Hopefully, the new Democratic leadership in Congress will pay attention to a recent report dealing with the oil industry. An eight-month investigation by the Interior Department’s chief watchdog has found serious problems in the government’s program for ensuring that oil companies pay the royalties they owe on billions of dollars of oil and gas pumped on federal land and in coastal waters. In the report, the Interior Department’s Inspector General says:

• the agency’s data are often inaccurate;

• that its officials rely too heavily on statements by oil companies rather than actual records; and

• that only about 9% of all oil and gas leases are being reviewed.

Those are serious – but not unexpected – findings by the Interior Department. The companies that make up the U.S. oil industry are very powerful and have great friends in the Bush White House. There is confirmation in the report that the oil companies have been calling the shots for the Bush Administration on oil policy issues and that has to be stopped. The report undermines claims by top Interior officials that the department is aggressively pursuing underpayments and outright cheating by companies that drill on property owned by the American public. Investigators didn’t give an estimate of the amount of money that the government might be losing. But, they cited a host of weaknesses that make the government vulnerable to being short-changed. Having gone up against the oil industry, I know first hand that the companies believe they are above the law. Interior officials defended the program, but announced that they would develop “an action plan” to address the inspector general’s recommendations. It is believed that the Interior Department’s failures could cost the government as much as $10 billion over the next five years. The following are among the inspector general’s findings:

• Since 2000, the number of audits has declined by 22% and the number of auditors has been reduced by 15%, even though soaring energy prices have doubled the total amount of money at stake, to about $10 billion a year.

• Though the Interior Department says it has “reviewed” about 72% of all revenues from federal leases, it actually examined only 9% of all properties and 20% of all companies.

• The department’s “compliance review” system, a computerized form of fact-checking that has increasingly replaced audits, essentially relies on the word of the oil companies being monitored. Officials conducting such reviews do not ask companies for their actual records.

• Government data are incomplete and often inaccurate, making it almost impossible for enforcement officials to develop strategies for selecting companies for special scrutiny.

The department’s Minerals Management Service oversees the royalty collection program. We have written on the weakness of this entity in a previous issue. It appears that the report verifies how weak the government’s attempts to deal with the problems have been. The new report is a broad indictment of the Interior Department’s unwillingness to scrutinize oil companies and protect the interests of taxpayers. Without a doubt, the Interior Department’s handling of the royalty program has been a series of blunders. They have been turning a blind eye to obvious flaws in the auditing system. There should be a broad and thorough investigation of the oil and gas leasing program as soon as the new Congress comes into session.

This isn’t the first time the Interior Department’s inspector general has criticized the department. For example, in 2004, the royalty auditing program was described as frequently unprofessional, with auditors who were often unqualified and supervisors who were often ineffective. In September, Earl Devaney, the department’s IG, told the House Government Reform Committee that the Interior Department had tolerated “cronyism, ethical breaches and cover-ups of major management blunders.”

Source: Associated Press

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