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Project on Government Oversight

Written Statement of POGO's Beth Daley to the Royalty Policy Committee

Related Content: Oil & Gas Royalty Revenue
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November 14, 2006 | By: Beth Daley

Royalty Policy Committee Meeting
Department of Interior, Minerals Management Service

Dear Members of the Royalty Policy Committee:

At the last meeting of the Royalty Policy Committee on April 26, 2006, there was some discussion of the deteriorating relationship between the Minerals Management Service (MMS) and the State and Tribal Royalty Audit Committee (STRAC). Since that meeting, the relationship has deteriorated further.

To refresh your memory, at the last meeting, Ms. Lucy Dennett of the MMS described the situation:

"She explained that we have a good working relationship, but periodically we do not agree on certain things—whether it is policy, funding, etc.—but those things arise, and we work through them. Ms. Denett stated that she was extremely disappointed when STRAC chose to involve the media and congressional committees in our debates, especially when it was done in reference to the New York Times article. STRAC sent several letters critical of MMS to the MMS Director, to her, and to the congressional committees. The concerns revolve around three issues—funding, compliance processes, and the automated system."

Since that time, Ms. Dennett and other officials at the Department of Interior have been in the process of attempting to gut the State and Tribal Royalty Audit Committee, apparently in order to silence their criticisms and their ability to collaborate toward their shared goals. MMS has done so by refusing to reimburse states and tribes for their three national meetings, a meeting schedule which has been in place for more than 20 years. MMS has also declared that it will set the STRAC's meeting agendas and monitor all of STRAC's meeting discussions, essentially making it into a puppet organization.

Prior to its decision, the MMS asked the 17 members of STRAC to share their thoughts on whether the STRAC should be allowed to continue to meet independently. Eleven states and tribes wrote to indicate that national independent meetings have value and should continue. Two tribes, which were short-staffed, abstained from providing input.

In other words, despite the fact that the overwhelming majority of STRAC members requested that their organization continue in its tradition of 3-4 national meetings per year, MMS has indicated that it will rule against their wishes. I have enclosed copies of those letters of support for the STRAC for the record of your meeting. (APPENDIX A)

These recent decisions can only harm the relationship between MMS and the STRAC. Members of the STRAC to whom I have spoken believe that the MMS is retaliating against them for voicing their concerns about the new "compliance review" system which the MMS is now in the process of forcing them to use. Members of Congress have also noted that MMS' actions appear to be retaliatory in a recent letter. (APPENDIX B) The notes from your last meeting support this view point as MMS clearly voiced its displeasure with the states and tribes publicly raising their concerns. Yet, the STRAC had been raising these concerns privately for several years to no avail. In addition, the STRAC was founded primarily for just this purpose -- to provide a check on failures at the Department of Interior to adequately collect what is owed to states and Indian tribes.

In fact, preliminary information from an investigation being conducted by the Department of Interior Inspector General (IG) suggests there is merit in the concerns that have been raised by the STRAC about the new compliance review system. A forthcoming report by the IG will certainly shed light on the issue.

In addition, last week, the House Government Reform Committee announced a greatly expanded Government Accountability Office (GAO) investigation aimed at further examining compliance review (APPENDIX C). In their request letter to the GAO, the Committee's fourth and fifth research request items are on point to this discussion (APPENDIX D):

"4. Analyze the cost and effectiveness of information technology systems developed and employed by the Minerals Management Service to gather production data and conduct compliance audits. This analysis should include:

a. A review of contracts entered into by the Minerals Management Service and other parties to develop information technology systems, whetherthese systems met the specifications required by the contract, and, if applicable, why systems did not meet any specifications.

b. A comparison of the effectiveness of national systems to collect such data and other systems employed by state and territorial auditing entities, if such systems exist.

c. A review of the extent to which information technology systems developed by MMS contain automated functions that enable auditors to systematically analyze production volumes reported by lessees with other data bases containing similar information.

5. Analyze the compliance and enforcement efforts of the Minerals Management Service related to royalty collection, including a comparison of the frequency of enforcement actions, such as issue and demand letters, over time."

Finally, as was pointed out in my recent written testimony to the House Government Reform Committee, audit and compliance review dollar collections have dropped substantially in the past four years:

"In the four years from 2002 to 2005, MMS's auditing and compliance program collected an average $48 million annually, less than half the average $115 million collected annually in the division's first 20 years." (APPENDIX E)

I have enclosed several STRAC letters from earlier this year which articulate their concerns about compliance review. (APPENDIX F) In addition, I should note that I have been told by several individuals that MMS sent an email to members of the STRAC informing them that providing what was called "confidential" information to the news media may be a violation of agreements held between MMS and the states and tribes. This email sounded like an awkward attempt by the MMS to intimidate and silence states and tribes.

The Project On Government Oversight urges the Committee to examine MMS' treatment of the STRAC and to make recommendations to improve the situation. The STRAC has historically played an important role in ensuring the integrity of the federal government's royalty collection policies and practices. Without an independent voice, STRAC will be significantly less able to bring forward legitimate concerns about failures at the Department of Interior to protect the interests of Native Americans and the taxpayer.

Sincerely,

Beth Daley
Director of Investigations
 

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