Government officials responsible for the collection of billions of dollars of oil royalties to the federal treasury accepted gifts from private energy firms and engaged in inappropriate behavior with employees of the firms they oversaw. The report, released by the Department of Interior Inspector General, detailed cases of sexual relationships, illegal drug use, contract manipulation, payoffs, and inappropriate behavior while conducting official business on behalf of the Department.

The report found from 2002-2006 almost 1/3 of the staff in the Royalty-In-Kind program of the U.S. Minerals Management Service (MMS) had engaged in inappropriate behavior with the oil and gas companies. In the past, TCS has raised concerns regarding a culture of mismanagement at the agency. Errors on MMS’s part in lease contracts in 1998-1999 have already cost taxpayers more than a $1 billion and could cost taxpayers up to $10 billion more. TCS and others had warned that the Royalty-In-Kind program was ripe for abuse, noting “in-kind” contributions across government programs almost always ends up short-changing taxpayers. When MMS began pursuing an expansion of their in-kind program, which allows oil and gas companies to pay their royalties in the form of oil or gas instead of cash, we saw a red flag. Collecting in-kind royalties, rather than cash, forces the federal government to market the oil and gas themselves. Even without the additional scandals that plague the department, acting as oil marketers is risky business for the federal taxpayers.

It is the federal government’s responsibility to protect taxpayers’ resources and ensure they are adequately compensated for their sale. It is clear the agency responsible for this taxpayer protection is in need of an accountability overhaul and we urge Congress to take immediate action.

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Memorandum from Inspector General Earl E. Devaney to Secretary of the Interior Kempthorne: OIG Investigations of MMS Employees, September 9, 2008

Investigative Report of MMS Oil Marketing Group – Lakewood, August 19, 2008

Investigative Report of Gregory W. Smith, August 7, 2008

Energy and Natural Resources Committee Letter to Inspector General Earl E. Devaney, April 19, 2007