IG slams Interior’s revenue collection operations

A recent Interior Department inspector general investigation of multiple false claims lawsuits filed by current or former auditors involved in recouping royalty payments on oil and gas leases has exposed serious management problems at the Minerals Management Service.

The investigation was conducted at the request of Interior Secretary Dirk Kempthorne, and subsequent requests by members of Congress, who wanted to assess the legitimacy of auditors' claims. The Interior chief and lawmakers also wanted to know whether auditors had followed proper procedures for reporting their allegations, whether they had improperly used proprietary information and whether MMS managers had retaliated against them for filing the lawsuits.

MMS processes rents and royalties from nearly 70,000 offshore and onshore mineral leases and collects more than $8 billion a year in revenue, accounting for one of the federal government's greatest sources of nontax revenues.

The report found no "conclusive evidence" that managers retaliated against auditors, but found plenty of reasons for the perception of reprisal. It noted that auditors failed to follow proper procedures, but attributed that to distrust stemming from systemic communications failures within MMS. The report was inconclusive regarding the use of proprietary information in the lawsuits.

While the report did not substantiate the auditor's legal claims (two of the claims have been dismissed, one on jurisdictional grounds and the other on substantive grounds, which suggests the other cases may be dismissed as well) it brought to light serious management problems at the agency.

Inspector General Earl Devaney took MMS to task for its policy, established nearly a decade ago, that assumed the calculation of interest on royalty payments was a "hardship" for oil companies. Minerals Revenue Management, the office within MMS responsible for collecting payments from energy companies, had for years manually calculated interest payments on behalf of oil companies because its computer systems were unable to calculate the interest payments automatically.

Devaney said the $150 million technology program aimed at automating those calculations was "largely unsuccessful" and is now the subject of a separate investigation.

"No amount of communication would likely convince the [auditors], or the general public, that this was a sound policy decision," Delaney wrote in a Sept. 19 transmittal letter to Kempthorne and Stephen Allred, Interior's assistant secretary for land and minerals management.

Furthermore, Devaney wrote:

"This report… presents examples of a systemic dilemma in MMS -- that of the bureau's conflicting roles and relationships with the energy industry. It also hints of a profound failure in the development of a critical MRM information technology system; it reveals a working environment in which poor communication, or no communication, compounded an already existing element of distrust; and it demonstrates a Band-Aid approach to holding together one of the federal government's largest revenue-producing operations. In addition, we discovered a number of other significant issues worthy of separate investigation, including ethics lapses, program mismanagement and process failures."

In a joint letter to Kempthorne on Sept. 25, Sen. Jeff Bingaman, chairman of the Senate Energy and Natural Resources Committee, and Rep. Nick Rahall, chairman of the House Natural Resources Committee, wrote, "The OIG report raises a number of troubling questions beyond the initial scope of the investigation, exposing matters that heighten our concerns about the agency's administration of it's royalty management program."

The lawmakers requested a detailed account of the agency's plan for responding to the IG's findings.