Need for Guidance and Controls on Royalty Rate Reductions for Federal Coal Leases

EMD-82-86: Published: Aug 10, 1982. Publicly Released: Aug 27, 1982.

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GAO discussed problems encountered by the Department of the Interior in its procedures for granting or denying requests for royalty rate reductions on federal coal leases. Since 1979 the Secretary has authorized eight reductions amounting to about $12 million in reduced federal revenues. Reduction requests were precipitated by recent legislative enactments and a 2-year departmental experiment that raised royalty rates on coal leases to significantly higher levels.

GAO found that Interior has not sufficiently used its existing accounting and auditing expertise to review reduction applications and that inconsistent use and inequitable application of royalty reduction guidelines have made the approval process erratic. The Interior's Minerals Management Service (MMS) merely restates Interior's reduction authority without defining important terms such as "profit," "rate of return," or "successful operation." Frequently, reduction guidelines were changed to accommodate either a specific applicant's circumstances or a group of similar applicants, such as those with experimental leases that contained royalty rates in excess of the minimums. MMS procedures for verifying the accuracy of lessee data differ among field offices. In addition, the MMS staff in the region most active in reviewing reduction applications consists largely of nonaccountants who have acknowledged problems with reviews of the complex financial data submitted by coal operators. Interior's accounting expertise in its Royalty Management Program has not been used sufficiently in past reviews of reduction requests.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Interior should direct MMS to better use its existing financial and auditing expertise in evaluating royalty rate reduction requests by requiring the various economic evaluation sections to use the financial assistance in the Royalty Management Program or transferring to the Royalty Management Program the authority to either review or review and approve all royalty rate reduction requests.

    Agency Affected: Department of the Interior

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Interior should provide guidance to field offices on when MMS can audit the financial statements of companies requesting a royalty rate reduction.

    Agency Affected: Department of the Interior

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Interior should submit the Department's reduction policy and procedures to public review and comment and promulgate appropriate royalty rate reduction regulations.

    Agency Affected: Department of the Interior

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Interior should develop a departmental policy and accompanying procedures on royalty rate reductions that define the limits and conditions under which a reduction would be entertained and granted.

    Agency Affected: Department of the Interior

 

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