B-197299.OM, JUN 6, 1980

B-197299.OM, JUN 6, 1980

SUBJECT: LEGALITY OF BUREAU OF INDIAN AFFAIRS' PROCEDURES FOR THE DISPOSITION OF ADMINISTRATIVE EXPENSES (FEES) RE TIMBER SALES ON INDIAN LANDS (FILE B-197299, CODE 205198)

ASSOCIATE DIRECTOR, GOVERNMENTAL INTERNAL AUDITING AND FRAUD PREVENTION - GEORGE L. EGAN:

THIS REFERS TO OUR RECENT MEMORANDUM TO MR. LAWRENCE R. SULLIVAN, GROUP DIRECTOR, FRAUD TASK FORCE, CONCERNING THE LEGALITY OF THE BUREAU OF INDIAN AFFAIRS' PROCEDURES FOR HANDLING ADMINISTRATIVE FEES WHICH ARE DEDUCTED FROM TIMBER SALES ON INDIAN LANDS (B-197299 DATED MARCH 3, 1980). WE EXPRESSED THE OPINION THAT THE BUREAU'S PROCEDURES, AS WRITTEN, CAN BE LEGALLY JUSTIFIED AS BEING CONSISTENT WITH THE BASIC REQUIREMENTS OF 25 U.S.C. SEC. 413.

SHORTLY AFTER THE ABOVE MEMORANDUM WAS ISSUED THE BUREAU FINANCIAL OFFICER CONCERNED CONTACTED OUR OFFICE INQUIRING ABOUT THE CURRENT STATUS OF HER EARLIER ALLEGATION THAT THE BUREAU'S PROCEDURES WERE ILLEGAL. AFTER BEING INFORMALLY ADVISED OF OUR POSITION THE FINANCIAL OFFICER HAS CALLED OUR OFFICE SEVERAL TIMES EXPRESSING SERIOUS CONCERN OVER THE BASIS THEREOF. WE BELIEVE THAT THE BEST WAY TO PROCEED ON THIS MATTER IS TO SEND HER A SHORT LETTER UNDER YOUR SIGNATURE WITH A "LEGAL ANALYSIS" ATTACHED (SEE ATTACHMENT). THIS LEGAL ANALYSIS IS BASICALLY A RESTATEMENT OF OUR MEMORANDUM OF MARCH 3 WITH APPROPRIATE CHANGES. AFTER READING THIS ANALYSIS THE FINANCIAL OFFICER MAY BETTER UNDERSTAND THE LEGAL BASIS OF OUR POSITION. THIS ANALYSIS SHOULD BE CHARACTERIZED AS THE INTEROFFICE LEGAL ADVICE FROM YOUR GROUP'S COUNSEL RATHER THAN AS A FORMAL LEGAL DECISION OF THE COMPTROLLER GENERAL.

PLEASE DO NOT HESITATE TO CALL US IF YOU HAVE ANY FURTHER QUESTIONS.

LEGAL ANALYSIS

LEGALITY OF BUREAU OF INDIAN AFFAIRS' PROCEDURES FOR THE DISPOSITION OF ADMINISTRATIVE EXPENSES (FEES) RE TIMBER SALES ON INDIAN LANDS

QUESTION:ARE THE RECENTLY IMPLEMENTED BIA PROCEDURES FOR HANDLING ADMINISTRATIVE FEES WHICH ARE DEDUCTED FROM TIMBER SALES ON INDIAN LANDS LEGALLY JUSTIFIED AS BEING CONSISTENT WITH 25 U.S.C. SEC. 413?

ANSWER: YES

FOR THE REASONS STATED BELOW, WE BELIEVE THAT THE BUREAU'S PROCEDURES, AS WRITTEN, ARE LEGALLY JUSTIFIED AS BEING CONSISTENT WITH THE BASIC REQUIREMENTS OF SECTION 413. A MORE DETAILED DISCUSSION FOLLOWS.

IN EXERCISING ITS TRUST RESPONSIBILITY FOR INDIAN LANDS, THE BUREAU MANAGES (NORMALLY ON A JOINT BASIS WITH THE TRIBE OR INDIVIDUAL CONCERNED) THE DEVELOPMENT AND COMMERCIAL SALE OF TIMBER FROM BOTH ALLOTTED (INDIVIDUAL) AND UNALLOTTED (TRIBAL) INDIAN LANDS UNDER THE AUTHORITY OF 25 U.S.C. SEC. 406 AND SEC. 407, RESPECTIVELY. THESE SECTIONS PROVIDE IN PERTINENT PART:

SEC. 406:

"(A) THE TIMBER ON ANY INDIAN LAND HELD UNDER A TRUST *** MAY BE SOLD BY THE OWNER OR OWNERS WITH THE CONSENT OF THE SECRETARY OF THE INTERIOR, AND THE PROCEEDS FROM SUCH SALES, AFTER DEDUCTIONS FOR ADMINISTRATIVE EXPENSES TO THE EXTENT PERMISSIBLE UNDER SECTION 413 OF THIS TITLE, SHALL BE PAID TO THE OWNER OR OWNERS OR DISPOSED OF FOR THEIR BENEFIT UNDER REGULATIONS TO BE PRESCRIBED BY THE SECRETARY OF THE INTERIOR. IT IS THE INTENTION OF CONGRESS THAT A DEDUCTION FOR ADMINISTRATIVE EXPENSES MAY BE MADE IN ANY CASE UNLESS THE DEDUCTION WOULD VIOLATE A TREATY OBLIGATION OR AMOUNT TO A TAKING OF PRIVATE PROPERTY FOR PUBLIC USE WITHOUT JUST COMPENSATION IN VIOLATION OF THE FIFTH AMENDMENT TO THE CONSTITUTION. ***"

SEC. 407:

"THE TIMBER ON UNALLOTED LANDS OF ANY INDIAN RESERVATION MAY BE SOLD IN ACCORDANCE WITH THE PRINCIPLES OF SUSTAINED YIELD, OR IN ORDER TO CONVERT THE LAND TO A MORE DESIRABLE USE, UNDER REGULATIONS TO BE PRESCRIBED BY THE SECRETARY OF THE INTERIOR, AND THE PROCEEDS FROM SUCH SALES, AFTER DEDUCTIONS FOR ADMINISTRATIVE EXPENSES PURSUANT TO SECTION 413 OF THIS TITLE, SHALL BE USED FOR THE BENEFIT OF THE INDIANS WHO ARE MEMBERS OF THE TRIBE OR TRIBES CONCERNED IN SUCH MANNER AS HE MAY DIRECT."

SECTIONS 406 AND 407 THUS INCORPORATE 25 U.S.C. SEC. 413 WITH RESPECT TO THE DEDUCTION OF AMOUNTS TO COVER THE BUREAU'S ADMINISTRATIVE EXPENSES. SECTION 413 STATES AS FOLLOWS:

"THE SECRETARY OF THE INTERIOR IS HEREBY AUTHORIZED, IN HIS DISCRETION, AND UNDER SUCH RULES AND REGULATIONS AS HE MAY PRESCRIBE, TO COLLECT REASONABLE FEES TO COVER THE COST OF ANY AND ALL WORK PERFORMED FOR INDIAN TRIBES OR FOR INDIVIDUAL INDIANS, TO BE PAID BY VENDEES, LESSEES, OR ASSIGNEES, OR DEDUCTED FROM THE PROCEEDS OF SALE, LEASES, OR OTHER SOURCES OF REVENUE: PROVIDED, THAT THE AMOUNTS SO COLLECTED SHALL BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, EXCEPT WHEN THE EXPENSES OF THE WORK ARE PAID FROM INDIAN TRIBAL FUNDS, IN WHICH EVENT THEY SHALL BE CREDITED TO SUCH FUNDS."

THE BUREAU'S REGULATIONS IMPLEMENTING THE ABOVE STATUTES (25 C.F.R. SEC. 141.18) PROVIDE FOR THE FOLLOWING FEES DESIGNED TO REIMBURSE THE GOVERNMENT FOR ITS ADMINISTRATIVE EXPENSES FOR MANAGING AND PROTECTING INDIAN FOREST LANDS (INCLUDING THE COST OF TIMBER SALE ADMINISTRATION):

"UNLESS SPECIAL INSTRUCTIONS HAVE BEEN GIVEN BY THE SECRETARY AS TO THE AMOUNT OF THE DEDUCTION, OR THE MANNER IN WHICH IT IS TO BE MADE, THERE SHALL BE DEDUCTED 10 PERCENT OF THE GROSS AMOUNT RECEIVED FOR TIMBER SOLD UNDER REGULAR SUPERVISION, AND 5 PERCENT WHEN THE TIMBER IS SOLD IN SUCH A MANNER THAT LITTLE ADMINISTRATIVE EXPENSE BY THE INDIAN BUREAU IS REQUIRED."

BEFORE FISCAL YEAR 1973 THE BUREAU DEPOSITED THE ADMINISTRATIVE FEES WHICH WERE COLLECTED DIRECTLY INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. BEGINNING IN FISCAL YEAR 1973, AND PURSUANT TO SPECIAL INSTRUCTIONS BY THE ASSISTANT SECRETARY OF THE INTERIOR, THE BUREAU INITIATED A POLICY DESIGNED TO SUBSTANTIALLY INCREASE THE AMOUNT OF FUNDS AVAILABLE FOR INTENSIVE FOREST MANAGEMENT. (FN 1) AS WE UNDERSTAND THIS CHANGE, A PERCENTAGE OF THE SALES PRICE FOR EACH TIMBER SALE WAS PLACED INTO A "SUSPENSE" ACCOUNT (FORESTRY ACCOUNT, ADMINISTRATIVE FEES ACCRUED). FUNDS DEPOSITED IN THIS ACCOUNT WERE TO BE MADE AVAILABLE TO INDIAN TRIBES FOR APPROVED FOREST MANAGEMENT PURPOSES. THE TRIBES WERE REQUIRED TO BUDGET AND OBLIGATE FUNDS IN ACCORDANCE WITH THE APPROVED FORESTRY PROGRAM. (FN 2) AT THE END OF EACH FISCAL YEAR THE TRIBES WOULD SUBMIT INVOICES DETAILING THEIR ACTUAL COSTS FOR THE FORESTRY PROGRAM AND, PROVIDED THAT THEIR ACTUAL EXPENDITURES FELL WITHIN THE GENERAL GUIDELINES (E.G., THE EXPENDITURES RELATED TO INTENSIVE FOREST MANAGEMENT PRACTICES SUCH AS THINNING AND REFORESTATION), THE BUREAU WOULD MAKE APPROPRIATE REFUNDS FROM THE FUNDS HELD IN THE "SUSPENSE" ACCOUNT. UNOBLIGATED FUNDS REMAINING AT THE END OF THAT FISCAL YEAR WERE TO BE RETURNED TO THE TREASURY AS MISCELLANEOUS RECEIPTS.

BEGINNING IN FISCAL YEAR 1980, HOWEVER, WE UNDERSTAND THAT THE FUNDS IN THE "SUSPENSE" ACCOUNT HAVE BEEN MADE AVAILABLE FOR IMMEDIATE EXPENDITURE BY THE TRIBES, RATHER THAN BEING REIMBURSED. THIS PROCEDURE IS INTENDED TO ASSIST THOSE TRIBES THAT DO NOT HAVE SUFFICIENT FUNDS OF THEIR OWN TO EXPEND IN ANTICIPATION OF REIMBURSEMENT. WE ALSO UNDERSTAND THAT THE PERIOD OF AVAILABILITY OF THE DEPOSITED ADMINISTRATIVE FEES HAS BEEN EXTENDED FROM ONE TO TWO FISCAL YEARS FOLLOWING THE YEAR IN WHICH THEY ARE RECEIVED. THEREAFTER, FUNDS NOT EXPENDED BY THE TRIBES ARE DEPOSITED IN THE TREASURY AS MISCELLANEOUS RECEIPTS.

THE LEGALITY OF THESE PROCEDURES HAS BEEN QUESTIONED ON THE BASIS THAT 25 U.S.C. SEC. 413 REQUIRES THAT AMOUNTS REIMBURSED TO THE GOVERNMENT FOR ITS ADMINISTRATIVE COSTS BE DEPOSITED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. WE BELIEVE THAT THE PROCEDURES - AS THEY ARE WRITTEN - ARE LEGALLY JUSTIFIED AS BEING CONSISTENT WITH THE BASIC REQUIREMENTS OF SECTION 413.

SECTION 413 CONTAINS A SPECIFIC EXCEPTION TO THE GENERAL REQUIREMENT THAT COLLECTED ADMINISTRATIVE FEES BE DEPOSITED IN THE TREASURY AS MISCELLANEOUS RECEIPTS; NAMELY, WHEN "THE EXPENSES OF THE WORK ARE PAID FROM INDIAN TRIBAL FUNDS, IN WHICH EVENT THEY (THE ADMINISTRATIVE FEES COLLECTED) SHALL BE CREDITED TO SUCH FUNDS." THIS EXCEPTION WAS INCORPORATED INTO THE ORIGINAL LEGISLATION IN 1933 IN DIRECT RESPONSE TO A COMPTROLLER GENERAL DECISION (A-10178, DATED SEPTEMBER 22, 1925, REAFFIRMED IN A-10178 DATED MAY 17, 1929) HOLDING THAT ALL ADMINISTRATIVE FEES WHICH INTERIOR COLLECTED FROM TIMBER SALES HAD TO BE DEPOSITED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, RATHER THAN USING SUCH FEES TO MEET ADMINISTRATIVE AND OTHER NECESSARY EXPENSES THEREFOR. THE PURPOSE OF THIS EXCEPTION WAS DESCRIBED AS FOLLOWS: (FN 3)

"WHAT CONGRESS ATTEMPTED IN THE ACT OF FEBRUARY 14, 1920, WAS TO REQUIRE REPAYMENT OF EXPENSES INCURRED BY THE UNITED STATES IN CONNECTION WITH THE SELLING AND LEASING OF INDIAN LANDS. WHEN THE EXPENSES ARE PAID FROM PUBLIC FUNDS, THE INTENT OF THE ACT IS ACCOMPLISHED BY COVERING THE FEES INTO 'MISCELLANEOUS RECEIPTS.' BUT WHEN EXPENSES ARE PAID FROM INDIAN TRIBAL FUNDS, THE DEPOSIT OF THE FEES TO THE CREDIT OF MISCELLANEOUS RECEIPTS APPEARS TO BE WRONG, AND NOT THE PURPOSE OF THE ACT. HOWEVER, THEY MUST BE DEPOSITED, UNDER THE LANGUAGE OF THE EXISTING LAW.

"THIS BILL WILL MAKE THE COLLECTION OF FEES OPTIONAL IN THE DISCRETION OF THE SECRETARY OF THE INTERIOR, AND REQUIRE FEES COLLECTED HEREAFTER PAID FROM TRIBAL FUNDS TO BE CREDITED TO SUCH TRIBAL FUNDS."

AS NOTED ABOVE, ADMINISTRATIVE FEES COLLECTED ARE FOR THE PURPOSE OF PAYING THE COST OF MANAGING AND PROTECTING INDIAN FOREST LANDS AS WELL AS THE COST OF TIMBER SALE ADMINISTRATION. IN THIS CONNECTION, 25 C.F.R. 141.18 PROVIDES THAT DEDUCTIONS FROM THE GROSS PROCEEDS OF SALES ARE "TO COVER IN WHOLE OR IN PART THE COST OF MANAGING AND PROTECTING THE FOREST LANDS, INCLUDING THE COST OF TIMBER SALE ADMINISTRATION ***."

UNDER THE OLD PROCEDURE THE TRIBES WERE REIMBURSED FOR THEIR ACTUAL COSTS FOR THE FORESTRY PROGRAM ON THE BASIS OF INVOICES DETAILING SUCH COSTS, WHICH CLEARLY FELL WITHIN THE MEANING OF THE SECTION 413 EXCEPTION PROVIDING FOR REFUNDING OF EXPENSES PAID FROM INDIAN TRIBAL FUNDS. UNDER THE NEW PROCEDURE THE TRIBES WILL BE ENTITLED TO PAYMENTS SIMPLY BY IDENTIFYING ANY OF THEIR NEEDS WHICH MAY FALL WITHIN THE BUREAU'S FORESTRY PROGRAM. THIS PROCEDURE IS INTENDED TO ASSIST THOSE TRIBES THAT DO NOT HAVE SUFFICIENT FUNDS TO EXPEND IN ANTICIPATION OF REIMBURSEMENT. WHILE THE RELATIONSHIP BETWEEN THE TRIBES' ANTICIPATED EXPENSES AND THE INTENDED APPLICATION OF SECTION 413'S EXCEPTION (I.E., "EXPENSES OF THE WORK ARE PAID FROM INDIAN TRIBAL FUNDS") IS SOMEWHAT LESS DIRECT, THE FUNDS WHICH THE TRIBES MAY RECEIVE TO MEET THOSE EXPENSES NEVERTHELESS ARE REQUIRED TO BE USED FOR THE IDENTIFIED FORESTRY PURPOSES. SINCE THE INTENDED PURPOSE OF THE EXCEPTION IS ULTIMATELY BEING COMPLIED WITH, THE DISTINCTION BETWEEN THE OLD PROCEDURE (WHICH WAS CLEARLY AUTHORIZED) AND THE NEW PROCEDURE IS MORE OF FORM THAN OF SUBSTANCE.

THE MATTER BECOMES EVEN MORE UNOBJECTIONABLE, AT LEAST FROM A LEGAL STANDPOINT, WHEN ONE CONSIDERS THE WIDE DISCRETION SECTION 413 PLACES IN THE SECRETARY TO SET THE AMOUNT OF ADMINISTRATIVE FEES TO BE CHARGED AND TO COLLECT SUCH FEES ONCE THEY ARE SET. SECTION 413 STATES THAT THE SECRETARY IS "*** AUTHORIZED (AS OPPOSED TO REQUIRED), IN HIS DISCRETION, AND UNDER SUCH RULES AND REGULATIONS AS HE MAY PRESCRIBE, TO COLLECT REASONABLE FEES ***." THE LEGISLATIVE HISTORY COMMENTS THAT THE LEGISLATION MAKES "*** THE COLLECTION OF FEES OPTIONAL IN THE DISCRETION OF THE SECRETARY OF THE INTERIOR ***." (FN 4) ON THIS BASIS IT WOULD APPEAR THAT BUREAU COULD ACCOMPLISH THE RESULTS ACHIEVED BY THE RECENTLY IMPLEMENTED PROCEDURES SIMPLY BY REDUCING OR POSSIBLY ELIMINATING THE ADMINISTRATIVE FEES IN THE FIRST INSTANCE, THEREBY DISTRIBUTING THE BULK OF THE SALE PROCEEDS TO THE INDIAN TRIBES CONCERNED.

IN CLOSING, WE WOULD LIKE TO NOTE THAT THE BUREAU SHOULD SET UP PROPER CONTROLS TO INSURE THAT THE TRIBES EXPEND THE ADVANCE FUNDS THAT THEY MAY RECEIVE ONLY FOR AUTHORIZED PURPOSES (E.G., INTENSIVE FORESTRY MANAGEMENT PRACTICES SUCH AS THINNING AND REFORESTATION). THE MAIN CONTROL DEVICE UNDER THE PRIOR PROCEDURE - PAYMENT ONLY ON THE BASIS OF INVOICES DETAILING THE TRIBES' ACTUAL EXPENDITURES FOR THE FORESTRY PROGRAM - IS NO LONGER PRESENT UNDER THE NEW PROCEDURE.

FN 1 THIS POLICY WAS ADDRESSED IN A GAO REPORT ENTITLED "INDIAN NATURAL RESOURCES - OPPORTUNITIES FOR IMPROVED MANAGEMENT AND INCREASED PRODUCTIVITY. PART I: FOREST LAND, RANGELAND, AND CROPLAND." RED-76 8, AUGUST 18, 1975.

FN 2 THE PROCEDURE INITIALLY APPLIED TO THE SALE OF TIMBER FROM UNALLOTTED LAND BUT LATER WAS EXTENDED TO ALLOTTED LAND AS WELL.

FN 3 H.R. REP. NO. 879, 72D CONG., 1ST. SESS. (1932).

FN 4 ID.