[Advisory Report on Evaluation of Vulnerabilities to Underreporting: Royalty-in-Value Versus Royalty-in-Kind]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 2002-I-0044

Title: Advisory Report on Evaluation of Vulnerabilities to Underreporting:
        Royalty-in-Value Versus Royalty-in-Kind

  
Dated:  September 12, 2002

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D-IN-MMS-0004-2002

Memorandum

To:  Director, Minerals Management Service

From:  Roger La Rouche, Assistant Inspector General for Audits

Subject:  Advisory Report on Evaluation of Vulnerabilities to Underreporting: 
Royalty-in-Value Versus Royalty-in-Kind (No. 2002-I-0044)

The attached Advisory Report presents the results of our comparison of the Minerals Management Service's (MMS) royalty-in-value (RIV) program to its royalty-in-kind (RIK) program to determine which was more vulnerable to underreporting.  We performed the evaluation at the request of the Deputy Secretary.

We determined that the RIV program was more vulnerable because the lessee established the basis for valuing the oil and gas and the transportation and processing costs.  The RIK program was not as vulnerable because MMS received actual proceeds from oil and gas sales and paid actual transportation and processing costs.  However, we did find instances where RIV would be preferable.  In addition to these findings, we concluded that MMS could improve its controls over the RIK program in the areas of gas imbalances, credit line approval, manual data entry, and sales contract limitations.

We conducted our evaluation from January through February 2002 at RIK program offices in Lakewood, Colorado, and at MMS Compliance and Asset Management offices in Houston, Texas, and Washington, D.C.  Our evaluation was performed in accordance with the President's Council on Integrity and Efficiency Quality Standards for Inspections.  

We presented the results of our evaluation to you, the Deputy Secretary, and the Assistant Secretary for Land and Minerals Management on April 29, 2002 and the Deputy Director of MMS, the Associate Director for Minerals Revenue Management, and other MMS officials on May 3, 2002.  MMS management officials generally concurred with our conclusions and indicated that they have initiated actions to address the control issues noted in our report.   

A response to this report is not required.  However, we would appreciate being kept informed of actions taken regarding the matters contained in our evaluation.  We will list this advisory report in our semiannual report to Congress, as required by section 5(a) of the Inspector General Act (5 U.S.C. app.3).

Attachment:  PowerPoint Presentation

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