New Northern Arapaho Business Council resolves to fix tribe’s poor financial management

May 17, 2013

The Northern Arapaho Tribe is a mess, financially. They’re behind on their audits, past audits have not been flattering, and change has been slow to come. Wyoming Public Radio’s Irina Zhorov has been looking into why the audits are less than ideal and the status of the Tribe’s future financial solvency.   

BOB BECK: To start, why is a federal governmental agency even auditing a tribe, if the tribe is supposed to be pretty much sovereign?

IRINA ZHOROV: The audits are what’s called an OMB A-133 audit, which any contractor that receives over half a million dollars from the federal government has to do. That applies to local governments, non-profits or, as in this case, tribes. The Northern Arapaho tribe gets significantly more than $500,000 annually from the federal government for various programs, so they have to submit annual audits, which are actually performed by an independent firm.

BECK: So what have the audits been revealing?

ZHOROV: In 2009 the tribe scored pretty poor marks on its audit.

It revealed that there were very few internal financial controls or reporting. There were no procedures in place for timely drawdowns of federal funds. Basically, there’s tribal money and then there’s federal money for specific projects and those two pots were mixing…funds given for specific programs and projects were being used to cover costs of unrelated programs and things like tribal payroll. The auditors found that pay rates for tribal employees were disproportionate to the work being performed. There was just no system to determine wages. No method for evaluating program managers or program results. Employees were getting loans and advances and there were no policies in place to make sure loans were authorized, that there was even money available to make the loans, and no way to track when money would be repaid. Tribal employees were not following travel reimbursement procedures. So, normally, you travel for work, you provide your receipts, and then you get reimbursed. I was told that instead some people were just getting checks for large quantities of money ahead of any supposed travel. I saw at least one check made out to a Council member in April of 2012 – it was for 12-hundred dollars for mileage in July, which was obviously months away. So I don’t know just how prevalent that was but like I said I saw at least one check like that. Further, there was no formal process to assess or manage financial risks for the tribe, no internal control system to put together coherent financial reports. The audit also said that what internal policies did exist were at times circumvented internally.

BECK: Do you have any numbers for what that lack of organization is costing the tribe?

ZHOROV: Well…no, not really, the financial mess kind of precludes that, as well. In terms of cash management, at the end of 2009 there was a difference of 430-thousand dollars between bank statements and balance sheets.

But according to the audit, in some instances there was so little documentation that the auditor could not even estimate how many of the tribe’s expenditures were legitimate or questionable. There was limited documentation about revenues, expenses, and assets. The 2010 audit, which was just recently completed, was disclaimed. That’s an accounting term that basically means the records and documentation were in such poor condition that the auditor could not even perform the audit. That’s the lowest level of an auditor’s report.    

BECK: Why is this happening and happening consistently it sounds like?

ZHOROV: That’s a really hard question to answer and you can point the finger in a lot of different directions.

Certainly one responsible entity is the tribe’s government, called the Business Council. They’re responsible for managing the tribe’s money and making sure the various financial departments are functioning properly. So it really depends on who’s sitting on the Council how well money management is at the time. At least to some extent. For example, the firm that did the 2009 audit said in a letter to the tribe that “the skills of the people involved in preparing the Tribe for the 2009 audit have deteriorated since the 2008 audit.” The letter said that there had been “a number of changes in key accounting staff and consultants,” and the new people were not meeting deadlines and not providing the proper documents.

But it isn’t just this top tier of tribal leaders. Like I said before, one of the audit findings was that a lot of people working for the tribe aren’t necessarily qualified, in terms of skills, to do the job they’re hired to do.

Another issue is, even if the employees are qualified, sometimes they’re not showing up to work. The audit said that numerous employees either do not show up for work or do not perform any measurable benefit when they are at work. This is obviously anecdotal, but from my time reporting on the Reservation I have had pretty limited luck in reaching people at their offices. I’ve been researching this story for months…in fact, the Business Council has switched during this time, and I’ve never once been able to reach a single Council member during either term. To be fair, the new Council is, well, new, and they are responding to my inquiries, albeit indirectly. The Chief Financial Officer for the tribe is another example; I’ve called him what seems like a hundred times and never reached him and at times his voice mail was full, which tells me I wasn’t the only one unable to reach him. Of course it’s possible they’re avoiding me, too, which I guess I don’t blame them for that.

BECK: Why do you say that?

ZHOROV: Because while the Business Council is the most obvious entity to blame here, they’re not alone. The way the federal government awards money to tribes is through what’s called 638 contracts. The feds give the money and leave the administration to the tribes. Well, that’s really great because then the tribes can administer those programs how they see fit without the government meddling. What’s not so great is it’s a relatively new approach, started in the 70s, and the feds provide limited training. I think it’s fair to say that some tribes are missing the bureaucratic culture necessary to administer the contracts and the feds are not providing adequate training.

BECK: And so then is the federal government then coming back after seeing these bad audits and punishing the tribe somehow?

ZHOROV: Yeah. That letter from the auditing firm outlined the risks that the tribe could face for both its failure to turn in audits on time as well as for the poor contents of the audits. The auditor thought that the federal government might limit or reduce future grant amounts – that’s a big deal because remember most of that money is going towards health and human services. There were other letters from, for example, Indian Health Services, threatening discontinuation of certain contracts. The auditor also thought that American Recovery and Reinvestment Act money would be denied and they might demand some funds to be returned, and that programs could be put on a reimbursement only basis. Right now, according to the Bureau of Indian Affairs, the tribe is on sanctions for non-submission of their more recent audits. The B-I-A is imposing monthly payments of monies instead of providing automatic lump payments.

There are other non-government related risks, as well, like banks not willing to fund projects due to these negative financial statements. The auditor was particularly concerned about the loan the tribe took out to build the casino and a possible increase in the interest rate on that loan due to a technical default caused by late audits.

BECK: Is the tribe responding in any way?

ZHOROV: Yeah, they are. After the 2009 audit there was a corrective action plan developed by the Council. I don’t know for sure how much of that plan has been put in place and how successful it has been, but I know that at least some of its proposals have been instituted.

And I mentioned already that there was a Council change. The new Council took office in January. They’re new on the job. So far they are reluctant to talk, but they did issue a statement acknowledging the audits and the poor documentation that led to those bad marks. They said the “management issues and findings were many years in the making and will take time and considerable financial resource to fix.” They said they’ve made several changes and additions to software and the IT structure and they’re undergoing a “top to bottom review of all programs, tribal and federal, to determine if either improper spending is taking place and if personnel changes are required.” Further, they said they’re “committed to cleaning up the tribe’s mismanagement issues that have been long-standing.”

So it sounds like they are working to address the many issues we talked about but only time will tell how successful they are. I know at least one Council member has a background in accounting, which should hopefully help in this endeavor.

BECK: Alright, well thanks for that.

ZHOROV: Thank you.