Federal Auditors Accuse Interior of Preventing Lease Audits

Four federal investigators are suing the Interior Department for allegedly trying to prevent the recovery of more than $30 million in royalty underpayments for oil leases in the Gulf of Mexico.

Federal judges unsealed four lawsuits last week in Oklahoma that detailed a series of allegations of obstruction. All the suits accuse senior Interior officials of ordering auditors to drop their claims of shortchanging by oil and gas companies.

Two auditors with the Minerals Management Service said Interior prevented them from pursuing their claim that Shell Oil had fraudulently kept $18 million in taxes. Another MMS auditor said officials in Denver ordered him to stop pressing two dozen companies to pay $1 million in back interest. A third, a Gulf of Mexico auditor, said officials in Washington, D.C., told him to drop claims against Kerr-McGee Corp. for $12 million in royalties.

"The agency has lost its sense of mission, which is to protect American taxpayers," said Bobby L. Maxwell, the Gulf of Mexico auditor. "These are assets that belong to the American public, and they are supposed to be used for things like education, public infrastructure and roadways."

Maxwell sued the agency in 2004 after trying to pursue allegations that Kerr-McGee was selling its oil at up to $3 per barrel below market price to another company that provided marketing and administrative services. Maxwell said Kerr-McGee was being paid for the oil in both cash and services and was avoiding paying royalties on the service part of the payments.

When Maxwell raised his allegations in 2003, he said, Interior officials initially encouraged him, then after a few days urged him to drop the case. "Although I did not understand the reasoning, it was made clear to me that the agency did not want the order issued," Maxwell wrote in an affidavit. "The next day, Mr. [John] Price [then-head of Interior's appeals division] telephoned me and reiterated to me that if I issued the order, the director would be very upset with me."

The other lawsuits recount similar allegations, including one instance in which a supervisor met with Shell, then reversed his instructions to the auditors to pursue their case.

Interior released a statement yesterday accusing the plaintiffs of suing in order to exploit the False Claims Act, which gives a portion of any money recovered to the whistleblower. "If these auditors believed there were fraud and or false claims on the part of the companies they were auditing, they should have followed the proper procedures," the agency said. "Instead, they opted to pursue private lawsuits under which, if they prevail, they could receive up to 30 percent of the monies recovered from the companies."

Interior also said other offices had taken up the claims dropped by the auditors. "In fact," it said, "our actions to date include: issuing late-payment interest bills; continuing an ongoing audit; and determining that an issue was not supported by the regulations."

Congress is already examining Interior for other alleged problems of ethics and incompetence. Sen. Ron Wyden (D-Ore.) said it appeared the department was habitually cheating taxpayers. "These accounts, coming from the front lines, point a big red arrow at the large problem of taxpayers being stiffed," he said. "If it was one isolated instance, you could say that's somebody who had a bad experience and was frustrated. But when you have three or four professional, nonpolitical, independent auditors all bringing the same message, that is too important to ignore" (Edmund L. Andrews, New York Times, Sept. 21). -- DK

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Company: Minerals Management Service (MMS) more info
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