Oil and Gas Royalty Collections--Longstanding Problems Costing Millions

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

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John F. Simonette Team: General Accounting Office: Accounting and Financial Management Division Phone: (202) 275-9454