The watchdog group Project on Government Oversight (POGO) issued a report Wednesday calling on Interior Secretary Dirk Kempthorne to abolish the Minerals Management Services’ (MMS) royalty in-kind (RIK) program following the disclosure last week of drug use and sexual misconduct by employees within the program.

“Given the billions of dollars at stake and number of people involved, this is easily the worst instance of government misconduct that POGO has seen,” said POGO Executive Director Danielle Brian.

POGO recommended that Interior begin phasing out the RIK program, which allows the MMS to accept royalties in-kind (oil and gas product), and return to the royalty in-value (cash) method for producers to pay royalties. The RIK method should only be used for the purpose of filling the Strategic Petroleum Reserve when crude oil prices are low, the group said in its 24-page report.

It further proposed that Congress transfer the the responsibility for auditing oil and gas royalties from the MMS to a separate and independent agency. The MMS collects billions of dollars each year in royalties on oil and natural gas produced from the Outer Continental Shelf. It is the second largest source of revenue for the federal government. POGO also suggested that MMS establish strict guidelines and limits on what type of outside work agency employees can perform while working for the agency.

In the event the RIK program is not canceled, the watchdog group asked Congress to at least bar MMS from expanding its current RIK program. Moreover, until the auditing functions are removed from MMS, Interior should institute regular auditing of the RIK program to improve oversight and management in the meantime, POGO said.

“There are extensive inappropriate relationships between MMS employees and the oil and gas industry, insufficient auditing of royalty payments, serious mismanagement of the RIK program and a debilitating lack of transparency in the program. Despite these problems, [Interior] intends to significantly increase the size of the RIK program by 2009,” the POGO report said.

“Industry influence of the RIK program is traceable from the program’s conception [in the late 1990s], through its expansion to the full-blown program that exists today. Industry also has had significant influence over MMS and the RIK program through the revolving door. A number of individuals who went through the revolving door [are scheduled to be] sentenced to prison for violations of conflict-of-interest laws or obstruction of justice,” it noted (see Daily GPI, Sept. 17).

A two-year investigation by Interior Inspector General Earl Devaney, the results of which were released last week, revealed that about one-third of the RIK staff socialized with and received gifts/gratuities from oil and gas companies, while others engaged in inappropriate sexual activity with oil and gas contacts, and some RIK employees used cocaine and marijuana (see Daily GPI, Sept. 11).

“Information strongly indicates that RIK exists to benefit the oil and gas industry, to the detriment of the public. The most fundamental reform necessary to make this program functional is a dramatic increase in auditing capacity, yet this fix would wholly undermine MMS’s original justification for the program — that the reduced need for auditing would decrease oversight costs. This alone should be reason enough to cancel the failed program,” the POGO report said.

“However, the legitimacy of this program is called into further question given the recent findings that MMS employees consider themselves exempt from standard ethical provisions that protect the public’s interest. MMS’s close relationship with industry has further prevented the public from getting what is owed to them for industry’s use of public resources. The extensive corruption and collusion in the RIK program, given that it is charged with managing billions of dollars of federal revenue, should be the final nail in the program’s coffin.”

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.