DOI auditor probe finds other royalties flaws at MMS

Sept. 27, 2007
A US DOI internal investigation found that four auditors in the MMS's Minerals Revenue Management division did not follow departmental procedures for reporting royalty and interest underpayment allegations.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Sept. 27 -- A US Department of Interior internal investigation found that four auditors in the Minerals Management Service's Minerals Revenue Management division did not follow departmental procedures for reporting royalty and interest underpayment allegations before suing to recover the money.

But the investigation also criticized MRM's working environment "in which poor communication, or no communication, compounded an already existing element of distrust." It found signs of "a profound failure in the development of a critical MRM information technology system." And it revealed "a band-aid approach to holding together one of the federal government's largest revenue-producing operations," said DOI Inspector General Earl E. Devaney in his cover letter to the investigation's report.

Questions the report raised beyond its initial scope exposed "matters that heighten our concerns about the agency's administration of its royalty management program," said two congressional energy leaders Sept. 25 after receiving copies of the report.

"The report points to MMS's 'conflicting roles and relationships with the energy industry,' 'systemic communication failures' that hinder federal auditors' efforts to collect royalties, and a 'profound failure' to develop computer systems critical to the efficient collection of these revenues…," said US Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) and House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.) in a letter to US Sec. of the Interior Dirk A. Kempthorne.

MMS Director Randall Luthi on Sept. 26 said the agency was reviewing the report, but also said the auditors removed, without authorization, and used proprietary, sensitive, or confidential business information to prepare their lawsuits. But he said the investigation did not find instances of retaliation, which the auditors had alleged.

1997 policy decision
Once MMS and DOI review the report more thoroughly, Luthi said, Assistant Secretary for Lands and Minerals Management C. Stephen Allred will determine steps to bolster royalty and interest collections, including asking the department's royalty policy subcommittee to provide input in its upcoming report. "One of the key items that needs to be reviewed is a policy decision made in 1977 regarding calculation of interest payments," he noted.

Kempthorne ordered the investigation after Bingaman and Rahall brought to the secretary's attention the auditors' 2005 and 2006 lawsuits under the Federal Civil False Claims Act and their allegations that DOI and MMS had suppressed their royalty recovery efforts. Two of the four false claim suits were later dismissed.

The law allows a private citizen to sue for fraud on behalf of the US and possibly receive 15-30% of any money recovered, the report explained. The US Department of Justice investigates such false claim (qui tam) lawsuits with support from the appropriate department (in this case, DOI). DOJ then decides whether to intervene and prosecute the suit, decline to intervene and allow the person filing the suit to proceed alone, or seek to dismiss the action.

"We found that the collective bases for the qui tam lawsuits were either premised on a lack of knowledge of other MMS efforts to collect royalties and interest or the relators' (persons bringing the claim) fundamental disagreement with MMS decisions and MMS guidance that the oil companies were following. Better communication about management's decisions may have forestalled the filing of these lawsuits," Devaney said in his cover letter to the report.

But he found unsound a 1997 policy decision which assumed that calculation of interest would be a hardship on oil companies if their payment forms did not include interest.

Calculating interest
Devaney said MRM manually calculated interest for the oil companies for years, while spending considerable money to modify its IT system to calculate interest automatically. His office has begun a separate investigation of the original procurement of and modifications to this system, he said.

The investigation found that the auditors did not follow either MMS or DOI reporting requirements in any of the four cases. "Again, however, systemic communications failure exasperated the relators' fundamental distrust that their management chain would proceed appropriately," Devaney said.

The IG said courts have ruled that government employees were not precluded from suing based on facts learned during the course of their official duties. "Our findings concerning the use of official and/or proprietary information remain inconclusive," he said, primarily because of dated, vague policies and rules, and poor document control," Devaney said.

In considering 18 allegations of retaliation against the auditors ranging "from trivial to troubling," the investigation found no conclusive evidence of deliberate retaliation. Reprisals might have been perceived because of disconcerting behavior, such as "management's manifest inattention to personnel matters affecting the reassigned relators when MMS management should have been paying extraordinary attention."

Devaney said the investigation's findings call for improvements in MRM's program, particularly in document control, guidance clarification and treatment, and management of reassigned relators.

The investigation found four other issues within MMS's royalty collections division that have spawned investigations, involving:

-- The acquisition, contract management, and performance of the MRM Support System, which has cost $149 million since the contract was awarded Sept. 13, 1999.

-- The involvement of three senior MMS employees in creating a consulting contract leading to jobs for two of them once they left federal service, which is a potential violation of procurement laws and regulations.

-- Potential criminal conduct and ethical violations by a senior manager of MMS's royalty in-kind program.

-- Potential criminal and ethical violation of other employees assigned to the RIK program.

Contact Nick Snow at [email protected].