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Problems Confronting the Geological Survey in Collecting Oil and Gas Royalties

Published: Aug 27, 1981. Publicly Released: Aug 27, 1981.
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Highlights

GAO discussed its views on the U.S. Geological Survey's (USGS) oil and gas royalty accounting system, a system full of longstanding financial management problems. USGS is responsible for collecting the royalty income derived from oil and gas produced on Federal and Indian lands. In recent years, royalty collections have increased rapidly because of increases in oil and gas prices. USGS is not collecting all of the oil and gas royalties; as a result, hundreds of millions of dollars owed the Government may be going uncollected each year. Until USGS improves its financial management, there will be little assurance that all royalty income due from Federal and Indian lands is received. USGS has a complex task. It has to deal with many factors beyond its control such as (1) the proliferation of lease interests; (2) varying royalty rates; (3) and complex oil and gas valuation factors. The amount of money for which USGS is responsible has grown tremendously in recent years. USGS is seeking to improve its financial management capabilities by developing a new royalty accounting system based on a modified Internal Revenue Service system. In order for the new royalty accounting system to be successful, a high priority effort is needed. The new system will not determine and collect previously uncollected royalties. However, it is not yet operational and will not be fully designed for several years. The system will be implemented in a 5-year period consisting of three phases: (1) the royalty accounting phase; (2) the production and sales data phases; and (3) the enhanced management phase which will center on developing quality review and management data. USGS has been slow to respond to longstanding financial management problems. Now the ongoing impetus to redesign the system must receive top management attention for the current program to succeed.

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