Re: Members of Congress request investigation, closure of EPA Libraries.

[Guest guest]

There's an interesting article here about how some auditors for the

Interior Department are bringing suit to force what appears to be a

corrupt Interior Department to conduct audits of oil leases that are

obscene giveaways to the oil industry..

http://www.nytimes.com/2006/09/21/business/21royalty.html

______________________________________

" Suits Say U.S. Impeded Audits for Oil Leases

By EDMUND L. ANDREWS

WASHINGTON, Sept. 20 — Four government auditors who monitor leases for

oil and gas on federal property say the Interior Department suppressed

their efforts to recover millions of dollars from companies they said

were cheating the government.

The accusations, many of them in four lawsuits that were unsealed last

week by federal judges in Oklahoma, represent a rare rebellion by

government investigators against their own agency.

The auditors contend that they were blocked by their bosses from

pursuing more than $30 million in fraudulent underpayments of

royalties for oil produced in publicly owned waters in the Gulf of

Mexico.

" The agency has lost its sense of mission, which is to protect

American taxpayers, " said Bobby L. Maxwell, who was formerly in charge

of Gulf of Mexico auditing. " These are assets that belong to the

American public, and they are supposed to be used for things like

education, public infrastructure and roadways. "

The lawsuits have surfaced as Democrats and Republicans alike are

questioning the Bush administration's willingness to challenge the oil

and gas industry.

The new accusations surfaced just one week after the Interior

Department's inspector general, Earl E. Devaney, told a House

subcommittee that " short of crime, anything goes " at the top levels of

the Interior Department.

In two of the lawsuits, two senior auditors with the Minerals

Management Service in Oklahoma City said they were ordered to drop

their claim that Shell Oil had fraudulently shortchanged taxpayers out

of $18 million.

A third auditor, also in Oklahoma City, charged that senior officials

in Denver ordered him to drop his demand that two dozen companies pay

$1 million in back interest.

And in a suit that was filed in 2004, Mr. Maxwell charged that senior

officials in Washington ordered him not to press claims that the

Kerr-McGee Corporation had cheated the government out of $12 million

in royalties.

On Wednesday, Interior officials denied that the agency had suppressed

any valid claims and implied that the auditors simply wanted a share

of any money recovered through their lawsuits.

" If these auditors believed there were fraud and or false claims on

the part of the companies they were auditing, they should have

followed the proper procedures, " the Interior Department said in a

written statement. " Instead, they opted to pursue private lawsuits

under which, if they prevail, they could receive up to 30 percent of

the monies recovered from the companies. "

In defying their own agency, the Interior Department's auditors sued

the oil companies under a federal law, called the False Claims Act,

that was created to allow individuals to expose fraud against the

government. People who successfully recover money for the government

in such cases are entitled to a portion. A losing company is required

to pay triple the amount of recovered money as well as back interest —

potentially more than $120 million in the cases brought by the

auditors.

Destin Singleton, a spokeswoman for Shell, said the company had not

seen the suits and could not comment. Christiansen, a Kerr-McGee

spokesman, said, " We believe the case is without merit and we are

defending against it. "

In dollar terms, the suspected underpayments amount to a tiny fraction

of the $8 billion in royalties that companies paid last year for oil

and gas extracted from federal lands.

But the lawsuits come at a time when the Interior Department is

already under fire from Congress, accused of covering up ethical

lapses and managerial incompetence.

" These accounts, coming from the front lines, point a big red arrow at

the large problem of taxpayers being stiffed, " said Senator Ron Wyden,

Democrat of Oregon, who has been investigating the accusations.

" If it was one isolated instance, you could say that's somebody who

had a bad experience and was frustrated, " Mr. Wyden said. " But when

you have three or four professional, nonpolitical, independent

auditors all bringing the same message, that is too important to

ignore. "

By any measure, the Interior Department under President Bush has

placed top priority on increasing oil and gas production in the United

States. Under its business-friendly agenda, the department has

increased incentives for drilling in risky areas, has speeded

approvals for drilling applications and has campaigned to open more

coastal areas for oil exploration.

Lawyers who have specialized in lawsuits under the False Claims Act

said they had never seen a group of government investigators use the

law against their own agency.

" Most whistle-blowers are insiders at a company who spot something

that government auditors have missed, " said Moorman, president

of Taxpayers Against Fraud Education Fund, a nonprofit organization

supported by lawyers that specializes in the False Claims Act.

" But here you have auditors saying, 'We did our job, we found the

problems and our superiors don't want to hear about it,' '' Mr.

Moorman said. " If it were just one auditor, you could dismiss it. But

with four auditors, that's a pattern of practice. "

In their suits, the auditors contend that they had no choice but to go

outside the agency because their supervisors ordered them to " cease

work " on five separate investigations and drop their claims.

Documents recently unsealed in Mr. Maxwell's case against Kerr-McGee,

which is scheduled for trial in November, show that federal officials

abandoned his claims at almost the same moment that state auditors in

Louisiana reached the same conclusions as Mr. Maxwell.

Under federal regulations, companies are supposed to pay the federal

government a royalty of 12 percent or 16 percent on oil and gas they

extract from federal lands or coastal waters.

Mr. Maxwell's job was eliminated in 2004. He received a settlement

from the government and is now living in Hawaii.

A much-praised auditor who recovered hundreds of millions of dollars

over a 20-year career, Mr. Maxwell concluded in late 2002 that

Kerr-McGee had used a clever marketing deal to reduce its apparent

sales receipts and royalty payments.

Under the marketing deal, Mr. Maxwell contended, Kerr-McGee sold its

oil at $1 to $3 a barrel below market prices to a company called

Texon. Mr. Maxwell's auditing team said that Texon was making up for

Kerr-McGee's shortfall by providing marketing and administrative

services. In effect, Mr. Maxwell contended, Kerr-McGee was being paid

in both cash and services but only paying royalties on the cash

portion.

Interior officials initially encouraged Mr. Maxwell when he raised the

concerns about Kerr-McGee in early 2003. " I am sure we can make the

case, " wrote Price, then head of the agency's appeals division,

in an e-mail message to Mr. Maxwell.

But a few days later, lawyers in the Interior Department's solicitor's

office urged him to drop the case. " Although I did not understand the

reasoning, it was made clear to me that the agency did not want the

order issued, " Mr. Maxwell wrote in an affidavit for his suit. " The

next day, Mr. Price telephoned me and reiterated to me that if I

issued the order, the director would be very upset with me. "

But Louisiana auditors were investigating the same practices in

connection with royalties on state-owned land, and had concluded that

Kerr-McGee was lowballing its sales price by $1.50 to $3 a barrel.

Louisiana officials demanded more than $1 million in additional state

royalties from the company, and eventually settled for $600,000.

In two of the lawsuits that were unsealed last week in Oklahoma,

senior auditors in Oklahoma City said they had been ordered to drop

claims that Shell Oil had underpaid by $18 million.

The suits were brought by F. Arnold, a supervisory auditor who

oversees a team of offshore auditors based in Oklahoma City, and

Randall L. Little, a senior auditor on Mr. Arnold's team in Oklahoma

City.

Like Mr. Maxwell, both of the Oklahoma auditors have more than two

decades of experience in government and industry and have received

numerous government awards for the money they have recovered.

In one suit, Mr. Little contends that he found evidence from his audit

that Shell had reduced the sales value of oil from six leases by

fraudulently inflating transportation costs. One practice, they said,

allowed Shell to improperly escape $15 million in royalties. A second

practice allowed Shell to save $3.8 million by claiming transportation

costs for oil that was being delivered to the government at its own

production site in the Gulf.

The Justice Department, which reviews such suits and sometimes joins

them, declined to participate in these cases. But it did not urge the

courts to dismiss the suits, as some senior Interior Department had

wanted.

None of the Oklahoma auditors would agree to an interview.

Sharrock, a lawyer for Mr. Arnold and Mr. Little, said both men had

already been removed from their usual jobs and were afraid of being

fired.

But according to their suits, the auditors presented their findings

about Shell last October to their supervisor in Houston, Lonnie

Kimball. Mr. Kimball, according to court papers, initially told the

auditors to " go straight to Shell " with the complaints.

But in January, after meeting with a Shell executive, Mr. Kimball

abruptly reversed course and told the auditors to " cease work on all

false claims " against Shell.

In its statement on Wednesday, the Interior Department acknowledged

that the auditors had been told not to send " issue letters " — an

official notification that a company appears to have underpaid

royalties.

But it said that other auditing offices had been investigating the

issues and taken certain actions. " In fact, " it said, " our actions to

date include: issuing late-payment interest bills; continuing an

ongoing audit; and determining that an issue was not supported by the

regulations. "

Interior officials did not say how much money they had recovered from

companies named by the auditors. But the agency's own statistics

indicate that revenue from auditing and enforcement plunged after

President Bush took office.

From 1989 through 2001, according to a report by the Congressional

Budget Office, auditing and other enforcement efforts generated an

average of $176 million a year. But from 2002 through 2005, according

to numbers that the department provided lawmakers last May, those

collections averaged only $46 million.

In another clash, frustrated federal auditors have complained that the

Interior Department no longer allows them to subpoena documents from

oil companies.

" Subpoenas are a very powerful tool to get the information you need,

but I don't think they've approved a single subpoena in years, " Mr.

Maxwell said in an interview. " In the good old days when we were able

to issue subpoenas on our own, each of us was able to recover millions

of dollars a year. "

Agency officials acknowledged that they have not issued any subpoenas

in the last three years. " Enforcement of subpoenas by the courts can

take years and be very costly, " the agency said in a written response

to questions. " We have not found them to be a very effective tool. "