oversight

Financial Management: Indian Trust Fund Strategic Plan

Published by the Government Accountability Office on 1997-07-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Committee on Indian Affairs
                          U.S. Senate




For Release on Delivery
Expected at
9:30 a.m.
                          FINANCIAL
Wednesday,
July 30, 1997             MANAGEMENT

                          Indian Trust Fund
                          Strategic Plan
                          Statement of Linda M. Calbom
                          Director, Civil Audits
                          Accounting and Information Management Division




GAO/T-AIMD-97-138
Mr. Chairman, Mr. Vice Chairman, and Members of the Committee:

Thank you for the opportunity to testify on the results of our analysis of
the Special Trustee for American Indians’ Strategic Plan for Indian trust
fund accounting and asset management improvement. As you requested,
our testimony (1) describes the trust asset management problems that the
Strategic Plan proposes to resolve, (2) provides a high-level summary of
the Strategic Plan, (3) explains the basis for the cost estimates included in
the Plan, and (4) identifies implementation issues, including key issues
that the Congress would need to consider in deciding whether to approve
the initiatives described in the Plan.

In summary, management of the Indian trust funds and assets has long
been characterized by inadequate accounting and information
management systems, untrained and inexperienced staff, backlogs in
appraisals and ownership determination and recordkeeping, lack of a
master lease file and an accounts receivable system, inadequate written
policies and procedures, and poor internal controls. Because of these
overall weaknesses, account holders do not have assurance that their
account balances are accurate and that their assets are being prudently
managed.

To address the Department of the Interior’s long-standing Indian trust fund
accounting and asset management problems, the Congress passed the
American Indian Trust Fund Management Reform Act of 1994, which
created the Office of the Special Trustee for American Indians. The act
required that the Special Trustee provide oversight of reforms within
Interior, including development of policies, procedures, and systems. The
act also required the Special Trustee to develop a comprehensive Strategic
Plan to cover all phases of the trust fund business cycle—land and lease
ownership determinations and recordkeeping, natural resource asset
management, and trust fund management, including accounting and
investment. In April 1997, the Special Trustee submitted his Strategic Plan
to the Congress.

The Strategic Plan proposes a new organization, independent of the
Department of the Interior, to administer trust fund accounting and asset
programs. It also proposes adding new functions, such as an Indian
archives center, and acquiring new accounting, land record, and lease
management systems. The Plan would give the new organization authority
for the management and oversight of certain other Indian asset
management programs, such as natural resource and realty management



Page 1                                                      GAO/T-AIMD-97-138
    functions, that would remain with Interior as well as programs
    administered by Self-Governance1 and Self-Determination2 tribes who
    have agreements with the government to administer certain programs.
    These proposals are estimated to cost $168 million for fiscal years 1997
    through 1999 and another $61 million and $56 million for fiscal years 2000
    and 2001, respectively. The cost estimates included in the Strategic Plan
    are based on the costs of similar functions performed by private sector
    trust companies, vendor estimates, actual costs of functions currently
    performed by some Interior agencies, and assumptions about the
    workload, staffing, and number of locations to be serviced.

    In addition, the Plan proposes establishing an Indian economic
    development bank to be capitalized by the federal government. The Plan
    proposes that capital of $500 million be authorized for the Bank and that
    authority be provided for up to $5 billion in additional funding, including
    $3 billion from Treasury borrowing authority and $2 billion from the sale
    of notes and bonds.

    A number of areas require further clarification, planning, or consideration
    before the Plan can move forward. These include

•   implementation timing of certain initiatives, such as records cleanup and
    the acquisition of a new Individual Indian Money (IIM) accounting system
    component;
•   proposals, such as establishing a centralized organization and upgrading
    and acquiring systems, that need more planning before they can be
    successfully implemented;
•   issues relating to the desirability and feasibility of establishing the new
    organization as a private entity, including the legality of transferring the
    federal government’s trust authorities and responsibilities to such an
    entity; and
•   issues relating to the establishment of the trust development bank,
    including the initial funding and on-going capital maintenance proposals.

    In order to appropriately address these issues, more information and
    analysis need to be included in the Plan to provide clarification of the


    1
     Public Law 103-413, title II, Tribal Self-Governance Act of 1994, provides for tribes to enter into
    compacts—agreements between sovereign entities—with the U.S. government to perform functions
    for themselves, other tribes, or individual Indians that have generally been provided by the
    government.
    2
     Public Law 93-638, Indian Self-Determination and Education Assistance Act, allows tribal
    organizations to contract with the U.S. government to receive payment to perform, on behalf of the
    U.S. government, administrative and program functions for the tribe that have generally been provided
    by the government.


    Page 2                                                                          GAO/T-AIMD-97-138
             authority and responsibility of the proposed organization, and its
             relationship to the Department of the Interior. Additionally, certain critical
             processes and structures need to be developed before proceeding with
             major information technology investments proposed in the plan.


             As trustee, the Secretary of the Interior is responsible for administering
Background   the government’s trust responsibility to tribes and Indians. Several Interior
             agencies administer various portions of the government’s Indian trust
             responsibility, including the Bureau of Indian Affairs (BIA), the Bureau of
             Land Management (BLM), the Minerals Management Service (MMS), the
             Office of American Indian Trust, and the Office of the Special Trustee for
             American Indians (OST). In several instances these agencies’ lines of
             authority overlap or their functional areas of responsibility interrelate. See
             attachment I for a chart showing the current Interior organizations
             responsible for trust fund accounting and asset management functions.
             Attachment I also highlights those agencies which the Strategic Plan
             proposes to transfer to the American Indian Trust and Development
             Administration (AITDA).

             BIA performs land title and lease ownership determinations and maintains
             official ownership records. BIA also performs appraisals of some Indian
             assets and negotiates and executes leases and contracts for use or sale of
             nonmineral assets—such as timber, farming, grazing, real estate, and
             rights-of-way—and mineral assets such as oil, gas, and coal. In addition,
             BIA collects and accounts for Osage tribe mineral royalties.


             BLM assists BIA in preleasing activities associated with valuing mineral
             resources. BLM is also responsible for inspecting and enforcing the terms of
             Indian mineral leases and verifying production.

             MMS collects and accounts for mineral royalty payments on Indian leases
             and transfers the revenues to Treasury for deposit to the Indian trust funds
             managed by OST’s Office of Trust Funds Management (OTFM).3 In addition,
             MMS performs compliance audits that are directed at ensuring that Indian
             royalty payments are consistent with lease terms and production volume.
             MMS also provides funding to some tribes for cooperative agreements to
             perform their own compliance audits.




             3
              As previously mentioned, BIA’s Osage Agency Office collects and accounts for royalties for the Osage
             Tribe.



             Page 3                                                                         GAO/T-AIMD-97-138
              OTFM, in the Office of the Special Trustee for American Indians,4 accounts
              for nonmineral revenues and distributes mineral royalties received from
              MMS to tribal and individual Indian accounts, based on lease and ownership
              information. OTFM disburses unrestricted5 funds to account holders upon
              request. OTFM also invests IIM and tribal trust funds on behalf of account
              holders. While IIM accounts are currently maintained in BIA’s Integrated
              Records Management System as separate accounts, OTFM invests the cash
              balances in these accounts as a pool, primarily in U.S. Treasury and U.S.
              agency securities. OTFM invests tribal funds in government securities or
              collateralized accounts in federal depository banks.

              The Office of American Indian Trust, in the Office of the Secretary of the
              Interior, conducts annual reviews of tribes’ performance of trust functions
              assumed under the Tribal Self-Governance Act of 1994. The office
              prepares federal Indian trust protection standards and guidelines and
              reviews significant decisions affecting American Indian trust resources,
              including treaty rights.


              To describe the trust asset management problems that the Strategic Plan
Scope and     proposes to resolve, we reviewed the problems identified in the Strategic
Methodology   Plan and relied on our past work and the work of independent public
              accountants that Interior contracted with to perform financial statement
              audits and reviews.

              To summarize the Strategic Plan, we reviewed the Plan, its accompanying
              appendixes, and other supporting documents. We met with Office of
              Special Trustee officials, including the Special Trustee for American
              Indians, and officials in BIA, BLM, and MMS to obtain clarification on certain
              aspects of the Plan.

              To explain the basis for the cost estimates contained in the Strategic Plan,
              we reviewed its budget document and the cost data it provided. We
              contacted OST officials for further information, as necessary. As agreed
              with your office, we did not attempt to validate the estimates presented in
              the Plan or their underlying assumptions, nor did we assess whether the
              estimates included all necessary costs of full implementation of the Plan.



              4
               OTFM was transferred from BIA to the Office of the Special Trustee in February 1996.
              5
               Funds held in accounts for minors and mentally incompetent individuals require government approval
              before the funds can be withdrawn.



              Page 4                                                                        GAO/T-AIMD-97-138
                       To identify implementation issues, we analyzed the Plan in detail and
                       relied on our past work on Indian trust fund accounting and asset
                       management issues. We also met with Department of the Interior officials,
                       the Special Trustee for American Indians, and officials in BIA, BLM, and MMS
                       and contacted the Director of Interior’s Office of American Indian Trust to
                       obtain their views on the Plan. In addition, we reviewed tribal comments
                       on the Plan, which were provided to the Special Trustee as a result of his
                       consultation meetings with the tribes.

                       Although our work identifies key issues that the Congress needs to
                       consider in deciding whether to approve the initiatives described in the
                       Plan, it is by no means all inclusive and there are other issues yet to be
                       identified.

                       We conducted our work between April and July 1997 in accordance with
                       generally accepted government auditing standards.


                       As we have reported in the past,6 Interior’s Indian trust fund accounting
Problems With          and asset management problems are long-standing and permeate all facets
Current Indian Trust   of the trust fund management business cycle. They include (1) the lack of
Asset Management       accurate, up-to-date information on ownerships to ensure that revenue is
                       distributed to the correct account and the increasing workload associated
                       with fractionated ownerships, (2) inadequate management of natural
                       resource assets resulting in a lack of assurance that all earned revenues
                       are collected, (3) weaknesses in trust fund management systems and
                       internal controls and policies and procedures that result in a lack of
                       assurance about the accuracy of trust fund balances, and (4) the failure, in
                       the past, to consistently and prudently invest trust funds and pay interest
                       to account holders. These overall weaknesses preclude account holders
                       from having assurance that their account balances are accurate and that
                       their assets are being prudently managed.

                       Currently, trust fund accounting and asset management are complicated
                       by the lack of adequate numbers of trained field staff. In fiscal year 1996,
                       the Congress transferred the funding for BIA’s Financial Trust Services to
                       OST. As a result, on February 9, 1996, a Secretarial Order made OST
                       responsible for accounting for IIM receipts and, as a result, a number of BIA
                       staff were transferred to OTFM. However, at a number of area and agency
                       offices, small staffs handle a wide variety of duties of which trust activities

                       6
                       Financial Management: Focused Leadership and Comprehensive Planning Can Improve Interior’s
                       Management of Indian Trust Funds (GAO/AIMD-94-185, September 22, 1994).



                       Page 5                                                                   GAO/T-AIMD-97-138
                 are only one part. Consequently, there are insufficient field staff at present
                 to provide separate, full-time collection and accounting functions for OTFM
                 and separate, full-time leasing and ownership recordkeeping staff for BIA.

                 As a result, depending on the agency office, either OTFM or BIA performs IIM
                 accounting functions and procedures for processing receipts, leasing
                 activities, paying allowed claims, administering IIM accounts (including
                 establishing new accounts), monitoring leases, performing guardianship
                 activities, and billing and printing checks. In addition, lines of supervision
                 and accountability are sometimes blurred. This problem has not yet been
                 resolved.

                 Moreover, continued fractionation of Indian land and lease ownerships
                 has seriously complicated trust fund accounting and asset management.
                 According to the Strategic Plan, Interior may soon be unable to cope with
                 the recordkeeping of land titles and accurate distribution of income due to
                 the worsening fractionation. The Plan contains a proposal for dealing with
                 this problem. Interior officials agree that fractionation must be reduced
                 and eliminated to ensure the success of Indian trust fund accounting and
                 resource management reforms. Interior has submitted a legislative
                 proposal for congressional consideration.


                 The Strategic Plan proposes a two-phase change to Interior’s current
Strategic Plan   organizational and management structure for Indian trust management.
Proposal         The first phase would establish a single organization for trust management
                 activities—the American Indian Trust and Development Administration
                 (AITDA)—independent of the Interior Department. The proposed
                 organization would be in the form of a government-sponsored enterprise
                 (GSE).7

                 The AITDA would be organized by function—such as accounting or land
                 titles—and would be managed by a full-time Chairman and Chief
                 Executive Officer and a five-member Board of Directors appointed by the
                 President and confirmed by the Senate. Three members are to be
                 proposed by the Indian community and two members—the Chairman and
                 Chief Executive Officer—are to have financial and trust management
                 expertise and may also be American Indians. Board members would serve
                 staggered terms of 12 years. Attachment II provides a chart showing AITDA

                 7
                  A government-sponsored enterprise, although federally established and chartered, is privately owned
                 and operated to facilitate the flow of credit to specific economic sectors. GSEs typically receive their
                 financing from private investment, but because they are established by federal law, the credit markets
                 treat GSEs as having implied federal financial backing.



                 Page 6                                                                           GAO/T-AIMD-97-138
    and identifies those organizational components of AITDA and lines of
    coordination with Interior agencies.

    The Plan proposes that AITDA assume the federal government’s Indian trust
    authority related to Indian trust funds and assets. It also proposes that
    certain organizations and related funding be transferred to
    AITDA—including OST and OTFM, BIA’s Land Title and Records Office, and
    Interior’s Office of American Indian Trust—along with various Interior
    agency records management functions related to trust fund accounting
    and asset management.

    Specifically, the Plan proposes that responsibility for and funding of
    various Interior asset management and compliance functions be
    transferred to AITDA. These transfers include the following:

•   BIA’s leasing activities and its Land Title and Records Office to AITDA’s
    Trust Resources Management Division.
•   BLM’s lease inspection, enforcement, and production verification activities
    to AITDA’s Trust Resources Management Division.
•   MMS’ compliance and valuation function to AITDA’s Risk Management and
    Control Division.
•   Interior’s Office of American Indian Trust to AITDA’s Risk Management
    Control Division.

    According to the Plan, AITDA would use the funds transferred from BIA, BLM,
    and MMS to contract with these agencies or with tribes to perform the
    related trust asset management activities. Also, it would use funds
    transferred from MMS to contract with MMS for compliance and control
    functions and perform oversight of self-governance tribes, respectively.
    However, AITDA would have the option to contract with other entities for
    these services.

    In addition, the Plan would create the following three new organizations
    within AITDA:

•   the National Indian Fiduciary Records Center, responsible for controlling
    and preserving all Indian trust-related records, to be located in
    Albuquerque, New Mexico, near OTFM;
•   a trust risk management unit to conduct operational audits, credit and
    compliance reviews and audits of outside servicers (including BIA, BLM,
    MMS, and tribes) and to perform appraisals and other asset management
    functions; and



    Page 7                                                      GAO/T-AIMD-97-138
•   a centralized technical center for data processing.

    To support the operations of the new organization, the Plan calls for hiring
    qualified staff; acquiring or modifying trust fund accounting and asset
    management systems; developing policies and procedures and internal
    controls; and implementing internal and external audit functions.

    The major systems that would collectively support the new organization
    fall under an umbrella concept known as the Trust Asset and Accounting
    Management System (TAAMS). TAAMS would include trust asset and
    accounting systems, a land title and records system, and a trust fund
    general ledger accounting system.

    The second phase of the Strategic Plan would establish a bank and trust
    company—the American Indian Trust and Development Bank (TD
    Bank)—to provide full financial services and economic development
    funding to Indians. The TD Bank would be a nationwide financial
    institution, backed by the full faith and credit of the U.S. government, that
    lends to, invests in, and provides financial services for American Indians,
    tribes, and their communities. The TD Bank’s Board of Directors’ would
    consist of five members appointed by the President and confirmed by the
    Senate and would be “identical with AITDA’s Board.”

    The TD Bank would initially be capitalized at $500 million by the federal
    government through “appropriations, judgment funds, or funds provided
    by other government-sponsored enterprises.” This initial capital would be
    permanent. Ownership of the TD Bank would be distributed in initial
    capital stock to federally recognized American Indian Tribes in proportion
    to the number of Indians living on or near reservations, as determined by
    the latest census or other appropriate information. This stock ownership
    would not be subject to sale, trade, or withdrawal. Except for the right to
    receive dividends and qualify for certain types of loans, the Plan does not
    explain the rights and privileges that tribes would have as a result of their
    stock ownership.

    The TD Bank would be a for-profit financial institution but could also
    receive appropriations to provide for the cost of lifeline financial services8
    and the cost of other programs that the Congress may choose to authorize
    in the future. The TD Bank would be authorized to invest up to 25 percent
    (initially $125 million) of its permanent capital in eligible individual Indian

    8
     Lifeline financial services typically include a limited package of banking services, such as low- or
    no-fee checking and check cashing privileges, and is generally available to all depositors. The Plan
    proposes that these services would also include various tax planning and investment services.



    Page 8                                                                            GAO/T-AIMD-97-138
                        and tribal business ventures and projects. The TD Bank would also be
                        allowed to invest up to $300 million for the purchase, holding, and
                        financing of fractionated Indian realty interests on allotted lands.

                        The Plan also proposes that the TD Bank be authorized to receive up to
                        $5 billion in additional funding from borrowing to provide loans and other
                        economic development funding to American Indians. The additional
                        funding would include $3 billion from Treasury borrowing and $2 billion
                        from the sale of bonds and notes to be guaranteed by the U.S. government.
                        The TD Bank would provide financial services through 50 to 75 branch
                        offices located on or near major American Indian communities.

                        In addition, Phase II of the Plan calls for systems technology
                        enhancements and a new headquarters building. These proposals are not
                        fully discussed in the Plan.


                        Phase I of the Strategic Plan includes initiatives that are directed toward
Basis for Cost          (1) data conversion, reconciliation, and backlog cleanup, (2) upgrading
Estimates Included in   some existing systems and acquiring new systems, and (3) substantially
the Strategic Plan      changing the way existing programs and functions are performed. To
                        implement these initiatives, the Strategic Plan includes budget estimates
                        indicating that about $168 million9 will be needed for fiscal years 1997
                        through 1999 and approximately $61 million and $56 million in fiscal years
                        2000 and 2001, respectively. These cost estimates are generally based on
                        the OST contractor’s assessment of the costs of similar functions
                        performed by private sector trust companies, vendor estimates, actual
                        costs of functions currently performed by certain Interior agencies; and
                        assumptions about the workload, staffing and number of locations to be
                        serviced. We did not attempt to validate the estimates presented in the
                        Plan or their underlying assumptions, nor did we assess whether the
                        estimates included all necessary costs of full implementation of the Plan.
                        Table 1 summarizes the cost estimates in the Strategic Plan.




                        9
                         Out of its 1997 appropriations, the Office of the Special Trustee planned to use about $13 million to
                        initiate these improvements.



                        Page 9                                                                            GAO/T-AIMD-97-138
Table 1: Estimated Cost of Phase I of
the Strategic Plan                          Dollars in millions
                                                                                     Estimated costs, fiscal years
                                            Category                               1977-99            2000              2001
                                            Data Conversion, Reconciliation,       $48.945          $ 8,625           $ 7.200
                                            and Backlog Cleanup
                                            Standard Trust Asset and                34.663          19.666            18.123
                                            Accounting Management System
                                            and Land Title and Records
                                            Management System
                                            Information Technology                  26.467          11.848            10.491
                                            Infrastructure
                                            Implementation                          52.104          19.417            18.223
                                            Management                               5.548            1.861            1.861
                                            Total                                 $167.728         $ 61.417          $ 55.898

                                            Attachment III details the basis for each of the Phase I cost estimates in
                                            the Strategic Plan.

                                            Phase II costs in the Strategic Plan include previously discussed
                                            capitalization and funding of the TD Bank and the fractionated realty
                                            holdings, purchase, and sales program. Costs for Phase II would also
                                            include automated systems modifications and acquiring a headquarters
                                            building. Estimates of these costs are not provided in the Strategic Plan.


                                            A number of areas require further clarification, planning, or consideration
Implementation                              before the Plan can move forward. These include
Issues
                                        •   implementation timing of certain initiatives, such as records cleanup and
                                            acquiring a new IIM accounting system component;
                                        •   proposals, such as establishing a centralized organization and upgrading
                                            and acquiring systems, that need more planning before they can be
                                            successfully implemented; and
                                        •   issues requiring congressional consideration that relate to the desirability
                                            and feasibility of establishing the new organization as a private entity and
                                            establishing the trust development bank.


Implementation Timing                       Past audits by independent public accounting firms, Interior’s Office of
Issues                                      Inspector General, and GAO have identified serious internal control and
                                            systems weaknesses that impair the reliability of trust fund accounting. To
                                            resolve these weaknesses, auditors have made recommendations for BIA



                                            Page 10                                                      GAO/T-AIMD-97-138
                      and Interior to take timely actions such as correcting inaccurate and
                      incomplete IIM accounting records, eliminating ownership determination
                      and recordkeeping backlogs, and establishing a master lease file.

                      The Special Trustee has also concluded that there is an urgent need to
                      take action to correct increasingly deteriorating recordkeeping
                      deficiencies. Because Interior lacks the financial and managerial resources
                      to clean up the records, the Special Trustee proposes that the cleanup be
                      outsourced to independent contractors. This proposal is consistent with
                      our past recommendations. Cleanup of IIM accounts is under way, and
                      cleanup of appraisal and lease and ownership backlogs could begin within
                      a relatively short time.

                      As part of TAAMS, the Strategic Plan proposes that the commercial trust
                      accounting and investment system—which is currently used by OTFM for
                      tribal accounts—be expanded to include a component for IIM accounting.
                      Currently, IIM accounts are maintained on BIA’s Integrated Records
                      Management System (IRMS), which is not a trust accounting system.
                      However, in determining the appropriate timing for acquiring an IIM
                      commercial trust accounting system component, certain questions need to
                      be addressed, including whether to (1) convert all IIM accounts to the new
                      system immediately, or convert them as they are cleaned up, (2) identify
                      and archive inactive accounts before conversion, (3) convert
                      small-balance or pass-through accounts (zero balance accounts where
                      receipts are immediately withdrawn) to the new system or maintain them
                      separately. Once these issues and any other identified issues are resolved,
                      the IIM accounting system expansion should be able to move forward,
                      assuming it can reasonably be expected to support the systems and
                      interfaces required to build an integrated TAAMS.


Proposals That Need   The Strategic Plan includes proposals for establishing a centralized
Detailed Planning     organization responsible for trust fund accounting and asset management
                      and upgrading or acquiring systems to support these functions. While the
                      basic premise—the need for a central organization and major systems
                      improvements may be sound, the Plan does not adequately address how
                      these reforms would be implemented. For example, the Strategic Plan
                      refers to MMS’ mineral royalty collection and accounting function, but it
                      also refers to AITDA acquiring a mineral management and accounting
                      system. In addition, the Plan does not adequately define all interrelated
                      business functions, such as the co-located BIA, BLM, and MMS mineral
                      program office in Farmington, New Mexico, or how the proposed new



                      Page 11                                                   GAO/T-AIMD-97-138
organization will work with BIA, BLM, and MMS to provide assistance to
tribes on mineral leasing activities. Furthermore, the Plan does not
adequately address how BIA’s agriculture, forestry, and realty activities will
be performed in the future.

Finally, the Plan was developed without sufficient input from affected
Interior agencies. For example, BIA, BLM, MMS, and Office of American
Indian Trust officials told us that they were not consulted on the
development of the Plan. Changes in trust systems outlined in the Plan
could have major effects on the business processes and practices in these
agencies.

The Plan needs to be more fully developed to (1) provide adequate
evidence of a framework for sharing related business and functional
information and program requirements among the cognizant organizations
and functions and (2) support the design and development of management
and information systems.

In addition, before proceeding with the major information technology
investments proposed by the Plan, the processes and structures required
by the Paperwork Reduction Act of 1995, the Clinger-Cohen Act of 1996,
and OMB guidance for funding information systems investments need to be
put in place.10 These include the development of a strategic Information
Resources Management (IRM) plan, criteria for the evaluation of major
information system investments, and an information architecture which
aligns technology with mission goals. Because OST has not developed a
strategic IRM plan, and investment process, or an information architecture,
the organization risks acquiring systems that will not meet their business
needs.

In late May 1997, in response to the Clinger-Cohen Act, Interior hired a
Chief Information Officer (CIO) with both industry and federal agency
experience. The CIO and the Special Trustee need to work closely to ensure
that the investments in information systems are made appropriately and
effectively. Because of the systems’ size, impact, and complexity, the
Department has reported to the Office of Management and Budget that
these trust systems constitute a major information system investment for
Interior.




10
  These requirements and other information systems investment guidance are discussed in attachment
IV.



Page 12                                                                     GAO/T-AIMD-97-138
Issues That Require       Two fundamental issues need to be addressed before the Congress can
Congressional             make further decisions on whether and how to implement the Strategic
Consideration             Plan’s proposed initiatives. These two issues relate to the desirability and
                          feasibility of establishing (1) AITDA as a government-sponsored enterprise
                          (GSE) and (2) the Indian Trust Development Bank. The Plan needs to
                          provide more information on each of these proposals in order to support
                          full consideration by the Congress. Specifically,

                          (1) The Strategic Plan proposes the establishment of AITDA as a single
                          organization responsible for trust fund and asset management activities.
                          The Plan proposes that AITDA be a GSE which is, typically, a private
                          corporation.

                      •   The Plan should more fully address the extent to which the United States
                          may transfer trust authorities and responsibilities to a GSE. The
                          government assumed many of these authorities and responsibilities as a
                          result of treaties negotiated with individual Indian tribes.
                      •   Although the Plan characterizes AITDA as a GSE, it proposes that AITDA
                          receive appropriations and congressional oversight. The Plan does not
                          identify, however, the amount of funding or whether the funding will be
                          appropriated directly to AITDA or provided in the form of grants or
                          borrowing authority. Also, the plan does not discuss what is meant by
                          congressional oversight.
                      •   The Plan proposes that AITDA, a private entity, oversee the functions of
                          various Interior agencies. Typically, nonfederal entities do not have
                          oversight responsibilities for federal agencies. This issue needs to be
                          addressed in the Plan.

                          (2) The Strategic Plan proposes the establishment of an Indian Trust and
                          Development Bank. The Plan also proposes that the TD Bank receive
                          appropriations, judgment funds, or funds provided by other GSEs.

                      •   Under current law, judgment funds are not available to fund programs.
                          Also, the nature and type of contractual arrangement with private sector
                          institutions needs further clarification and explanation. In addition, the
                          basis for capital to be provided by other GSEs needs to be defined and
                          clarified.
                      •   The relationship, contractual or otherwise, that would exist between the
                          AITDA and the TD Bank is not fully defined. This relationship, including the
                          degree of liability that the AITDA would be subject to regarding the TD
                          Bank’s operations, also needs to be defined.




                          Page 13                                                     GAO/T-AIMD-97-138
•   The Strategic Plan proposes that the TD Bank provide a wide range of
    lifeline services at no cost or at a subsidized cost. These services include
    basic functions such as checking and savings accounts, money orders, and
    account statements, but also include tax, investment, and retirement
    planning services. Because these services would likely be funded by
    appropriations, their cost needs to be identified.
•   The Plan would require that the federal government maintain equity
    capital equal to 5 percent of average risk-adjusted assets. Because this
    could result in significant additional contributions by the federal
    government resulting from losses or expansion by the TD Bank, the
    appropriateness of this proposed requirement needs to be addressed.
•   Limitations on who can be a customer or shareholder (whether only tribal
    members with certificates of Indian blood and federally recognized tribes
    or others, including non-Indians) needs to be defined and clarified.

    These are key implementation issues that must be considered before the
    Plan can move forward. Additional information is needed from the Special
    Trustee about the proposed organization so that the Congress may
    carefully consider the government’s Indian trust responsibility; type of
    organization, funding, and oversight; the types of programs and services to
    be provided by the new organization; and the relationship of any new
    organization to the Interior Department and other external organizations.
    Once these and other organizational issues are resolved, the next step is to
    proceed with the development of the information systems planning
    described earlier. In our view, both the additional organizational planning
    and the information systems planning are essential to the success of this
    important endeavor.


    Mr. Chairman and Mr. Vice Chairman, this concludes my statement. I
    would be glad to answer any questions that you or the Members of the
    Committee might have.




    Page 14                                                    GAO/T-AIMD-97-138
Page 15   GAO/T-AIMD-97-138
Attachment I

Current Interior Organizations With Indian
Programs Covered by the Strategic Plan


                                         Current Interior Organizations
                              with Indian Programs Covered by the Strategic Plan

                                           Office of                     Office of
                                          American                    Special Trustee
                                         Indian Trust


           BIA                          BIA & BLM                      OTFM & MMS                  OTFM

    1. Land Title Ownership            2. Trust Resources            3. Trust Fund            4. Trust Fund
       and Recordkeeping                  Management                    Accounting               Investments


       BIA area and                         BIA negotiates     OTFM/BIA collect and account     OTFM invests
       agency offices                       nonmineral         for nonmineral revenues,         tribal and IIM
       prepare                              leases             some mineral rents               funds
       documentation                                           and bonuses




     Administrative
     Law Judges
     probate decisions                   BLM helps             MMS collects and accounts
                                         negotiate, inspects   for Indian mineral royalties
                                         and enforces          and transfers funds to
                                         mineral leases        OTFM through Treasury




      BIA Land Title
      Records Office
                                                                                               Shaded boxes are
      recordkeeping
                                                                                               proposed for transfer
                                                                                               to AITDA


                                            Lease
      Ownership                             information
      information




                                                 Page 16                                                         GAO/T-AIMD-97-138
Attachment II

Proposed AITDA Organization




                                                 Proposed AITDA Organization



                                                       Board of Directors
                                                                        (OST)




                   Trust Resources                                                           Trust Risk Management
                     Management          Trust Funds                     Trust Archiving           and Control
                    Administration       Management                     and Land Records         Asset Review
                     and Oversight         Division                       Management             Appraisal Services
                       Division                                                                  Compliance policies,
                                                                                                  procedures, and
                                                                                                  controls
                         (BIA & BLM)               (OTFM)                       (BIA/LTRO)       Audits

                                                                                                        (OAIT / MMS)




        INTERIOR
          BIA
                                                            Data Processing
                                                                Division
          BLM

          MMS

         TRIBES




                                       Page 17                                                                GAO/T-AIMD-97-138
Attachment III

Basis for Cost Estimates


                                         The Strategic Plan includes budget estimates indicating that about
                                         $168 million will be needed for fiscal years 1997 through 1999 and about
                                         $61 million and $56 million for fiscal years 2000 and 2001, respectively, to
                                         implement Phase I of the Plan. The Office of the Special Trustee’s fiscal
                                         year 1997 appropriations included a little over $13 million to begin these
                                         improvements. Table III.1 summarizes the cost estimates contained in the
                                         Strategic Plan followed by detailed explanations of the basis for these cost
                                         estimates. As agreed with committee staff, we did not attempt to validate
                                         these estimates or assess whether they represent the full cost of
                                         implementing the Plan.

Table III.1: Estimated Cost of Phase I
of the Strategic Plan                    Dollars in millions
                                                                                 Estimated costs, fiscal years
                                         Category                              1997-99            2000              2001
                                         Data Conversion, Reconciliation,      $ 48.945         $ 8.625           $ 7.200
                                         and Backlog Cleanup
                                         Standard Trust Asset and                34.663         19.666            18.123
                                         Accounting Management System
                                         and Land Title and Records
                                         Management System
                                         Information Technology                  26.467         11.848            10.491
                                         Infrastructure
                                         Implementation                          52.104         19.417            18.223
                                         Management                               5.548           1.861            1.861
                                         Total                                $167.727         $ 61.417          $ 55.898

                                         The following discussion explains the basis for the cost estimates for the
                                         three main components of the plan—data conversion, reconciliation, and
                                         backlog cleanup; upgrading and acquiring systems; and forming a new
                                         organization.


                                         The principal objective of Phase I of the Strategic Plan is to address and
Data Conversion,                         resolve the root causes of the long-standing trust management problems as
Reconciliation, and                      quickly as possible. The Plan proposes that $49 million be provided for
Backlog Cleanup                          fiscal years 1997 through 1999, and $8.6 million and $7.2 million for fiscal
                                         years 2000 and 2001, respectively, to support data conversion to new
                                         systems. These estimates include cleanup of probates, land title records,
                                         IIM and tribal accounting records and reconciliations, and appraisals. Table
                                         III.2 summarizes these costs.




                                         Page 18                                                     GAO/T-AIMD-97-138
                                              Attachment III
                                              Basis for Cost Estimates




Table III.2: Cost Estimates for Records
Cleanup and Data Conversion                   Dollars in millions
                                                                                                     Estimated costs, fiscal years
                                              Task                                         1997-99           2000                2001
                                              Probate-related backlog                      11.570            1.425                  —
                                              Pre-conversion IIM file cleanup and $ 7.400                    $ —                 $ —
                                              data/documentation check
                                              IIM/Lease subsystem conversion               2.215               —                    —
                                              LRISa conversion/ownership                   4.600             2.000               2.000
                                              reconciliation/
                                              defective title cleanup
                                              Imaging cleanup                              3.160               —                    —
                                              Appraisal cleanup and ongoing                20.000            5.200               5.200
                                              management
                                              Total                                        $48.945           $ 8.625             $ 7.200
                                              a
                                                  BIA’s Land Records Information System.



                                              To eliminate probate backlogs, the Plan proposes that $11.5 million be
                                              provided for fiscal years 1997 through 1999 and $1.4 million be provided in
                                              fiscal year 2000. This estimate includes approximately $1.1 million for BIA
                                              agency office initial document preparation, $2.4 million for probate
                                              hearings and appeals, and $8 million for BIA’s Land Title and Records
                                              Office (LTRO) title and ownership determination and recordkeeping for
                                              fiscal years 1997 through 1999. The Plan also estimates that $1.4 million
                                              will be needed for fiscal year 2000 to complete the LTRO effort.

                                          •   The estimate of $1.1 million for fiscal years 1997 through 1999 to reduce
                                              the backlog associated with BIA agency office preparation of probate
                                              documents was based on OST’s estimate of a backlog of 3,500 probates and
                                              an average workload of 10 completed probates a month per probate clerk,
                                              or 120 per year. Thus, the Plan proposes providing a total of 30 probate
                                              clerk staff years at a GS-7 salary and benefits rate of $38,000 a year.
                                          •   The estimated $2.4 million for fiscal years 1997 through 1999 to eliminate
                                              probate court hearing and appeals backlogs was based on OST’s estimate of
                                              a backlog of 3,453 cases.1 The Plan proposes providing an additional 12
                                              administrative law judges and 12 paralegals and 12 secretaries at the GS-7
                                              level to eliminate the backlog.
                                          •   To eliminate backlogs in land title and ownership determinations and
                                              recordkeeping, the Plan proposes that $8 million be provided for fiscal

                                              1
                                               Interior’s Office of Hearings and Appeals (OHA) has advised the Department that the 3,453 cases cited
                                              as a backlog represent the normal annual caseload and, thus, OHA believes there is no backlog and no
                                              additional funding or positions are needed.



                                              Page 19                                                                        GAO/T-AIMD-97-138
Attachment III
Basis for Cost Estimates




years 1997 through 1999, and that an additional $1.4 million be provided
for fiscal year 2000. This estimate is based on BIA information on backlogs
and the level of effort needed to complete the tasks shown in table III.3.

To clean up inaccurate IIM accounting records and perform data and
document checks, the Plan proposes that $7.4 million be provided through
fiscal year 1999. Cost estimates for cleanup of IIM accounting records are
based on OTFM’s experience with records cleanup at five field offices. As of
mid-July 1997, OTFM had performed work at 11 BIA agency offices to clean
up IIM records.

Cost estimates for data conversion of IIM and lease records from BIA’s
Integrated Records Management System (IRMS) to the expanded trust
accounting system are $2.2 million for fiscal years 1997 through 1999.
These estimates are based on data obtained from private sector trust
companies for conversion of similar data.

To support LRIS conversion, reconciliations of ownership data, and
cleanup of defective titles, the Plan proposes that $4.6 million be provided
for fiscal years 1997 through 1999, and that $2 million each be provided for
fiscal year 2000 and fiscal year 2001. These estimates cover Land Title
Office research, review, and identification of all tracts with title defects.

The Plan estimates that $3 million will be needed for imaging cleanup for
fiscal years 1997 through 1999. The cost estimate is based on the level of
work needed to complete the electronic imaging of documents (preparing
a hard-copy document in electronic form) identified for the tribal
reconciliations.

To support asset management and cleanup appraisals, the plan proposes
that $20 million be provided for fiscal years 1997 through 1999 and that
$5 million each be provided for fiscal year 2000 and fiscal year 2001. The
cost estimates are based on (1) OTFM’s estimates that there are, on average,
100,000 active leases at a given point in time and that 20,000 of these
produce 80 percent of the total lease revenues, (2) fee information for
summary report appraisals obtained through interviews with private
sector appraisal companies in two geographic areas of the country, and
(3) appraisal policy assumptions that transactions producing 80 percent of
the total lease revenue from Indian lands would receive an outside,
certified, independent appraisal during fiscal years 1998 and 1999 and once
every 5 years after 1999, and that 5 percent of smaller-revenue leases
would receive an independent appraisal annually.



Page 20                                                     GAO/T-AIMD-97-138
                                   Attachment III
                                   Basis for Cost Estimates




                                   The Plan estimates that about $61 million would be needed for fiscal years
Expanding and                      1997 through 1999 and approximately $31 million and $29 million for fiscal
Acquiring Systems                  years 2000 and 2001, respectively, to implement the new systems. The
                                   estimated systems and infrastructure costs are shown in table III.3.

Table III.3: Trust Systems Costs
                                   Dollars in millions
                                                                            Estimated costs, fiscal years
                                   Trust System Cost                      1997-99            2000             2001
                                   Trust Asset and Accounting             $18.108         $12.971           $12.971
                                   Management System (TAAMS)
                                   Land Title and Records                  11.255            6.095            4.552
                                   Management System (LTRMS)
                                   General Ledger System (GLS)              2.300             .300             .300
                                   Interface Development                    3.000             .300             .300
                                     Subtotal                             $34.663         $19.666           $18.123
                                   AITDA, BIA, BLM, and MMS               $22.386          $ 9.829          $ 9.355
                                   network, hardware, software, and
                                   support
                                   Tribes—network,                          4.081            2.019            1.136
                                   hardware,software, support and
                                   end-user training
                                   Total                                  $61.130         $31.514           $28.614

                                   According to the Plan, the $18 million for TAAMS includes about $17 million
                                   for the trust fund accounting system and about $.8 million for a trust real
                                   property system for fiscal years 1997 through 1999. The accounting system
                                   costs are based on estimates obtained from commercial trust system
                                   vendors and include estimated annual account maintenance fees of $35
                                   per IIM account per year for 350,000 IIM accounts and $85 per tribal account
                                   per year for 1,500 tribal accounts, which would total about $12 million.
                                   The estimates also include one-time licensing and start up fees and user
                                   fees.

                                   The Trust Real Property Management System component of TAAMS would
                                   provide for management and administration of an estimated 100,000 active
                                   and pending surface and mineral leases each year. The Trust Real Property
                                   Management system would consist of 2 major components—an asset
                                   management information system (including a history file), and one or
                                   more surface and mineral property management and accounting systems,
                                   depending on the type of asset, such as real estate rentals, mineral leasing,
                                   and timber contracts. The cost estimate for the Trust Real Property
                                   System is based on pricing structures for private sector lease management



                                   Page 21                                                      GAO/T-AIMD-97-138
                   Attachment III
                   Basis for Cost Estimates




                   software that is compatible with commercial trust accounting systems.
                   Cost estimates total about $.8 million for fiscal years 1997 through 1999
                   including a one-time fee for an interface with the trust financial system.

                   The Plan also proposes a Land Title and Records Management System to
                   provide land title and records management and administration of over
                   170,000 tracts of land and related title documents. This system is estimated
                   to cost $11 million for fiscal years 1997 through 1999, with costs of
                   ongoing operations of about $6.1 million in fiscal year 2000 and about
                   $4.6 million in fiscal year 2001. These cost estimates are based on BIA
                   estimates for LRIS upgrades to achieve automated chain-of-title and
                   records storage, which were included in OST’s fiscal year 1998 budget
                   request.

                   The Plan proposes that $2.3 million be provided for fiscal years 1997
                   through 1999 and that $.3 million each be provided for fiscal years 2000
                   and 2001 for a trust fund accounting general ledger system. These
                   estimates are based on private sector vendor information and OTFM’s
                   current general ledger trust accounting system needs.

                   The Plan proposes that $3 million be provided for fiscal years 1997
                   through 1999 and that $.3 million be provided each year thereafter for
                   ongoing costs of integrating and implementing the systems described
                   above.

                   To support the overall TAAMS, the Strategic Plan proposes that $26.5 million
                   be provided for fiscal years 1997 through 1999 for an information
                   technology infrastructure, plus approximately $12 million in fiscal year
                   2000 and about $10 million in fiscal year 2001 for ongoing costs. This
                   infrastructure is to include systems architecture, a local area network, and
                   systems installation. The infrastructure estimate includes $4 million for
                   fiscal years 1997 through 1999, $2 million in fiscal year 2000 and
                   approximately $1 million in fiscal year 2001 for computer equipment and
                   end-user training for tribes. Cost estimates for these systems components
                   are based on private sector vendor fee schedules for servicing over 1,900
                   sites, 450 tribal and 1,535 AITDA work stations, a network and 120 file
                   servers, software, encryption, laser printers, support, and maintenance.


                   Implementing the new organization is estimated to cost about $52 million
Implementing the   for fiscal years 1997 through 1999 and ongoing costs are estimated at
New Organization   $19.4 million for fiscal year 2000 and $18.2 million for fiscal year 2001.



                   Page 22                                                     GAO/T-AIMD-97-138
                                    Attachment III
                                    Basis for Cost Estimates




                                    These estimates are based on OST’s strategic planning contractor’s analysis
                                    of private sector equipment, systems, and software costs. According to the
                                    Strategic Plan, implementation costs include those shown in table III.4.

Table III.4: Implementation Costs
                                                                                         Estimated costs, fiscal years
                                    Function                                          1997-99                2000                2001
                                                         a
                                    Document imaging                                   $ 4.339             $ 1.608            $ 1.608
                                    Training: AITDA, BIA, MMS, and                     10.026              $ 2.495            $ 2.302
                                    BLM
                                    Policy, procedure, and legal                         4.250                .250                .250
                                    manuals
                                    Risk management                                      9.040               4.520              4.520
                                    Archives and records management                    18.449                8.044              8.044
                                    External professional services                       6.000               2.500              1.500
                                    Totals                                            $52.104             $19.417             $18.223
                                    a
                                     Document imaging is the process of copying a document from its hard copy (original) state to an
                                    electronic format.



                                    Training of AITDA, BIA, MMS, and BLM staff is estimated to cost $10 million for
                                    fiscal years 1997 through 1999 and $2.5 million in fiscal year 2000 and
                                    $2.3 million in fiscal year 2001. These estimates are based on a training
                                    needs assessment and information obtained from private sector vendors
                                    on the costs of commercially available courses. The estimate includes
                                    nearly $5 million for function and task training for all levels of the
                                    organization and over $5 million directed at training four functional
                                    groups—end users, end-user support, application developer support, and
                                    trust management systems staff. Training costs are projected to vary from
                                    $150 per day to $365 per day for each participant depending on the type of
                                    training and such factors as the cost to transport trainers to remote
                                    locations.

                                    In addition to the $10 million for training AITDA, BIA, MMS, and BLM staff, the
                                    Plan proposes $2.7 million for end-user training for tribes. That amount is
                                    included in the systems infrastructure cost estimates shown in table III.3.

                                    Cost estimates of $4.2 million for fiscal years 1997 through 1999 and
                                    $.2 million each for fiscal years 2000 and 2001 are to cover development of
                                    policies and procedures and legal manuals. These estimates are based on
                                    OST’s strategic planning contractor’s assessment of costs for similar efforts
                                    at private trust banks.




                                    Page 23                                                                      GAO/T-AIMD-97-138
    Attachment III
    Basis for Cost Estimates




    The cost estimates of $9 million for fiscal years 1997 through 1999 and
    $4.5 million each for fiscal year 2000 and 2001 for the new risk
    management organization are based on actual amounts spent by risk
    managers in two separate private sector trust companies with a scale of
    operations similar to the trust management activities at Interior. As
    proposed by the Strategic Plan, risk management and control activities
    would include internal and external audits, review and approval of policies
    and procedures, oversight of appraisal and leasing functions, and
    computer security.

    Risk management and control would be carried out by a Risk Control
    Group, which would monitor the effectiveness of systems and controls,
    and an Audit Group, which would be responsible for audit and review of
    service bureau functions provided by BIA, BLM, MMS, and tribes. The Audit
    Group would include the following:

•   An Asset Review Division, responsible for internal and external audits and
    evaluations.
•   An Appraisal Services Division, responsible for assessing real property
    values and market trends affecting leasing decisions for natural resource
    assets and portfolio management.
•   A Compliance Division, responsible for ensuring compliance with laws
    and regulations.

    The Plan proposes transferring Interior’s Office of American Indian Trust
    and funding and MMS’ funding for compliance and valuation functions to
    AITDA’s Compliance Division. The Plan does not include these funds in the
    AITDA budget proposal because they do not represent new funding, but
    rather, they represent existing funding that would be transferred to AITDA
    from these Interior agencies. The incremental costs of the proposed risk
    management and control function are shown in table III.5.




    Page 24                                                   GAO/T-AIMD-97-138
                                   Attachment III
                                   Basis for Cost Estimates




Table III.5: Risk Management and
Control Costs                      Dollars in millions
                                                                            Estimated costs, fiscal years
                                   Category                               1997-99            2000             2001
                                   Salaries and benefits                  $ 6.960          $ 3.480          $ 3.480
                                   Equipment rental and maintenance,         .344             .172            .172
                                   software maintenance,
                                   depreciation, and repairs
                                   Travel                                    .552             .276            .276
                                   Training                                  .150             .075            .075
                                   Utilities, supplies, and services        1.034             .517            .517
                                   Totals                                 $ 9.040          $ 4.520          $ 4.520

                                   The remaining costs of the new organization include archives and records
                                   management, external professional services, and overall management.
                                   Archives and records management costs are based on OST’s estimates of
                                   costs for a leased facility, personnel, building lease, equipment, supplies,
                                   and shipping.

                                   The cost for external professional services is based on private sector fee
                                   schedules for system integration services. These costs were expected to
                                   be $6 million for fiscal years 1997 through 1999 and ongoing costs are
                                   estimated as $2.5 million for fiscal years 2000 and $1.5 million for 2001.

                                   Overall management costs associated with AITDA are estimated at
                                   $5.5 million for fiscal years 1997 through 1999, including $4.9 million for
                                   AITDA’s executive management and $.6 million for its Advisory Board.
                                   Ongoing costs are estimated at $1.9 million, including $1.7 million for AITDA
                                   and $.2 million for the Advisory Board in both fiscal years 2000 and 2001.
                                   According to OST, AITDA cost estimates are based on OST’s current
                                   authorized staffing and related operating costs for office space and travel.
                                   Advisory Board cost estimates are based on current OST Advisory Board
                                   costs for travel and per diem at government rates.




                                   Page 25                                                      GAO/T-AIMD-97-138
Attachment IV

Guidance for Improving Federal Agency
Information Technology Investments

                       Paperwork Reduction Act of 1995, requires agencies to use information
Major Legislative      resources in a manner to improve the efficiency and effectiveness of their
Reforms                operations in the fulfillment of their missions.

                       Clinger-Cohen Act of 1996, requires federal agencies to focus on results
                       that they are achieving through information technology (IT) investment.
                       The act requires the head of an agency to implement a process for
                       maximizing the value and assessing and managing the risks of the agency’s
                       IT acquisition and ensuring the development of reliable financial and
                       program performance information. The act also requires agencies to
                       appoint a Chief Information Officers (CIOs) to direct and oversee agency
                       information resource management.

                       Federal Acquisition Streamlining Act of 1994, requires agencies to define
                       cost, schedule, and performance goals for federal acquisitions, including IT
                       projects, and monitor the programs to ensure that they remain within
                       prescribed tolerances.


                       OMB Circular A-127, Financial Management Systems, prescribes policies
Office of Management   and standards for executive departments and agencies to follow in
and Budget Guidance    developing, operating, evaluating, and reporting on financial management
                       systems.

                       OMB Memorandum M-97-02, “Funding Information Systems Investments,”
                       commonly referred to as “Raines Rules,” prescribes decision criteria for
                       evaluation of major information system investments proposed for funding
                       in the President’s fiscal year 1998 budget.


                       Executive Guide: Improving Mission Performance Through Strategic
GAO Guidance           Information Management and Technology (GAO/AIMD-94-115, May 1994).

                       Assessing Risks and Returns: A Guide for Evaluating Federal Agencies’ IT
                       Investment Decision-making, Version I (GAO/AIMD-10.1.13, February 1997).




(913811)               Page 26                                                    GAO/T-AIMD-97-138
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