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Former MMS Official Pleads Guilty to Contract Wrongdoing

As Washington still was grappling with the shocking disclosure of illegal and inappropriate activities at the Interior Department's Minerals Management Service (MMS), a former agency deputy associate last Monday pleaded guilty to a felony violation of the restrictions on post-government employment that involved the illegal awarding of a contract to a company of a retired agency colleague (see NGI, Sept. 15).

Milton K. Dial, 60 and a resident of Las Vegas, NV, pleaded guilty before Judge Robert C. Jones of the U.S. District Court for the District of Nevada to a single count charging him with a felony violation of restrictions on former employees of the executive branch of the United States government that bar them from trying to influence any federal department, agency or court on behalf of another person.

Dial faces a maximum sentence of five years in prison, a fine of $250,000 and a term of supervised release when his sentence is up. Sentencing has been scheduled for Dec. 15 before Judge Jones.

On May 21, Dial accepted a position as a subcontractor working for and representing a former colleague's company (Federal Business Solutions) in a contract with MMS approximately six months after retiring from the agency, according to the Department of Justice (DOJ). Prior to retiring from MMS, Dial admitted that he created the evaluation criteria for the bids for this same contract, had served on the evaluation committee that awarded the contract to the company and had served as the contracting officer's technical representative at the MMS for the company's contract up until the time of his retirement, the DOJ said.

The company that was awarded the contract was a sole proprietorship owned by a friend and former colleague of Dial's, Jimmy Mayberry. On July 30, Mayberry pleaded guilty in the U.S. District Court for the District of Columbia to a felony violation of the conflict of interest law. He admitted in plea documents that he created the requirements for the same contract immediately before his retirement from the MMS, knowing that he would bid on the contract immediately after his retirement, the DOJ said. Mayberry's sentencing is scheduled for Nov. 14.

An investigation by Interior's Office of Inspector General revealed that Mayberry and Lucy Querques Denett, associate director of MMS' Minerals Revenue Management, had acted together to create the lucrative contract for Mayberry when he retired in January 2003 to start a consulting firm, which he called Federal Business Solutions. In June 2003 MMS awarded the contract to Mayberry's firm.

Dial, who was good friends with Denett and Mayberry, oversaw the contract for MMS. In February 2005, shortly after his retirement from MMS, Dial began working for Mayberry. When the original contract expired, MMS awarded a new contract to Mayberry's firm in January 2006.

The matter involving Denett, Mayberry and Dial "paint[s] a disturbing picture of three senior executives who were good friends and who remained calculatedly ignorant of the rules governing post-employment restrictions," said Interior Inspector General Earl Devaney in a report to Congress earlier this month.

At a House committee hearing last week, Devaney said he has concluded his investigations of MMS and that no more prosecutions were likely to come."I think we're done," he told the House Natural Resources Committee Thursday. He noted that the DOJ has limited its prosecution to just Mayberry and Dial.

Devaney said his office made no recommendations to prosecute oil companies, who gave MMS employees gifts and gratuities and engaged in sexual activites, because it "could not make [any] connection" between the gift-giving and companies winning contracts. "We were unable to show that these particular relationships resulted in benefits" to oil and gas companies due to the fact that the MMS files "were in terrible shape."

Interior Secretary Dirk Kempthorne acknowledged that MMS was "still doing business with these companies" -- which astounded several committee lawmakers, who believed the department should end its business relationship with the offending companies.

Kempthorne said he is considering the idea of doing an "outreach" with the oil and gas companies in which the department would identify the parameters under which its employees could work with industry.

In a related development, the watchdog group Project on Government Oversight (POGO) issued a report last Wednesday calling on Kempthorne to abolish the MMS royalty in-kind (RIK) program following the recent disclosure of drug use, sex with oil industry contacts and the rigging of bids 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.

A two-year investigation by Interior's inspector general 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.

"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."

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