Chairman of the Senate Natural Resources Committee, Nick Rahall, D-W.Va., in a letter to the Appropriations subcommittee responsible for the Department of Interior has called for reinforcing the auditing division of the Minerals Management Service, which has been scaled back through cost-cutting measures in recent years.
Interior had been the focus of a series of hearings before the committee, including one on oil and gas royalty collections, which Rahall described as slipshod, arguing MMS has become too cozy with an industry it must work with to develop energy resources and at the same time collect payments from and keep an eye on.
The hearing called into question the department’s use of the royalty-in-kind program, which lets industry pay royalties in product, as well as its increasing use of compliance reviews, based partly on self-reporting, in place of audits. Both practices are efficient at the expense of oversight, critics charge.
A recent GAO report stated that Interior may not be collecting billions of dollars of revenue from oil and gas royalties — much of it because during the Clinton administration the department failed to include price thresholds of $34 per barrel to trigger payments – and that contract and grant management lack needed controls to ensure millions of dollars in grant and contract funding were used appropriately.
The committee heard testimony from a former MMS manager, Bobby Maxwell, who said that since 2000, "audits were marginalized, and accounting and auditing degrees were no longer required . . . every year we were pressured to do less auditing and state that royalties were accurately reported and paid by the oil companies using the compliance review process."
Maxwell was removed from his position after going outside the agency to sue energy-producer Kerr-McGee as a private citizen on behalf of the government, and has reportedly retired to Hawaii. A Denver jury agreed with him that Kerr-McGee had shirked royalty payments, making Maxwell eligible for a large chunk of the $30 million penalty as a whistleblower.
Maxwell also claims that meeting standards of the Government Performance Results Act is prioritized at MMS over keeping tabs on energy producers, as it determines operating budgets.
