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

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

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: Michael Gryszkowiec Team: General Accounting Office: Energy and Minerals Division Phone: (202) 275-5514