakness  is  addressed  in the Results of
Audit  section  of  this  report.   Our recommendations,  if
implemented, should improve the internal  controls  in these
areas.

We  also reviewed the Department's Reports on Accountability
for fiscal  years  1996  and 1997, which include information
required by the Federal Managers' Financial Integrity Act of
1982,  to determine whether  any  reported  weaknesses  were
directly  related  to  the objective and scope of our audit.
The reports cited long-standing  material  weaknesses in the
Bureau's  management of trust funds, the responsibility  for
which has been  transferred  to  the  Office  of the Special
Trustee  for American Indians; the Bureau's debt  collection
practices;  and the Bureau's land records management.  These
weaknesses were  considered  in  planning and conducting our
review.

PRIOR AUDIT COVERAGE

Neither  the  Office of Inspector General  nor  the  General
Accounting Office has issued an audit report during the past
5 years on agricultural  leases  and grazing permits managed
by the Rosebud Agency.  However, in January 1998, the Office
of  Inspector  General  issued the audit  report  "Financial
Statements  for Fiscal Year  1996  for  the  Office  of  the
Special Trustee  for  American  Indians  Tribal,  Individual
Indian Monies, and Other Special Trust Funds Managed  by the
Office  of  Trust  Funds  Management"  (No.  98-I-206).  The
report  presented  the  results  of  the  audit,  which  was
performed  by  an  independent  certified  public accounting
firm, of the statement of assets and trust fund balances and
the statement of changes in trust fund balances  for tribal,
individual Indian monies, and other special trust  funds  as
of  and for the year ended September 30, 1996. The report on
internal  controls  stated  that  the  Office of Trust Funds
Management and the Bureau "continue to be hampered by a lack
of   adequate   information   systems  to  support   various
trust-related activities, including  land inventory systems,
lease   management  systems,  ownership  systems,   accounts
receivable  and  an adequate trust accounting system for IIM
[Individual Indian  Money]."   The  report  identified three
reportable conditions that impacted the scope  of our audit:
(1)  suspense  accounts were not analyzed; (2) policies  and
procedures regarding  special  deposit accounts were lacking
and  practices regarding these accounts  were  inconsistent;
and  (3)   the   system   of  policies  and  procedures  for
determining interest earnings  for  Individual  Indian Money
accounts  was  inadequate,  which  adversely  impacted   the
complete   and  timely  distribution  of  funds  to  account
holders.   The   conditions  identified  and  the  resultant
recommendations were  considered  in  the preparation of our
current report.

**FOOTNOTES**

[1]:Fractionated ownership has resulted because many Indians
died  without  wills.   As  a  result,  over   a  period  of
generations,   many  allotments  became  jointly  owned   by
hundreds of heirs.

                             1

                     RESULTS OF AUDIT

We  found  that  the   Rosebud   Agency   generally  managed
agricultural and pasture leases on the Rosebud  Sioux Indian
Reservation in accordance with applicable regulatory, lease,
and  permit  requirements.   Specifically,  the  Agency  (1)
advertised,  using  sealed  bidding  procedures, those lands
that  were  available for leases and permits;  (2) initiated
actions in a  timely  manner  to  ensure that lease renewals
were approved without a loss of revenue  to  the landowners;
(3) usually  made  timely  distributions of rents  and  fees
collected to Indian landowners;  and  (4)  enforced  bonding
requirements  stipulated  in  the  leases.  However, we also
found  that  some  lease rents, grazing  fees,  and  related
interest which were  deposited into special deposit accounts
in  the  1980s  and  1990s   had  not  been  distributed  to
landowners.[2]

The Code of Federal Regulations  (25 CFR 114) specifies that
special deposit accounts are to be  used  for the "temporary
deposit"  of  funds  which  cannot be credited  to  specific
accounts or readily distributed.   The  Code  further states
that  the  interest  earned on principal in special  deposit
accounts is to be distributed  with  the  related principal.
At  February  28,  1997, the Agency had 599 special  deposit
accounts,  with  balances   totaling  about  $577,000,  that
consisted  of  undistributed agricultural  lease  rents  and
grazing fees and accrued interest.  Based on our analysis of
142 special deposit  accounts,  with balances totaling about
$493,000,  we  found that the rents  and  fees  and  related
interest deposited had not been distributed to landowners as
follows:

         --------------------------------------------
         |            |Revenues   |Interest   |
         | Year       |Not        |Not        |
         |Deposited   |Distributed|Distributed|Total
         --------------------------------------------
         1997         $26,159     $13,849     $40,008
         --------------------------------------------
         1996         57,279      30,153      87,432
         --------------------------------------------
         1995         4,887       27,730      32,617
         --------------------------------------------
         1994         22,382      25,485      47,867
         --------------------------------------------
         Prior to     156,591     128,324     284,915
         1994
         --------------------------------------------
                      |$267,298   |$225,541   |
         $492,839
         Total        |           |           |
         --------------------------------------------

The  Agency's  realty   and   land   operations  staff  were
responsible for ensuring that funds in  the  special deposit
accounts,  including  interest  earned, were distributed  to
landowners.  However, the Agency  did not have procedures to
ensure that funds in special deposit  accounts were analyzed
and distributed, and the Agency did not  dedicate sufficient
personnel  resources  to  analyze  special  deposit  account
balances  and land ownership records to properly  distribute
these funds.  Consequently, landowners were not provided the
funds to which they were legally entitled.

The January 1998 Office of Inspector General audit report on
the Office of the Special Trustee's financial statements for
fiscal  year   1996   identified   significant  deficiencies
relating  to  "reportable conditions"  for  special  deposit
accounts.[3]   The   report  made  four  recommendations  to
correct  special deposit  account  deficiencies  similar  to
those that  we  identified  during  our current review.  The
recommendations  related  to  performing   an   analysis  of
accounts  (Recommendation  20);  establishing  policies  and
procedures    for    using    special    deposit    accounts
(Recommendation   24);   establishing  an  adequate  system,
policies, and procedures for determining interest earned for
Individual Indian Money account holders (Recommendation 25);
and establishing controls  to  verify that items are cleared
(Recommendation  7).   Based  on  the  actions  outlined  in
response  to the January 1998 report,  we  considered  these
recommendations  resolved  but  not implemented.  We believe
that  implementation of these recommendations  will  correct
the deficiencies  in  the  special  deposit accounts that we
identified   during   this   review.    In   addition,   the
deficiencies identified in the January 1998 report have been
incorporated  into  subproject  plans  of  the  High   Level
Implementation  Plan  for  the  Trust Management Improvement
Project approved by the Secretary  of  the  Interior on July
31, 1998.  The implementation of the Plan will  be monitored
by  the  Assistant  Secretary  for  Policy,  Management  and
Budget.  Therefore, we have made no recommendations  in  our
current report with respect to these issues.

Since  this  report  does not contain any recommendations, a
response is not required.

The  legislation,  as  amended,   creating   the  Office  of
Inspector  General  requires  semiannual  reporting  to  the
Congress  on  all  audit  reports issued, actions  taken  to
implement audit recommendations,  and identification of each
significant recommendation on which  corrective  action  has
not been taken.

We  appreciate  the  assistance  of  Bureau personnel in the
conduct of our audit.

cc: Special Trustee for American Indians


**FOOTNOTES**

[2]:The Bureau is responsible for administering  leases  and
permits  on  individually owned land and tribal land held in
trust. However,  the  Department's  Office  of  the  Special
Trustee for American Indians is responsible for establishing
proper  controls  for  managing trust funds, including trust
funds  deposited  in the Individual  Indian  Money  accounts
system, which includes special deposit accounts.

[3]:The report defined  a "reportable condition" as a matter
relating to  significant deficiencies  in  the  design or
operation  of the internal control  structure  that, in  the
auditors'  judgment, could adversely affect  the  Office of
Trust  Funds  Management's  ability  to  record, process,
summarize,  and  report financial data consistent  with  the
assertions of management in the financial statements.




ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED

TO THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:



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