Agency pledges to improve oil, gas royalty compliance reviews

The director of the Minerals Management Service pledged to develop a comprehensive plan addressing compliance program failures detailed this week in a scathing inspector general report.

In a release that did not substantively challenge the IG's findings, MMS Director Johnnie Burton said the "detailed improvement plan" will be delivered to the IG office within 30 days, or by Jan. 5, and will include a timeline and target dates for completion.

The plan will respond to an IG review of the MMS Compliance and Asset Management Program's use of company-reported data to assess companies' oil, gas and mineral royalty payments. The agency uses those compliance reviews to complement its formal payment audits.

The audit adds to the woes of an agency already in the crosshairs for the discovery that it had crafted oil and gas royalty contracts that could give up as much as $10 billion in federal royalty payments over the next several years.

In their review, auditors found that MMS' data on royalty payment compliance reviews was inaccurate and incomplete, preventing managers from making informed decisions about how to deploy resources and from gauging program effectiveness. They also identified major flaws in the compliance review process, and found that program metrics misleadingly conflate different compliance strategies and focus too much attention on the same companies and properties.

In examining the five separate electronic systems that contain program data, auditors found that data was sometimes missing or wrong. For example, in a system that tracks the amount owed by a company and how much had been collected, the agency's process for tracking collections overwrote the amount originally owed -- with the result that what the company had paid would always be the same as the obligation.

Reviewers found that agency information on the number of formal audits and compliance reviews was not complete or correct. Of five properties identified in one database as having gone through compliance reviews, investigators found that only two of those had been completed, while two were in progress and one had not been started.

They also found duplicate data fields that double-counted reviews of $2.2 million, and $134 million in citizen-initiated qui tam legal settlements, representing 19 percent of the total collections, that were misleadingly reported along with agency-initiated collections.

Auditors criticized agency officials for lumping together data on reviews with widely different reliability. MMS reports independent audits, compliance reviews based on company data and in-kind royalty payment analyses, under a single heading. By that measure, officials counted that during fiscal 2006, they had ensured compliance on 72 percent of revenues collected during calendar year 2003.

Auditors said the sole focus on reviews as a percentage of revenue also reduces the effectiveness of those activities, which focus year after year on the same high-revenue properties. In one program area, 92 percent of the properties singled out for review in fiscal 2006 had been reviewed in both the previous years. Thus over the past three years, MMS has reviewed only 9 percent of its properties and 20 percent of the companies with federal payments.

In a response to the report, MMS Director Burton accepted several of the recommendations but rejected many others. She turned down a suggestion that the agency report different types of accountability reviews separately, saying it would track the information internally but not report it. She also declined to separate citizen-initiated collections from agency-collected funds.

Democratic lawmakers said the report would be a factor in investigations into MMS' oil and gas royalty programs next year.

"This report makes it pretty clear that the Bush administration is leaking a steady stream of money that is owed to the taxpayers," said Rep. Carolyn Maloney, D-N.Y. "They don't even bother doing the necessary work to make sure adequate royalties are being paid."