Problems Confronting the Geological Survey in Collecting Oil and Gas Royalties

The Geological Survey's oil and gas royalty accounting system is fraught with longstanding financial management problems. A current GAO review revealed that the problems pointed out in a 1979 report have become worse. GAO found that: (1) unverified data are still used to compute royalties, (2) lease account records still contain numerous errors and omissions, (3) collection procedures are still inadequate, and (4) lease accounts are still not audited on a routine basis. Survey officials continue to accept as accurate what gas and oil companies report. Because of the Survey's insufficient lease inspections and monitoring, thefts and other violations on Federal and Indian leases have gone undetected. The breakdown of the current automated royalty accounting system has compounded the problem of the Survey's reliance on information reported by the oil and gas companies. As a result, lease account records are inaccurate, unreliable, and cannot be used to determine if royalties due from Federal and Indian leases are properly accounted for. Thus, royalties due may not be collected in full and other royalties are not being timely collected. Because of plans to audit producers of oil and gas on Federal and Indian lands to determine the amount of underpayments and overpayments that have occurred, the Survey is not planning to reconcile existing lease account records. Royalty payments are not received in a timely manner because the Survey did not: (1) adequately enforce provisions calling for the timely royalty payments, and (2) did not impose appropriate administrative fees or interest charges for late payments. The Survey recently completed a feasibility study for a new royalty accounting system to be implemented over a 5-year period. GAO supports the Survey's ongoing efforts but expressed concern that the Survey has not given adequate attention to: (1) acquiring data on the number of leases and wells for which it is responsible, (2) verifying the royalty computation, (3) planning of the production phase, and (4) developing a comprehensive plan for audits and inspections. While the Survey has an overall concept for the production phase, it has not developed any plans on how this phase is to operate and how it will interface with other phases of the system. To preclude problems encountered by other agencies implementing new systems, the Survey must have a sustained, high priority effort with long-term top management involvement.