[Congressional Record Volume 154, Number 152 (Wednesday, September 24, 2008)]
[Senate]
[Pages S9417-S9422]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WYDEN (for himself and Mr. Barrasso):
  S. 3556. A bill to improve the administration of the Minerals 
Management Service; to the Committee on Energy and Natural Resources.
  Mr. WYDEN. Mr. President, today Senator Barrasso and I are 
introducing legislation to reform the Minerals Management Service at 
the U.S. Department of Interior. Most Americans have probably never 
heard of the Minerals Management Service. At least they hadn't heard of 
it until the Inspector General of the Interior Department issued a 
report a couple of weeks ago documenting sordid details of MMS 
employees accepting gifts and dinners and drugs and sex from employees 
of the oil and gas companies they were supposed to be doing business 
with on behalf of American taxpayers.
  The MMS is responsible for collecting over $10 billion a year in 
lease and royalty payments from companies that drill for oil and gas 
and mine coal and minerals on our Federal public lands, both onshore 
and offshore. MMS is also the agency that actually issues the leases 
for drilling to oil and gas companies off our coasts. And when you hear 
the call for more oil drilling just remember that it is MMS that's 
responsible for issuing those leases and making sure that oil and gas 
companies protect the environment and pay their fair share of royalties 
to the American people. And that should give everyone pause.
  Two years ago, I stood here on the floor and spoke for several hours 
to draw the Senate's attention to the mismanagement of our offshore oil 
and gas leasing program involving MMS and the royalty relief program. 
The problem then was the failure of MMS to include a key clause in 
almost 1,000 leases that would have required oil and gas companies to 
pay the U.S. Treasury higher royalties if the price of oil and gas 
increased.
  The law MMS was supposed to be implementing was originally written 
back in the mid-1990's when oil prices were low--around $15 a barrel, 
to encourage drilling by giving oil companies a break on paying 
royalties on new leases in the Gulf of Mexico. The royalties didn't 
kick in until the price of oil rose to a certain point where the 
companies would make a profit. Oil prices, as we now know, didn't stay 
low, but it turns out that ``royalty relief'' didn't phase out the way 
it should have. We learned that the MMS had bungled things so badly 
that they forgot to include provisions in their leases requiring any 
royalties on those particular leases.
  At the time, the Government Accountability Office estimated that this 
single dereliction of duty--which covered leases issued between 1995 
and 2000--would cost American taxpayers as much as $11.5 billion . . . 
and that was based on oil prices of between $50 and $70 dollars--half 
of what oil prices have been this year. GAO recently updated that 
amount to as much as $14.7 billion. We held hearings on this problem in 
the Energy Committee but the bottom line is that nothing has been done 
to fix this problem.
  We have also learned from Inspector General and from agency 
whistleblowers that MMS has essentially stopped conducting audits of 
the billions of dollars of royalty payments it collects, and it has 
allowed oil and gas companies to improperly change the amount they owe 
by allowing them to self-report adjustments to their royalties 
affecting millions of dollars in payments.
  Most recently, the Inspector General for the Department of Interior, 
Earl Devaney, has issued a report that details his office's criminal 
investigation into the Royalty-in-Kind program at the Minerals 
Management Service. Under the Royalty-in-Kind program, oil and gas 
companies are allowed to pay their royalties to the Federal Government 
not in dollars, but by physically delivering barrels of oil or cubic 
feet of gas to MMS. MMS, in turn, is responsible for selling that oil 
and gas and turning the proceeds over to the Treasury. The Inspector 
General found that instead of putting the American people first, 
employees of the RIK program put themselves first. Mr. Devaney's 
investigation, in his words, found ``a culture of ethical failure.''
  I am not going to go through all of the sordid details of what the IG 
found, but I do ask unanimous consent to include his four page summary 
following my remarks.
  The bottom line is that this is an agency that is broken and needs to 
be fixed. The legislation that Sen. Barrasso and I are introducing will 
start to fix it.
  The legislation has five major components
  It requires that the head of the MMS be appointed by the President 
and must be confirmed by the Senate. MMS is the only major bureau 
within the Interior Department that does not require its director to be 
confirmed by the Senate.
  It requires MMS to implement a comprehensive audit program, including 
on-site financial audits of royalty payments.
  It gives the Secretary of the Interior 60 days to implement all of 
the Inspector General's recommendations from

[[Page S9421]]

both the May business practices report and the more recent September 
ethics report. If that deadline is not met, the Royalty-in-Kind (RIK) 
Program would be suspended.
  It requires the Secretary to annually ``re-certify'' that the RIK 
program meets all Federal ethics and procurement laws and regulations. 
If that recertification is not completed, the RIK program would be 
suspended.
  It directs the Inspector General to annually review the MMS program, 
including the RIK certification process.
  I am pleased that Sen. Barrasso, the ranking Republican member of the 
Subcommittee on Public Lands and Forests, which I chair, has agreed to 
be an original cosponsor of this bill. While it does not specifically 
address every single problem at MMS, it will begin to establish some 
basic accountability in an agency that has demonstrated that it has 
none.
  Mr. President, I ask unanimous consent that the text of the bill and 
a letter of support be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 3556

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. MINERALS MANAGEMENT SERVICE.

       (a) Definitions.--In this section:
       (1) Department.--The term ``Department'' means the 
     Department of the Interior.
       (2) Director.--The term ``Director'' means the Director of 
     the Service.
       (3) Royalty-in-kind program.--The term ``royalty-in-kind 
     program'' means the program established under--
       (A) section 342 of the Energy Policy Act of 2005 (42 U.S.C. 
     15902);
       (B) section 36 of the Mineral Leasing Act (30 U.S.C. 192);
       (C) section 27 of the Outer Continental Shelf Lands Act (43 
     U.S.C. 1353); or
       (D) any other similar provision of law.
       (4) Secretary.--The term ``Secretary'' means the Secretary 
     of the Interior.
       (5) Service.--The term ``Service'' means the Minerals 
     Management Service.
       (b) Establishment.--The Secretary shall--
       (1) establish and maintain within the Department the 
     Minerals Management Service; and
       (2) assign to the Service such functions as the Secretary 
     considers appropriate.
       (c) Director.--The Service shall be headed by a Director 
     who shall be appointed by the President, by and with the 
     advice and consent of the Senate.
       (d) Audits.--
       (1) Royalty audits.--The Director shall ensure that the 
     Service implements a comprehensive program of financial 
     audits of royalty payments and adjustments, including 
     physical on-site audits, on the basis of risk and statistical 
     samples.
       (2) Standards.--Not later than 90 days after the date of 
     enactment of this Act, the Director shall promulgate 
     regulations that--
       (A) require that all employees of the Service that conduct 
     audits and compliance reviews meet professional auditor 
     qualifications that are consistent with the latest revision 
     of the Government Auditing Standards published by the 
     Government Accountability Office; and
       (B) ensure that all audits conducted by the Service are 
     performed in accordance with the standards.
       (3) Inspector general.--The Inspector General of the 
     Department shall--
       (A) conduct, annually and as necessary, audits of 
     activities of the Service, including leasing and royalty 
     activities; and
       (B) report the results of the audits of activities of the 
     Service (including leasing and royalty activities) and the 
     certifications required under subsection (e) to--
       (i) the Committee on Energy and Natural Resources of the 
     Senate;
       (ii) the Committee on Natural Resources of the House of 
     Representatives; and
       (iii) the Secretary.
       (e) Royalties-in-Kind Program.--
       (1) Initial certification.--Subject to paragraph (3), not 
     later than 60 days after the date of enactment of this Act, 
     the Secretary shall submit to Congress a certification that 
     all of the recommendations made by the Office of the 
     Inspector General of the Department as the result of 
     investigations that culminated in a memorandum dated 
     September 9, 2008, and a report dated May 2008 (C-EV-MMS-001-
     2008), with respect to the royalty-in-kind program have been 
     implemented.
       (2) Annual certifications.--Subject to paragraph (3), not 
     later than 1 year after the date of enactment of this Act and 
     each year thereafter, the Secretary shall submit to Congress 
     a certification that the royalty-in-kind program is in full 
     compliance with Federal law (including regulations) governing 
     procurement and ethics.
       (3) Suspension.--Notwithstanding any other provision of 
     law, if the Secretary fails to make a certification required 
     under paragraph (1) or (2), the authority of the Secretary to 
     carry out each royalty-in-kind program is suspended during 
     the period--
       (A) beginning on the day after the deadline for the 
     certification under that paragraph; and
       (B) ending on the date the Secretary makes the 
     certification required under that paragraph.
                                  ____


                United States Department of the Interior


                               Memorandum

     To: Secretary Kempthorne
     From: Earl E. Devaney, Inspector General
     Subject: OIG Investigations of MMS Employees
       This memorandum conveys the final results of three separate 
     Office of Inspector General (OIG) investigations into 
     allegations against more than a dozen current and former 
     Minerals Management Service (MMS) employees. In the case of 
     one former employee, Jimmy Mayberry, he has already pled 
     guilty to a criminal charge. The cases against former 
     employees, Greg Smith and Lucy Querques Dennet, were referred 
     to the Public Integrity Section of the Department of Justice 
     (DOJ). However, that office declined to prosecute. The 
     remaining current employees await your discretion in imposing 
     corrective administrative action. Others have escaped 
     potential administrative action by departing from federal 
     service, with the usual celebratory send-offs that allegedly 
     highlighted the impeccable service these individuals had 
     given to the Federal Government. Our reports belie this 
     notion.
       Collectively, our recent work in MMS has taken well over 
     two years, involved countless OIG human resources and an 
     expenditure of nearly $5.3 million of OIG funds. Two hundred 
     thirty-three witnesses and subjects were interviewed, many of 
     them multiple times, and roughly 470,000 pages of documents 
     and e-mails were obtained and reviewed as part of these 
     investigations.
       I know you have shared my frustration with the length of 
     time these investigations have taken, primarily due to the 
     criminal nature of some of these allegations, protracted 
     discussions with DOJ and the ultimate refusal of one major 
     oil company--Chevron--to cooperate with our investigation. 
     Since you have already taken assertive steps to replace key 
     leadership and staff in the affected components of MMS, I am 
     confident that you will now act quickly to take the 
     appropriate administrative action to bring this disturbing 
     chapter of MMS history to a close.


                      A Culture of Ethical Failure

       The single-most serious problem our investigations revealed 
     is a pervasive culture of exclusivity, exempt from the rules 
     that govern all other employees of the Federal Government.
       In the matter involving Ms. Dennet, Mr. Mayberry and Milton 
     Dial, the results of this investigation paint a disturbing 
     picture of three Senior Executives who were good friends, and 
     who remained calculatedly ignorant of the rules governing 
     post-employment restrictions, conflicts of interest and 
     Federal Acquisition Regulations to ensure that two lucrative 
     MMS contracts would be awarded to the company created by Mr. 
     Mayberry--Federal Business Solutions--and later joined by Mr. 
     Dial. Ms. Dennet manipulated the contracting process from the 
     start. She worked directly with the contracting officer, 
     personally participated on the evaluation team for both 
     contracts, asked for an increase to the first contract 
     amount, and had Mayberry prepare the justification for the 
     contract increase. Ms. Dennet also appears to have shared 
     with Mr. Mayberry the Key Qualification criteria upon which 
     bidders would be judged, two weeks before bid proposals on 
     the first contract were due.
       In the other two cases, the results of our investigation 
     reveal a program tasked with implementing a ``business 
     model'' program. As such, Royalty in Kind (RIK) marketers 
     donned a private sector approach to essentially everything 
     they did. This included effectively opting themselves out of 
     the Ethics in Government Act, both in practice, and, at one 
     point, even explored doing so by policy or regulation.
       Not only did those in RIK consider themselves special, they 
     were treated as special by their management. For reasons that 
     are not at all clear, the reporting hierarchy of RIK bypassed 
     the one supervisor whose integrity remained intact 
     throughout, Debra Gibbs-Tschudy, the Deputy Associate 
     Director in Denver, where RIK is located. Rather, RIK was 
     reporting directly to Associate Director Dennet, who was 
     located some 1500 miles away in Washington, DC, and to whom 
     the unbridled, unethical conduct of RIK employees was 
     apparently invisible (although the Associate Director had 
     been made aware of the plan by RIK to explore more formal 
     exemption from the ethics rules.)
       More specifically, we discovered that between 2002 and 
     2006, nearly \1/3\ of the entire RIK staff socialized with, 
     and received a wide array of gifts and gratuities from, oil 
     and gas companies with whom RIK was conducting official 
     business. While the dollar amount of gifts and gratuities was 
     not enormous, these employees accepted gifts with prodigious 
     frequency. In particular, two RIK marketers received combined 
     gifts and gratuities on at least 135 occasions from four 
     major oil and gas companies with whom they were doing 
     business--a textbook example of improperly receiving gifts 
     from prohibited sources. When confronted by our 
     investigators, none of the employees involved displayed 
     remorse.
       We also discovered a culture of substance abuse and 
     promiscuity in the RIK program--both within the program, 
     including a supervisor, Greg Smith, who engaged in illegal 
     drug use and had sexual relations with subordinates, and in 
     consort with industry. Internally, several staff admitted to 
     illegal

[[Page S9422]]

     drug use as well as illicit sexual encounters. Alcohol abuse 
     appears to have been a problem when RIK staff socialized with 
     industry. For example, two RIK staff accepted lodging from 
     industry after industry events because they were too 
     intoxicated to drive home or to their hotel. These same RIK 
     marketers also engaged in brief sexual relationships with 
     industry contacts. Sexual relationships with prohibited 
     sources cannot, by definition, be arms-length.
       Finally, we discovered that two of the RIK employees who 
     accepted gifts also held inappropriate outside employment and 
     failed to properly report the income they received from this 
     work on their financial disclosure forms. Smith, in 
     particular, deliberately secreted the true nature of his 
     outside employment--he pitched oil and gas companies that did 
     business with RIK to hire the outside consulting firm--to 
     prevent revealing what would otherwise, at a minimum, be a 
     clear conflict of interest.


                               Conclusion

       As you know, I have gone on record to say that I believe 
     that 99.9 percent of DOI employees are hard-working, ethical 
     and well-intentioned. Unfortunately, from the cases 
     highlighted here, the conduct of a few has cast a shadow on 
     an entire bureau.
       In summary, our investigation revealed a relatively small 
     group of individuals wholly lacking in acceptance of or 
     adherence to government ethical standards; management that 
     through passive neglect, at best, or purposeful ignorance, at 
     worst, was blind to easily discernible misconduct; and a 
     program that had aggressive goals and admirable ideals, but 
     was launched without the necessary internal controls in place 
     to ensure conformity with one of its most important 
     principles: ``Maintain the highest ethical and professional 
     standards.'' This must be corrected.


                            Recommendations

       In conclusion, we offer the following Recommendations.
       1. Take appropriate administrative corrective action.
       Some very serious misconduct is identified in these 
     reports. While the OIG generally does not take a position 
     concerning what administrative corrective action might be 
     appropriate in any given matter, in this instance there may 
     be significant enough misconduct to warrant removal for some 
     individuals. Given the unwillingness of some to acknowledge 
     their conduct as improper, the subjects of our reports should 
     be carefully considered for a life-time ban from working in 
     the RIK program.
       2. Develop an enhanced ethics program designed specifically 
     for the RIK program.
       Given the RIK culture, an enhanced ethics program must be 
     designed for RIK, including, but not limited to, (1) an 
     explicit prohibition against acceptance of any gifts or 
     gratuities from industry, regardless of value; (2) a robust 
     training program to include written certification by 
     employees that they know and understand the ethics 
     requirements by which they are bound; and (3) an augmented 
     MMS Ethics Office.
       3. Develop a clear, strict Code of Conduct for the RIK 
     program.
       A fundamental Code of Conduct with clear obligations, 
     prohibitions, and consequences appears to be necessary to 
     repair the culture of misconduct in the RIK program. This 
     code should include a clear prohibition against outside 
     employment with the oil and gas industry or consultants to 
     that industry. Given the considerable financial 
     responsibilities involved, MMS should also consider 
     implementing a Random Drug Testing program specifically for 
     RIK.
       4. Consider changing the reporting structure of RIK.
       The management reporting structure of the RIK program must 
     be seriously reconsidered. Given the challenges that will be 
     faced in rebuilding this program, it seems imperative that 
     RIK have management oversight in immediate proximity, not 
     some 1,500 miles away in Washington, DC.
       If you have any questions, please do not hesitate to 
     contact me at (202) 208-5745.
                                 ______