Whistleblowers from the Minerals Management Service (MMS) testified today before the House Natural Resources Committee, describing an agency that has steadily abdicated its royalty collection responsibility in favor of big oil companies drilling on federal lands. Their testimony confirmed that fewer audits have been conducted of oil companies drilling on federal and Native American lands, which helps to explain why audit collections have plummeted. On March 23, Committee Chairman Nick Rahall asked House appropriators to restore the number of MMS auditors employed before cuts began in 2000.
Today's testimony was delivered by former-MMS Manager Bobby Maxwell, an auditor with 30 years of government experience who recently won a $7.5 million jury ruling against Kerr-McGee. According to Mr. Maxwell:
We were told not to be requesting documents as we formerly had with audits. Audit staff was reduced. Many auditors stopped traveling to companies for audits, stopped interviewing oil company staff, stopped visiting marketing departments and field personnel. Audits were marginalized, and accounting and auditing degrees were no longer required…. Every year we were pressured to do less auditing and state that royalties were accurately reported and paid by the oil companies using the compliance review process. In some cases the compliance reviews were adequate and useful in determining if royalties were correctly reported and paid. In other situations, it was only used as a method of smoke and mirrors to state that royalties were in compliance. I was told that finding and collecting royalty underpayments wasn’t important, but meeting our Government Performance Results Act standards was what mattered, our operating budget depended upon it. Further, we were directed that MMS would not issue any subpoenas to oil and gas companies for records.
Also testifying was Kevin Gambrell, another former employee who described a number of incidents where royalties were left on the table:
In 2000, MMS made a decision to close all back-logged audits. To fully and diligently complete the audits, MMS would have to reverse their compliance review course and hire and train additional auditors with oil and gas accounting backgrounds. MMS decided not to change their course and made the deliberate decision to fast track all past audits with inappropriate and illegal valuation methods such as the “bump method” and other questionable practices. I blew the whistle on the actions management was directing me to do that I knew based on past audits would result in 1/8 the collections of underpaid royalties.
-- Beth Daley