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Scandal-Plagued Oil Agency Revamping Itself

10/20/2008 by Derek Kravitz

The federal office in charge of collecting billions of dollars per year in oil and natural gas royalties is in the midst of a massive reorganization after a highly-publicized sex-and-gift scandal this summer, officials said today.

A two-year investigation by Department of Interior’s inspector general,Earl E. Devaney, into the oil-royalties program surfaced last month, finding a “culture of substance abuse and promiscuity” where officials in Colorado attended parties with oil and gas marketers, accepted gifts including ski trips, sports tickets and golf outings and steered contracts to favored clients. Two retired employees-turned-consultants pleaded guilty to federal conflict-of-interest charges and await sentencing.

Since then, several of the employees identified in the reports have been placed on administrative leave or transferred out of the Minerals Management Service’s royalty-in-kind program, while officials contemplate a “full range” of options, including firing, said Gregory J. Gould, the newly-promoted associate director of the government’s Minerals Revenue Management agency.

A week after the reports were made public, at a Sept. 19 town-hall meeting among oil agency employees in Denver, officials pledged they would take a “hard look” at the royalty-in-kind program and promised its first management overhaul since 2000. Employees appeared “upset and concerned” about media reports regarding the agency and asked that the “proper controls” be instituted, Gould said.

Last week, Gould wrote to staffers, saying the royalty-in-kind program would now be overseen by the department’s asset management program, incorporating the 10-year-old royalties program into other operations so it’s not “just hanging out to the side.”

“The program was started several years ago as a pilot and it only recently became fully functional, so now we want to better align with other parts of our organzation,” Goud said in an interview.

The Minerals Management Service’s royalty-in-kind program allows energy companies to pay the government in oil and gas, rather than cash. Last year, it raked in more than $4 billion in royalties.

Gould said that while the profitable division would be “streamlined,” positions would not be cut. He said officials are proposing adding more auditors to oversee the program.

“It was unfortunate that a small group of people had to take the focus away from the 99 percent of employees who do the right thing every day,” Gould said.

Gould said congressional staffers and Interior Department officials would be briefed on the changes in the coming months.

The move immediately sparked more questions from watchdog groups, who have lobbied for an outside agency to perform compliance reviews and audits of the troubled oil division.

“There needs to be an independent body looking at the agency because it shouldn’t be overseeing itself,” said Mandy Smithberger, a fellow with the Washington-based watchdog group Project on Government Oversight. “There’s an incentive for MMS to actually lease these properties and there needs to be someone independent to really audit these things properly.”

Auditors have frequently complained about inaccurate and incomplete accounting reports from the oil-royalty agency, saying that it has been difficult to gauge whether the program saves taxpayers money.

Devaney, the Interior Department’s inspector general, told the House Natural Resources Committee in September that his investigators found it “impossible” to determine whether any money was misappropriated by the agency because accounting records were too disorganized to be audited..

By Derek Kravitz |  October 20, 2008; 6:41 PM ET 


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