Oil and Gas Royalty Collections--Longstanding Problems Costing Millions

AFMD-82-6: Published: Oct 29, 1981. Publicly Released: Nov 4, 1981.

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GAO reviewed the U.S. Geological Survey's (USGS) continued unsuccessful efforts to collect oil and gas royalties on federal and Indian lands and the serious impact of this problem on the collection of the windfall profit tax.

Financial management problems in existence 20 years ago persist today because management has not focused on correcting reported deficiencies. As a result, USGS is not collecting all oil and gas royalties, and millions of dollars owed the government may be going uncollected each year. Moreover, millions of dollars in royalty income are not being collected when due, thereby increasing the government's interest costs. Since 1959, GAO has reported on the need for improved management of the USGS royalty accounting system. USGS still relies almost entirely on production and sales data reported by the oil and gas companies, and little effort is made to verify the accuracy of that data. Because of a breakdown in the royalty accounting system, lease account records are inaccurate, unreliable, and cannot be used to determine if royalties are properly computed and paid. To correct its many long-standing financial management problems, USGS has established royalty management as a separate entity, hired additional personnel for royalty management, and is designing and implementing a new royalty accounting system. Royalty collection has been further complicated by the windfall profit tax. USGS filed blank quarterly returns for the first quarter of 1981 and has not filed a return for the quarter ended June 30, 1981. Until the new royalty accounting system is working properly, the accuracy of royalty computation will be a problem. Since windfall profit tax calculations are based on royalty payments, they will be incorrectly stated to the extent that royalties are incorrectly stated.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: A new review has been initiated to look at alternatives for royalty collection. This new review will take a look at current procedures and make appropriate recommendations, which will supersede this recommendation.

    Recommendation: To ensure that development of the new royalty accounting system is given high priority and sustained effort, the Secretary of the Interior should closely monitor the work to see that the system is properly implemented. In this regard, immediate attention must be given to determining how the production phase will operate and how it will interface with the accounting phase which is currently being designed. Also, in developing the accounting phase, USGS must acquire data on the number of leases and wells for which it is responsible and provide for verification of the royalty computation. The necessary resources must be provided and milestones must be strictly adhered to.

    Agency Affected: Department of the Interior

  2. Status: Closed - Not Implemented

    Comments: A new review has been initiated to look at alternatives for royalty collection. This new review will take a look at current procedures and make appropriate recommendations, which will supersede this recommendation.

    Recommendation: To ensure that development of the new royalty accounting system is given high priority and sustained effort, the Secretary of the Interior should closely monitor the work to see that the system is properly implemented. In this regard, immediate attention must be given to determining how the production phase will operate and how it will interface with the accounting phase which is currently being designed. Also, in developing the accounting phase, USGS must acquire data on the number of leases and wells for which it is responsible and provide for verification of the royalty computation. The necessary resources must be provided and milestones must be strictly adhered to.

    Agency Affected: Department of the Interior: Geological Survey

  3. Status: Closed - Not Implemented

    Comments: A new review has been initiated to look at alternatives for royalty collection. This new review will take a look at current procedures and make appropriate recommendations, which will supersede this recommendation.

    Recommendation: To gain control over information reported by the oil and gas companies, the Secretary of the Interior should direct USGS to include in its current redesign effort a plan which should provide for: (1) establishment of a detailed audit plan for periodic reviews of lease accounts and oil and gas companies' accounting records; (2) devotion of additional resources to the inspection of leases using field inspectors to help verify data reported; (3) coordination with the states to arrange the sharing of the audit and lease inspection function and the exchange of production and sales information; (4) reconciliation of existing lease account records to the extent possible; (5) identification of staff needs and resources for assessing interest on late payments; and (6) faster deposit of royalty payments using electronic funds transfer when possible.

    Agency Affected: Department of the Interior

 

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