The Interior Department’s Minerals Management Service (MMS) is disputing published allegations that top agency officials blocked auditors from recovering millions of dollars in oil and natural gas royalties from producers.

Government auditors, in four lawsuits that were unsealed earlier this month by federal judges in Oklahoma, accused their Interior superiors of preventing them from pursuing more than $30 million in royalty underpayments for oil and gas produced in federal waters in the Gulf of Mexico, according to a story published in The New York Times Thursday. Several of the auditors have filed False Claims Act lawsuits as private citizens against producers for allegedly defrauding the U.S. government.

“In the rare circumstance when MMS decides not to pursue an issue an auditor raises, it is because the auditor’s first or second line supervisor has determined the auditor’s analysis is not supported by the facts,” the MMS said in response to the allegations. In the cases cited in the article, “the auditors were told that the appropriate MMS office — Financial Management — would take the action, which…is part of our normal routine. MMS has never refused to issue an interest bill. In fact, in fiscal year 2006, MMS issued over 3,800 late payment interest bills for a net amount of $7 million,” the agency noted.

In one of the False Claims actions against Shell, “MMS auditors were told not to pursue the issue because it was included as part of a larger compliance audit,” the agency said. “When that compliance audit identified some of the issues that auditors raised in their lawsuit, the company voluntarily paid $7.7 million in additional royalties. The audit identified other areas of interest, so MMS by the end of the year plans to issue the company an order to pay additional royalties,” it noted.

“The bottom line is our procedures require that auditors who suspect fraud must report it to the Department of Interior’s Office of Inspector General (OIG). If MMS auditors believed they had found fraud and/or false claims on the part of the company they were auditing, they should have followed the proper procedures and referred the matter to the IG,” MMS said.

“In the cases currently being [reported], to the best of our knowledge, the auditors did not [follow procedure]. Instead, they opted to pursue private lawsuits under which, if they prevail, they could receive up to 30% of the monies recovered from the companies.”

The MMS statement also disputed the claim of one former auditor, Bobby L. Maxwell, that he was fired after top officials at Interior in Washington, DC, allegedly ordered him to stop pursuing Kerr-McGee Corp. for $12 million in back royalties. “The department did not fire Mr. Maxwell, a senior MMS auditor…Mr. Maxwell had earlier retired from the MMS and had been rehired as a reemployed annuitant.” His position in Denver was later eliminated as a result of a reorganization of the Offshore Compliance and Asset Management organization in a new office in Houston, TX, it said.

Both the MMS and the Department of Justice investigated and analyzed Maxwell’s claim againt Kerr-McGee, and declined to intervene in the lawsuit that he brought under the False Claims Act, the agency noted.

The new allegations against Interior came one week after Interior Inspector General Earl Devaney told a House subcommittee that “short of crime, anything goes” at the high echelons of the department.

In response to the fresh charges, Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the Senate Energy and Natural Resources Committee, and Rep. Nick Rahall, the ranking Democrat on the House Resources Committee, called on Devaney Thursday to provide “a report on any actions, including past and ongoing investigations, undertaken by [his office] as pertains to allegations of misconduct in the management of the oil and gas royalty program.”

In addition, “we hope that you will provide to us as soon as possible your work in response to [a] Jan. 24, 2006 request relating to auditing under the Royalty Management Program, which we understand you are undertaking in coordination with the Government Accountability Office.”

Sen. Ron Wyden (D-OR) on Thursday requested that the Senate energy panel schedule a hearing to question Interior Secretary Dirk Kempthorne about the allegations and what he is doing to address the ethics problems at the department (see Daily GPI, Sept. 22).

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