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California Controller Sues to Reduce Payments to Interior Department

California state Controller Betty Yee has filed a grievance against Interior Secretary Sally Jewell claiming the federal department has denied the state's claims for nearly $300,000 in overhead costs related to the state's auditing of oil/natural gas produced from federal lands.

At issue is a more than 30-year old law, the Federal Oil and Gas Royalty Management Act (FOGRMA), and an agreement between California's Controller's Office (SCO) and Interior's Office of Natural Resources Revenue (ONRR) dating to 2012. SCO has been operating under the ONRR agreement to perform audits and related investigations under the 1982 FOGRMA.

California contends that the federal department unilaterally ignored the cooperative agreement between the state and federal agency, which the state told the court was originally drafted by Interior.

"The agreement provides (in Section 6.5C) that fringe benefits shall be allowed in accordance with the state's established accounting system." For Yee, that means the state administrative manual (SAM) and its formula allocating overhead in the state's accounting practices. That provision has been in effect in California for more than 30 years, and it is the basis for California claiming to be entitled to nearly $300,000 in extra costs for work in the 2013-2014 fiscal year ending Sept. 30, 2014.

The argument is over extra costs. Interior argued that the state accounting factor, SAM, assumed state employees would work no more than 144 hours on the federal auditing project, and in fact they worked more, and the state was receiving more than 100% of its actual costs as a result. California and Yee said this ignores the SAM provisions allowing the collection of "fringe benefits."

Yee's filing is asking the DC federal court to declare that Interior breached the agreement with the state, and let California keep its extra funds, along with forcing the federal government to pay for the cost of the state's legal action.

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