GAO reports on Native Corporations
A report released last month on Alaska Native corporations offers an overview of the history of the corporations and makes suggestions of what to look at going forward.
The “Regional Alaska Native Corporations: Status 40 years after Establishment and Future Considerations” report was undertaken by the U.S. Government Accountability Office at the behest of U.S. Representative Edward Markey (D-Mass.), with Senators Murkowski and Begich joining in the request. The GAO is the audit, evaluation and investigative arm of the U.S. Congress.
The report looks at the structure, history and finances of the regional Alaska Native Corporations, and the various ways ANCs provide for their shareholders.
The GAO identified three areas that could be looked at in the future.
The first is the reporting to shareholders about the finances of the corporations. For 20 years after the ANCs were formed in the 1970s they were to be exempt for 20 years from the Security Exchange Commission presciption for annual reports to shareholders. In 1988, amendments to the Alaska Native Claims Settlement Act continued the exemption from federal securities laws. However, ANCs are required to annually report to shareholders “substantially all the information required to be included in SEC’s registrant’s annual report to shareholders.” The GAO’s examination found that, “We were unable to determine whether the corporations are complying with this reporting requirement because the phrase “substantially all” is not defined. As a result, it is not clear which information is required or the extent to which any required information must be included in regional corporations’ annual reports. Furthermore, the Settlement Act does not establish a mechanism for federal oversight of the corporations’ reporting.”
The report goes on to question, “What is the appropriate role of the federal government in maintaining the solvency of Alaska Native Corporations?” and cites solvency issues ANCs experienced in the 1980s and the ongoing insolvency of the 13th Regional Corporation.
Lastly the GAO report asks “Who should be a shareholder?” The report cites things for ANCs and their shareholders might consider in deciding who will be shareholders in the future.
As a result of the GAO report Representative Markey, ranking member of the House Natural Resources Committee which oversees Native American issues, intends to introduce legislation to “...increase transparency in ANC financial reporting by clarifying what must be reported and authorize shareholder recourse in cases of corporate abuses, including fraudulent financial reporting and false or misleading shareholder solicitations,” according to a Natural Resources Committee press release.
The Native American Contractors Association, whose members include many of the 12 ANCs, responded that Representative Markey’s proposal aims to fix a problem that does not exist. A press release from the contractors’ association states that “the report fails to realize and recognize the mandate of self-determination that Congress built into the Alaska Native Claims Settlement Act.”
“It’s this important policy of ‘self-determination’ that shapes the structure of the Regional Corporations, whereby shareholders that are all Alaska Natives vote to elect boards of directors to govern the ANCs,” said NACA Executive Director Kevin Allis. “Second, with respect to financial reports, the report does not properly recognize the fact that the Regional Corporations all follow generally accepted accounting principles, have annual audits conducted in accordance with generally accepted auditing standards, and are not entities whose shares are publicly traded.”
“The report did not find any fraud or suspicion of fraud with how the Regional Corporations manage their operations, and how they generate shareholder value. I do not understand what purpose such legislation would serve,” Allis continued.
“This is yet another useless study asked for by the Ranking Member of the House Natural Resources Committee, and unfortunately a waste of the GAO’s valuable time,” said Representative Don Young. “Following the release of the study which contained no recommendations or findings requiring further action, the ranking member has suggested problems where none exist, and proposed extreme government oversight and regulation by the Security and Exchange Commission. ANCs are governed by state law, and are required to prepare financial documents that are substantially in compliance with SEC reporting requirements. Notably, the accounting and audit field that is currently employed by ANCs is highly regulated, and noncompliance with standards would be reported to the Board and shareholders. Additionally, Compliance with federal securities laws, Sarbanes-Oxley and Dodd-Frank will cost Regional Corporations millions in fees to lawyers and accountants,” continued Representative Young.
“In the end, the Congressman from Massachusetts is proposing to save Alaska Natives from themselves by costing their own ANCs millions of dollars. If this is his form of advocacy, he can give lessons on how to lose friends and alienate people,” concluded Representative Young.
“While I appreciate Congressman Markey’s interest in Regional Alaska Native Corporations, I do not agree that it is the role of Congress to define what is in the best interest of their shareholders,” said Senator Mark Begich. “Since its passage 41 years ago, the Alaska Native Claims Settlement Act has allowed for each regional corporation to establish reporting and governance requirements for their shareholders that that work best for its people. Attempts to change federal reporting requirements for regional ANCSA corporations are unfounded and will fall on deaf ears. This is yet another example of how so many individuals in the federal government lack a real understanding of our unique state.”
The GAO report is available online at http://www.gao.gov/products/GAO-13-121.