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Investigation of Gov...t Program Reveals Several Withstanding US Oil Royalties

By Edmund L. Andrews


An eight-month investigation by the Interior Department’s chief watchdog has found pervasive problems in the government’s program for ensuring that companies pay the royalties they owe on billions of dollars of oil and gas pumped on federal land and in coastal waters.

In a scathing report to Congress, 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 percent of all oil and gas leases are being reviewed.

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.

And though investigators did not attempt to estimate the amount of money that the government might be losing, they cited a host of weaknesses that make the government vulnerable to being short-changed.

Interior officials defended the program on Wednesday, but announced that they would develop “an action plan” to address the inspector-general’s recommendations.

The report comes as lawmakers in both parties have been attacking the Interior Department for failing to correct blunders that department officials now concede could cost the government as much as $10 billion over the next five years.

It also reinforces complaints by critics, from auditors within the agency to lawmakers in both parties, who have said that enforcement has become superficial, prone to errors and overly deferential to oil companies.

These are among the inspector-general’s findings:

— Since 2000, the number of audits has declined by 22 percent and the number of auditors has been reduced by 15 percent, 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 percent of all revenues from federal leases, it actually examined only 9 percent of all properties and 20 percent 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 report said the agency’s follow-up efforts were often sketchy, because officials who identified underpayments by companies did not have a procedure for verifying that the agency actually billed the companies or collected the money.

It also said the agency’s statistics about recovering money were incomplete, inaccurate and sometimes misleading.