[Final Audit Report Bureau of Land Management Coal Inspection and Enforcement Program]
[From the U.S. Government Printing Office, www.gpo.gov]

Title: ï¿½ï¿½ï¿½






















This Page Intentionally Left Blank




TABLE OF CONTENTS
	PAGE
	
INTRODUCTION	1

BACKGROUND AND SCOPE	1

RESULTS OF AUDIT	2

OTHER MATTERS	3

STANDARDS	4

RESPONSE	4

























This Page Intentionally Left Blank



AUDIT REPORT


INTRODUCTION
This report presents the results of our audit of the 
Bureau of Land Managementï¿½s Coal Inspection and 
Enforcement Program.  The objective of our audit was 
to determine whether the program adequately 
monitored coal production on federal and Indian leases.

BACKGROUND
AND SCOPE
BLM manages about 31 percent of all coal resources in 
the United States and oversees all phases of coal 
development on federal and Indian lands.  BLM 
performs inspections of producing and non-producing 
coal leases on federal and tribal lands to verify coal 
production to ensure proper royalty billing and 
collection.  BLM also inspects federally leased coal 
producing lands to determine whether the operations:

>	Wasted or degraded other resources; 

>	Avoided or minimized damage to formations and 
deposits or nonmineral resources;

>	Complied with applicable laws, rules, and orders 
and terms and conditions of federal leases and 
licenses;

>	Complied with all requirements of approved 
exploration or resource recovery and protection 
plans.




The Code of Federal Regulations (43 CFR ï¿½ 3480.0-
6(d)(4)) requires the BLM to inspect at least quarterly 
federally leased lands where operations for the 
exploration, development, production, preparation, and 
handling of coal are conducted.  BLMï¿½s policy requires 
that production reported to the Minerals Management 
Service (MMS) by the operator/lessee be independently 
calculated to ensure proper royalty billing and 
collection.


We performed our work from February through August 
2002.  We visited the BLMï¿½s State Office and White 
River and Little Snake field offices in Colorado; the 
Rock Springs and Casper field offices in Wyoming; and 
the Farmington field office in New Mexico.  We visited 
active mines, interviewed Bureau employees 
responsible for monitoring mine activity, and reviewed 
inspection and production verification information.  We 
concluded our audit work after visiting the several sites 
listed above because we did not identify any significant 
potential problems with the inspection and enforcement 
program at the locations we visited.

RESULTS OF AUDIT
We found that the monitoring of federal coal production 
at BLM field offices visited was generally satisfactory.  
Most of the offices we visited had acquired or 
developed automated systems to aid them in verifying 
production quantities.  At four of the five field offices 
we visited, the mine inspection and production 
verification reports were generally well documented.  
However, at the Farmington field office we found 
inspection personnel did not document all inspections 
and did not always perform required independent 
verifications and comparisons between coal production 
reported by the company and BLMï¿½s calculations of 
coal production.  Inspection personnel at Farmington 
told us that they did perform the required quarterly 
inspections but failed to document them.  Inspection 
personnel stated that they failed to document all 
quarterly inspections and perform all required 
production verifications because they were working on 
other assignments.


By not documenting inspections or verifying 
production, the Farmington field office is not able to 
assure that the production amounts reported by lessees, 
on which royalties are based, are accurate.  We 
suggested that inspection personnel at the Farmington 
field office perform and document all required 
inspections and production verifications.  Management 
officials at the Farmington field office stated that they 
have taken steps to correct the deficiencies identified.


Suggested Action:  We suggest that the Director of 
BLM ensure that all field office personnel perform all 
required production verifications and adequately 
document quarterly inspections.

OTHER MATTERS

During our audit, we also looked at coal royalty rate 
reductions in Colorado.  BLM State Directors have the 
authority to award reduced royalty rates to companies 
meeting certain criteria.  Reduced royalty rates can be 
awarded in order to encourage the recovery of coal 
resources.  We reviewed two instances in Colorado 
where coal mining companies were receiving reduced 
royalty rates to determine whether they met eligibility 
requirements.  In reviewing these two instances we 
found:
 

>	One company submitted documentation with its 
reduced royalty rate application that did not 
conform to requirements.  The financial statements 
submitted by the company as part of its application 
package were prepared and annotated as not 
intended to present the results of operations in 
conformity with generally accepted accounting 
principles.  We brought this to the attention of 
BLM officials and they subsequently requested that 
the company provide the documentation that 
conformed to professional standards.  In addition, 
we confirmed that the company was no longer 
receiving the reduced royalty rate after the reduced 
rate expired in January 2002.


>	The other company initially appeared to be no 
longer eligible for the reduced royalty rate based on 
information we had obtained regarding the 
companyï¿½s financial position.  We suggested that 
BLM officials obtain more complete information 
from the company.  BLM obtained such 
information and determined that the reduced 
royalty rate should remain in effect.

STANDARDS
We conducted our work in accordance with the 
ï¿½Government Auditing Standardsï¿½ issued by the 
Comptroller General of the United States with some 
exceptions because of the limited scope of the audit. 
We included such tests of records and other auditing 
procedures that were considered necessary under the 
circumstances.  In conducting our audit work we found 
that BLMï¿½s monitoring of Federal coal leases was 
generally satisfactory and, except for the matters 
discussed in the Results of Audit section, nothing came 
to our attention that merited additional work.  
Therefore, we concluded our work at the end of the 
survey phase.  As a result, the nature and scope of the 
work conducted was limited to those procedures 
performed during an audit survey.  For example, 
management controls were not reviewed, and a risk 
assessment was not completed.

RESPONSE
Since this report does not include any 
recommendations, a response is not required.  However, 
we would appreciate being kept informed of any 
additional actions you choose to take as a result of this 
report.  
      

Section 5(a) of the Inspector General Act (5 U.S.C. ï¿½ 
App. 3) requires the Office of Inspector General to list 
this report in its Semiannual Report to the Congress.
      

We wish to thank BLM for its assistance and 
cooperation and for taking timely actions to address the 
issues brought to their attention during our review.  If 
you or your staff has any questions regarding this report 
please call Ms. Anne L. Richards, Regional Audit 
Manager at (303) 236-9243.