Tangled Trust Funds Earn Wrath of Native Americans

When fire consumed her log cabin in this reservation town, Bernice Skunk Cap knew she would have to tap into her income from a land-lease account managed by the federal government to make a down payment on a new home.

The 75-year-old Blackfeet Indian woman, who trembles from a nervous disorder and speaks little English, asked for the money. But Bureau of Indian Affairs officials said she wasn’t “competent” to withdraw the entire $2,400 in her account. She took out $1,000. A few weeks later, she was told her balance was zero, with no further explanation.

Skunk Cap is just one of thousands of Native Americans who assert that their money is being mismanaged--even lost--by a BIA trust system that never had an accounts-receivable list or a complete audit and has not worked properly since Andrew Jackson was president. Officials at the BIA acknowledge that the problems are real--and deeply rooted.

Tired of waiting for reform, the Native American Rights Fund in Boulder, Colo., has filed the largest class-action lawsuit in history against the federal government on behalf of 300,000 Indians who have accounts held in trust by the BIA.

The lawsuit seeks a court order directing that the BIA’s so-called Individual Indian Money trust account system be fixed. Restitution, some say, could run into billions of dollars.

“I want my money back,” complained Skunk Cap, who lost her cabin in late 1994 and now lives in a tribal nursing home.

Reconciling her account may not be easy. Skunk Cap’s funds are pooled for investment purposes by the BIA and Treasury Department with those of thousands of Native Americans in a 158-year-old banking system that until recently kept records in storerooms, where they were negligently destroyed or damaged by moisture and rats, the lawsuit says. According to the suit and government documents, the bulk of the funds held in trust by the government are derived from lands given to individual Native Americans and tribes until 1934.

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These funds--collected, invested and disbursed to beneficiaries by the BIA--are income from lands leased for grazing or farming, the sale of timber, and the granting of oil, gas or mineral and mining rights.

In essence, the government acts as the “bank” for the trust funds, which were managed by the BIA until 1994, when a special trustee appointed by President Clinton assumed that responsibility.

The federal government currently holds about $450 million in more than 300,000 individual Native American accounts. About $250 million flows through these accounts annually.

A similar system established to manage 2,000 accounts owned by more than 280 tribes holds about $2.3 billion. Under pressure from Congress, the BIA a few years ago contracted Arthur Anderson & Co. to audit and reconcile the tribal accounts, which are not part of the class-action lawsuit.

The firm reported that 39,901 tribal trust transactions from 1973 to 1992 involving $2.4 billion could not be adequately supported by financial documents, according to Eric Davenport, chairman of the InterTribal Monitoring Assn. on Indian Trust Funds.

So far, 32 tribes have accepted that study’s findings about their accounts. Forty-four have disputed the results, and 204 tribes have not yet decided.

The individual trust account system is believed to be in even worse shape.

Federal and independent reviews say the system originally designed to make Native Americans self-supporting landowners has never been able to provide accurate balances or determine exactly how much money should have been collected and credited to the accounts.

The consequences for individual Native American account holders are staggering. As of the close of fiscal 1995, there were at least 15,599 accounts filed with duplicate numbers. More than 54,000 accounts, containing a total of $6 million, lacked correct addresses. About 21,000 accounts, containing $36 million, were for people who had died. At least 15,000 accounts, containing $24 million, were being held in trust for minors until they were 18, when in fact they had already reached that age.

“We have no idea how many thousands of Native Americans have been deprived of revenues that belong to them,” Sen. John McCain (R-Ariz.), chairman of the Senate Indian Affairs Committee, said in an interview. “We should be ashamed of a system that is a living example of our nation’s inattention to our trust obligations to Native Americans--and this is about bipartisan neglect.”

The push for the lawsuit filed in June against Interior Secretary Bruce Babbitt and Treasury Secretary Robert E. Rubin came from Elouise Cobell, a 50-year-old Blackfeet Indian banker.

“This lawsuit is an act of desperation,” said Cobell, a lifelong resident of the 1.5-million-acre reservation. “They forced us to rely on a system that everybody knows doesn’t work. When we complained about it to the BIA, to the Interior Department, to Congress and to administration after administration, it fell on deaf ears.”

John Echohawk, executive director of the Native American Rights Fund, said: “Proper accounting is what we are after now; only then can we see what has been lost and what is owed.

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“The big question is this: Once we figure out the damages, will the government repay us?” he added. “Our greatest fear is that they will try to make us pay for our own settlement by taking it out of funds allocated for the BIA and Indian health and education programs.”

BIA officials are openly sympathetic.

“We acknowledge that we have not managed the assets of the tribes or individual Indians as well as we should have and that we need to fix the system,” said Ed Cohen, deputy solicitor for the BIA. “If there was money lost, it ought to be repaid with interest.”

But a recent General Accounting Office report cautioned that resolving past errors in the trust fund accounts “is a challenge of tremendous magnitude.”

According to the report: “It can be compared to trying to determine the correct balance for about 300,000 personal bank accounts that have been active for 10 to 50 years or more, using a system that historically has been replete with accounting errors, which were not reconciled or corrected along the way, and involving a high volume of small-dollar transactions with incomplete supporting records.”

“Most alarming,” said McCain, “is the GAO’s conclusion that the Interior Department lacks a serious commitment across its entire organization to develop proper Indian trust-fund management policies and procedures.”

In 1994, Clinton appointed Paul Homan as the trustee to oversee the funds and reorganize financial records of both individual and tribal accounts. Homan figures the reforms--ranging from computerized record-keeping to standardized accounting procedures--will cost $150 million during the next three to five years.

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The federal government has never invested sufficient funds to equip the system with up-to-date banking technology, Cohen said. Until recently switching to computers, the BIA kept track of the accounts with card files. The BIA’s trust-account offices are still managed by people with little or no formal training in accounting.

Then there is the problem of “fractionated heirship,” a daunting byproduct of the government’s early attempts to pass on the concept of private landownership to Native Americans.

It began in the 1800s when the United States started breaking up Indian tribes and tribal lands by dividing their territories into “allotments” of 80 or 160 acres.

These tracts were given to individual Native Americans to produce income from leases. By law, all financial transactions involved in these arrangements were to occur under the protective shield of the BIA.

But over time, the lands were inherited by succeeding generations of families--and the number of account-holders grew exponentially. Eventually, the BIA was hard put to keep track of so many account-holders, let alone adequately manage and distribute annual incomes from leases ranging from a few cents to $1 million, depending on the size of the tracts and their use.

Even Eric LaPointe, the BIA’s regional superintendent in Browning, concedes that “I kind of hope they win that lawsuit.

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“We’ve always been understaffed and under-equipped, and that’s a terrible feeling,” said LaPointe, a Rosebud Sioux Indian. “On the Blackfeet Reservation, we have a trust-account staff of three--each of whom earns about $15,000 a year--handling 8,000 accounts.

“Heck, I’m a trust-account holder myself,” he added. “If they lost some of my money, by golly, I’d want it back.”

But some tribal leaders insist that the problem is greater than disputed individual accounts. And the apologies from BIA officials, they say, only make them seem detached from the consequences of their leadership.

“This situation involves collective human suffering on a monstrous scale,” said Blackfeet Indian Darrell Kipp, a Harvard University graduate and founder of a local native-language preschool.

“Obviously, something is missing in this town--money,” he said. “Maybe it wouldn’t be so bad if the federal government was taking adequate care of the trust accounts and the money was going where it was supposed to.

“Just look around,” he said, pointing out a small window in his Browning office. “The results are plain to see.”

Across the street, a dozen panhandlers huddled near a liquor store. Down the block were nests of secondhand clothing stores, fast-food stands and curio shops, mostly owned by non-Indians. And in an impoverished remote town surrounded by wind-swept plains, teenagers with nothing better to do cruised a bleak and dusty main drag in battered cars.

Throughout the reservation, Kipp said, are Native Americans afraid to question their accounts for fear the BIA could retaliate by losing lease documents.

Kipp is not the only one who views the financially tangled trust account system as a contributing factor in Browning’s lack of progress and development.

Rumbling in a pickup truck on a two-lane highway skirting the eastern edge of Glacier National Park, Cobell grumbled: “We never asked for this system; it was imposed on us. Now, they are mismanaging our money--not appropriations or donations, but our own money--and we can’t fire them.

“Instead, they put us in a financial deep freeze of low-rent HUD [Department of Housing and Urban Development] homes surrounded by high unemployment, alcoholism and a nearly hopeless future,” she continued.

“All that’s going to change. We are not going to let them off the hook. There has to be reform and restitution. There has to be justice.”