The Department of the Interior's Minerals Management Service says it is improving its auditing procedures after its Inspector General (IG) found serious flaws with the current system. MMS also is planning an external peer review of its program later this year to confirm that new agency safeguards are working.
In a semiannual report issued to Congress this spring, IG said MMS audits did not meet "required professional standards." In an IG audit conducted last year, MMS recreated a set of working papers that it had lost and improperly presented the documents as the originals. Also troubling to IG was that MMS auditors could not provide working paper files for five audits.
Corrective actions
MMS agreed with IG's recommendations and is taking corrective action. MMS said it expects to hire a contractor later this summer that will oversee the external peer review. The agency also disciplined certain employees, added management oversight, and consolidated and centralized databases for each 2-year reporting cycle.
In addition, MMS pledged to work "diligently" on other IG recommendations. This includes making sure internal reviews comply with all generally accepted government auditing standards.
Industry reaction to IG's report has been muted. "We just want a system that lets companies pay what they owe, no more, no less," said one industry lobbyist.
Other stakeholders take a harsher view.
"Let's face it, industry doesn't want royalty audits. The IG's report confirms that Interior will give in to industry through intention or incompetence or a combination of both," said Lee Helfrich, partner at Washington, DC-based law firm Lobel, Novins & Lamont, and counsel to the California State Controller's Office.
"MMS is not fixing its royalty audit program, it's trying to get rid of audits altogether and is trying to reduce oversight by states and tribes. Congress should be taking a closer look at MMS's so-called reengineered compliance review process."
Web woes
What industry and state revenue officers do agree on is that the auditing issues underscore a much larger credibility problem DOI has over royalty accounting.
US District Court Judge Royce Lamberth again shut down MMS's web site as part of a longstanding dispute over DOI's handling over Indian trust funds. The site could be down for days or months, depending on how willing the parties are to negotiate. Some in Congress are trying to force an out-of-court settlement to end the 7-year legal battle, an action Judge Lamberth says likely is unconstitutional.
Meanwhile, the parties that pay and collect royalties want the whole mess resolved.
Royalty collections continue even with the web site down, but it means more paperwork for everyone.
"The IG report shows that what Judge Lamberth has been saying about Interior in the Indian trust fund case applies across the board. The trust fund case is a symptom of a much larger problem at Interior," said Helfrich.
