Federal Oil and Gas Royalties

GAO discussed the Department of the Interior's procedures for collecting and accounting for oil and gas royalty payments. GAO found that: (1) Interior experienced difficulties in developing acceptable product valuation guidance, implementing an effective accounting system for royalty collections, and establishing an adequate auditing program to verify the accuracy of royalty payments; (2) Interior accepted industry-calculated payments as correct; (3) valuation problems accounted for $110 million in underpayments between October 1981 and August 1986; and (4) valuation regulations were complex and subject to varying interpretations. GAO also found that Interior: (1) implemented the royalty accounting system despite problems with inadequate system documentation, testing, and computer capacity; (2) was unable to verify royalty payments for 23,000 onshore leases because it did not have a system in place to make the necessary comparisons between production and sales volumes; and (3) did not have enough auditors to monitor production in leased fields or a system to compare production and sales volumes.