Saturday, October 06, 2007

IG: Interior May Not Be Collecting All Petroleum Royalties

Interior Department Inspector General Earl Devaney, upon request of Interior Secretary Dirk Kempthrone and several members of Congress, was asked to investigate "false claim" lawsuits (somewhat akin to whistleblowing suits) involving royalty payments to the Interior's Mineral Management Service (MMS) by oil companies (on leases). The results--auditors had not followed proper procedures--in part because of a lack of trust in management, and inconclusive on two other issues: misuse of proprietary information by auditors and evidence of retaliation by management. Lease royalties is one of the federal government's largest non-tax revenue sources with collections of over $8 billion per year. However, the Inspector General vigorously criticized MMS policy of calculating interest on leases rather than requiring oil companies to make the calculation. Because of shortcomings in MMS computers, MMS personnel (actually, Mineral Revenue Management, an office within MMS) were hand-calculating interest. Devaney wrote that failures existed in technology and communication and that a significant source of federal revenue collection depended on a "Band-Aid approach." Senator Jeff Bingamon and Congressman Nick Rahill called on Interior to submit a detailed plan for addressing Devaney's concerns.

It is mind-boggling that a federal agency would resort to hand-cacluating interest for oil companies with far stronger computer capabilities for doing this calculation. Two questions: [1] do we REALLY want a government with this type of performance on present responsibilities taking on additional duties presently done by private, nonprofit or state/local governments, [2] is it fair for oil companies to expect the government to calculate interest and royalties on oil leases when individual taxpayers are expected to calculate their own tax liabilities?


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