[Final Audit Report on the Status of Recommendations From the Task Force on Royalty Compliance]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 95-I-545

Title: Final Audit Report on the Status of Recommendations From
       the Task Force on Royalty Compliance

Date:     February 23, 1995

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United States Department of the Interior
      OFFICE OF INSPECTOR GENERAL
             Washington, D.C. 20240

February 28, 1995

MEMORANDUM

TO:            The Secretary

FROM:               Acting Inspector General

SUBJECT SUMMARY:    Final Audit Report for Your Information - "Status of
               Recommendations From the Task Force on Royalty
               Compliance" (No. 95-I-545)

DISCUSSION: We concluded that the Minerals Management Service made significant
progress in implementing the recommendations made by the Task Force on royalty
compliance. The recommendations were designed to encourage voluntary payer/producer
compliance by clarifying existing laws and regulations, fully integrating Royalty
Management Program compliance activities, increasing the use of automated systems to
determine royalty compliance, and developing methods for measuring overall royalty
compliance.

/s/ Joyce N. Fleischman

Joyce N. Fleischman

Attachment

Prepared by: Marvin Pierce
Extension: 208-4252

 
 
C-IN-MMS-003-93

United States Department of the Interior

OFFICE OF INSPECTOR GENERAL
    Headquarters Audits
   1550 Wilson Boulevard
       Suite 401
    Arlington, VA 22209

February 23, 1995

               MEMORANDUM AUDIT REPORT

To:       Director, Minerals Management Service

From:          Acting Assistant Inspector General for Audits

Subject:  Final Audit Report on the Status of Recommendations From the Task
          Force on Royalty Compliance (No. 95-I-545)   

                    INTRODUCTION

The Office of Inspector General reviewed the implementation status of the
26 recommendations presented in the "Report of the Task Force on Royalty
Compliance," issued in June 1991. The objective of our review was to assess the
progress of the Minerals Management Service in implementing the report's
26 recommendations. We concluded that the Service had made substantial progress
in implementing the Task Force's recommendations.

BACKGROUND

The Service's Royalty Management Program is responsible for collecting and
distributing revenues generated from producing Federal and Indian mineral leases
and thus is a major source of income for the Federal Government, Indians, and
states. During 1990, the Assistant Secretary for Land and Minerals Management
directed that an in-house Task Force evaluate the existing Royalty Compliance
Program, identify areas for improvement, and reduce the Program's vulnerability to
potential legal challenges.

The Task Force was composed of the Deputy Assistant Secretary for Land and
Minerals Management and the Deputy Director and Chief, Royalty Management
Analysis Division, Minerals Management Service. In June 1991, the Task Force
issued its report on royalty compliance, which proposed that the Royalty
Management Program undertake major changes to ensure that royalties are correctly
reported and paid. The Task Force review resulted in 26 recommendations designed
to encourage voluntary payer/producer compliance by clarifying existing laws and

 
regulations, fully integrating Royalty Management compliance activities, increasing
the use of automated systems to determine royalty compliance, and developing
methods for measuring overall royalty compliance.

In order to implement the recommendations, the Service developed an Action Plan
for Royalty Compliance in November 1991, which was updated in January 1993 and
in January 1994. The Action Plan focused on six areas of emphasis: management
and policy, a pilot program, enforcement, audit, regulations, and systems. Within
each area, the Action Plan contained action elements that corresponded to a specific
Task Force recommendation, and these action elements contained 112 steps to
implement the 26 recommendations. The Service's Office of Policy and Management
Improvement was primarily responsible for ensuring that Royalty Management
personnel completed the implementation steps contained in the Action Plan and
thereby fully implemented the Task Force's recommendations. As stated in the
Action Plan, the Service anticipated completing the plan by January 1, 1995.

SCOPE OF AUDIT

This performance review was conducted from July 1993 through November 1994 at
the Service's Office of Policy and Management Improvement and the Royalty
Management Program Office in Lakewood, Colorado. The scope of our work was
limited to reviewing the Service's efforts to implement the recommendations made
in the 1991 Task Force Report. Since we initially determined that the Action Plan,
action elements, and implementation steps were consistent with the 26 Task Force
recommendations, we focused our review on the work associated with completing the
implementation steps. Records maintained in the Office of Policy and Management
Improvement indicated that as of July 1993, 67 of the 112 implementation steps had
been implemented. During our review, we examined the work accomplished to
complete these 67 implementation steps to verify that the work had been fully
completed and the intent of each step had been satisfied. Additionally, we reviewed
the status of the remaining implementation steps to determine whether the Service
would complete all implementation steps within the anticipated 3-year time frame.

Our review was made in accordance with the "Government Auditing Standards,"
issued by the Comptroller General of the United States. Accordingly, we included
such tests of records and other auditing procedures that were considered necessary
under the circumstances. As part of the audit, we reviewed the Department of the
Interior Annual Statement and Report to the President and the Congress for fiscal
years 1993 and 1994, required by the Federal Managers' Financial Integrity Act, to
determine whether any reported weaknesses were within the objective and scope of
our audit.  We determined that none of the reported weaknesses were directly
related to the objective and scope of our review.

2

 
                    RESULTS OF AUDIT

We concluded that the Service had made significant progress in implementing the
26 Task Force recommendations.  Each implementation step that the Service
considered complete was adequately accomplished and satisfied the intent of the
recommendation.  Although the Service may not complete all 112 of the
implementations steps within the anticipated 3-year time frame, the Service has been
working diligently to finalize and implement all the steps. For example, certain
implementation steps in the Enforcement Section of the Action Plan require that
draft regulations be issued. However, because of the amount of time generally
involved in the rule-making process, additional time will be required for full
implementation. Nevertheless, we believe that the implementation steps taken or
planned by the Service to date have satisfactorily addressed all 26 Task Force
recommendations.

Since this report does not contain any recommendations, no response is required.
However, if you have any questions regarding this report, please contact Mr. Alan M.
Klein, Regional Audit Manager, Central Region, at (303) 236-9243.

/s/Marvin Pierce

Marvin Pierce

cc: Assistant Secretary - Land and Minerals Management

* U.S. GOVERNMENT PRINTING OFFICE: 1995 301-126/00041

3

 
 
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