[Survey Report on the Fee Compliance Program, Office of Surface Mining Reclamation and Enforcement]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 97-I-1303

Title: Survey Report on the Fee Compliance Program, Office of Surface
       Mining Reclamation and Enforcement

Date: September 30, 1997

                  **********DISCLAIMER**********

This file contains an ASCII representation of an OIG report.  No attempt has been made to display
graphic images or illustrations.  Some tables may be included, but may not resemble those in the
printed version.

A printed copy of this report may be obtained by referring to the PDF file or by calling the Office
of Inspector General, Division of Acquisition and Management Operations at (202) 208-4599.
                  ******************************

United States Department of the Interior

MEMORANDUM

TO:

FROM:

SUBJECT SUMMARY:    Final Survey Report for Your Information -"Fee Compliance
                    Program, Office of Surface Mining Reclamation and Enforcement"
                    (No. 97-I-1303)

Attached for your information is a copy of the subject final survey report. The objective of
the review was to determine whether the Office of Surface Mining Reclamation and
Enforcement, through its Fee Compliance Program, assessed and collected reclamation fees
and performed audits of coal mining companies in an efficient and effective manner and in
compliance with applicable laws and regulations.

Based on limited testing, we concluded that the Office of Surface Mining generally
conducted its Fee Compliance Program in an efficient and effective manner and in
compliance with authorizing legislation and applicable regulations. However, we found that
the Office of Surface Mining could streamline its reclamation fee collection process by
enabling coal mine operators to transmit reports on their quarterly coal production
electronically.

Based on the Office of Surface Mining's response to the report's recommendation, we
considered the recommendation resolved but not implemented.

If you have any questions concerning this matter, please contact me at (202) 208-5745 or
Mr. Robert J. Williams, Assistant Inspector General for Audits, at (202) 208-4252.

Attachment


E-IN-OSM-002-97

United States Department of the Interior

OFFICE OF INSPECTOR GENERAL
Washington, D.C. 20240

SURVEY REPORT

Memorandum

To:  Assistant Secretary for Land and Minerals Management

From:     Robert J. Williams
     Assistant Inspector General for Audits

Subject:  Survey Report on the Fee Compliance Program, Office of Surface Mining
Reclamation and Enforcement (No. 97-I-1303)

INTRODUCTION

This report presents the results of our survey of the Fee Compliance Program, Office of
Surface Mining Reclamation and Enforcement. The objective of the review was to
determine whether Surface Mining, through its Fee Compliance Program, assessed and
collected reclamation fees and performed audits of coal mining companies in an efficient and
effective manner and in compliance with applicable laws and regulations.

BACKGROUND

the Energy Policy Act of 1992 requires Surface Mining to transfer annually up to $70 million
from interest earned on the Abandoned Mine Reclamation Fund to the United Mine Workers
of America Combined Benefit Fund. During fiscal year 1996, Surface Mining collected
reclamation fees of approximately $255 million, including related interest and penalties.

Surface Mining's Assistant Director for Finance and Administration has overall
responsibility for the collection and audit of reclamation fees. These responsibilities are
carried out by the Divisions of Financial Management and Compliance Management.
Financial Management, located in Denver, Colorado, is responsible for billing, collecting,
and accounting for reclamation fees. Financial Management uses: (1) the automated Fee
Billing and Collection System to track fee collections, including interest, penalties, and
                                                 ,
administrative costs, and to issue bills for collection and demand letters for delinquent fees
and (2) the automated Audit Fee Billing and Collection System to issue bills for collection
and record accounts receivable and collections related to the audits performed by
Compliance Management. In fiscal year 1996, Financial Management had 12 employees and
spent about $1.6 million on fee collection activities. Compliance Management, which
comprises a headquarters office in Pittsburgh, Pennsylvania, and 12 field offices (see
Appendix l), is responsible for verifying the accuracy of reclamation fee payments through
periodic audits of coal producers and analyses of other coal production data. In fiscal year
1996, Compliance Management had 52 employees, spent about $3.7 million for its
operations, and issued 383 audit reports that identified underreported or unreported
reclamation fees of about $4 million.

SCOPE OF SURVEY

Our survey was conducted from March through May 1997 at Surface Mining's headquarters
in Washington, D.C.; the Compliance Management office in Pittsburgh; and the Financial
Management office in Denver. To accomplish our objective, we reviewed a random sample
of fees assessed and collected and audit reports and corresponding working papers completed
during fiscal year 1996. Our sample consisted of 60 collections, totaling $1.7 million, of the
7,960 collections, totaling $255 million, made during fiscal year 1996 by the Financial
Management Division and 30 audit reports, which had underreported or unreported fees
totaling about $24,000, of the 383 audit reports, which had underreported or unreported fees
totaling about $4 million, issued by Compliance Management during fiscal year 1996. The
30 audit reports tested included reports from 7 of the 12 Compliance Management field
offices (see Appendix 1). Because our tests did not disclose any material weaknesses in
Surface Mining's fee collection and audit activities, we limited our review to the survey
phase. We did not review the accuracy of the data contained in Surface Mining's Applicant
Violator System, which is used to identify companies that are subject to reclamation fees,
because such a review would have required an analysis of state records (most of the System
data are input by the states). Therefore, we did not determine whether all producing mining
operations subject to the fees had been identified. We also did not review the procedures
related to the collection of delinquent debt because an Office of Inspector General review

 
of these procedures was completed in 1996 (see the Prior Audit Coverage section of this
report).

We limited the scope of our review in the areas of internal controls, cash collections, and
accounts receivable by relying on the audit work performed as part of a separate audit
(Report No. 97-I-271) of Surface Mining's financial statements for fiscal year 1996 (see the
Prior Audit Coverage section of this report).

Our survey 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 to accomplish our objective.
In planning our survey, we reviewed the Department of the Interior's Annual Statement and
Report, which is required by the Federal Managers' Financial Integrity Act of 1982, for fiscal
year 1995 and determined that the Department did not report any material weaknesses related
to the objective and scope of our review. In evaluating Surface Mining's system of internal
controls over collecting fees and conducting audits, we found that improvements could be
made in procedures relating to the collection of coal fee report information. Specifically, this
information could be transferred electronically instead of entered manually for reporting
operators that paid 93 percent of the reclamation fees collected in fiscal year 1996, as
discussed in the Results of Survey section of this report. Our recommendation, if
implemented, should improve the procedures in this area.

PRIOR AUDIT COVERAGE

While the General Accounting Office has not performed an audit of Surface Mining's Fee
Compliance Program during the past 7 years, the Office of Inspector General has issued,
during this time period, three reports on the program and six reports on Surface Mining's
financial statements as follows:

- "Fee Compliance Program, Office of Surface Mining Reclamation and Enforcement"
(No. 90.99), issued in September 1990, stated that Surface Mining needed to: (1) improve
its audit planning process and ensure that companies with the highest potential for owing
additional fees were selected for audit; (2) improve the monitoring and timeliness of the debt
collection process; and (3) ensure that audit working papers were reviewed before reports
were issued. The report's 18 recommendations were considered to be implemented.

- "Followup of Recommendations Concerning the Fee Compliance Program, Office of
Surface Mining Reclamation and Enforcement" (No. 93-I-l 89), issued in November 1992,
stated that the seven recommendations related to Surface Mining's audit planning process
made in our September 1990 audit report on the Fee Compliance Program had been
implemented.

- "Debt Management, Office of Surface Mining Reclamation and Enforcement and Office
of the Solicitor" (No. 96-I-639), issued in March 1996, stated that the Solicitor's Office was

3

 
not processing debt cases in a timely manner and that Surface Mining could improve its debt
collection activities by: (1) maintaining Division of Debt Management staff at the level
needed to process delinquent debt efficiently; (2) implementing administrative controls to
ensure that required debt collection functions are performed in compliance with Federal
regulations; and (3) reviewing the status of debt that has been referred to the Solicitor to
ensure that receivables are reported accurately and accounted for fully. The report made nine
recommendations, all of which were considered resolved and implemented.

- "Office of Surface Mining Reclamation and Enforcement Financial Statements for
Fiscal Years 1995 and 1996" (No. 97-I-27 l), issued in December 1996, stated that Surface
Mining's financial statements and accompanying notes were fairly presented. The report
also stated:

Surface Mining's internal control structure in effect on September 30, 1996, was
sufficient to safeguard assets against loss from unauthorized use or disposition;
ensure that transactions were executed in accordance with laws and regulations;
ensure that transactions were properly recorded, processed, and summarized; and
provide reasonable assurance that any losses, noncompliance, or misstatements
that are material to the financial statements would be detected.

- The five prior reports on audits of Surface Mining's financial statements contained
similar conclusions regarding Surface Mining's internal control structure.2

RESULTS OF SURVEY

Based on the limited tests made during our survey, we concluded that the Office of Surface
Mining Reclamation and Enforcement generally conducted its Fee Compliance Program,
including both fee collection and audit activities, in an efficient and effective manner and in
accordance with authorizing legislation and regulations at the locations we reviewed.
However, we noted that improvements could be made in the area of the recording of fee
report information in the Fee Billing and Collection System.

Fee Collections

Based on a review of internal controls over fee collections and on tests of collection
procedures and information in the Fee Billing and Collection System and the Audit Fee
Billing and Collection System, we concluded that for known coal producers, Surface
Mining's fee collection procedures were generally efficient and effective. Specifically, the
billing, collection, accounts receivable, and dunning information contained in these systems
was accurate, complete, and recorded in accordance with applicable laws and regulations and

2Reports Nos. 91-I-1272, 93-I-333, 94-I-535, 95-I-417, and 96-I-400 were issued in September
1991,
December 1992, April 1994, January 1995, and February 1996, respectively.

4

 
accounting procedures. However, Surface Mining could improve the efficiency of its fee
collection procedures by requiring the electronic transfer of fee reporting data.

Surface Mining requires all coal operators to submit hard copies of the Coal Reclamation Fee
Report (Form OSM-1) and to electronically transmit fee payments of more than $25,000.
                                                                           ,
All Forms OSM-1 are received at a contractor lockbox in Pittsburgh and are mailed to
Financial Management in Denver, where information from the forms is manually entered
into the Fee Billing and Collection System after the payments have been recorded. In our
opinion, direct electronic reporting of the information on Forms OSM-1 to Financial
Management by those companies now required to submit electronic payments could result
in cost savings by eliminating the need to process and mail Forms OSM-1 from Pittsburgh
to Denver and to manually enter the information into the System. Many of the reporting coal
operators are large companies that should have the capability for electronic filing. For
example, in fiscal year 1996,278 of 989 reporting operators used electronic transfers to pay
$238 million (93 percent) of the total $255 million in fees paid during this period. Surface
Mining officials said that the electronic transmission of data on Forms OSM-1 had been
included in their operating workplans for fiscal years 1996 and 1997 but that they had not
implemented action on this initiative because of limited resources and because the Surface
Mining Control and Reclamation Act required the certification of Forms OSM-1 by a notary
public. However, these officials said that they planned to determine how to meet the
certification requirement using electronic data interchange.

Fee Compliance Audits

Surface Mining has made substantial improvements in its fee compliance audit process since
our prior review and has established and implemented adequate procedures for planning and
conducting audits of coal companies to ensure that proper reclamation fees were paid.
Specifically, we found that:

- Several phases of the fee compliance auditing system have been automated, including
sample selection, data analysis, and working paper and audit report preparation. This
automated system, which was developed in-house, has improved the efficiency of the audit
process.

- An audit procedures manual containing guidance on survey and fieldwork performance,
statistical sampling procedures, working paper documentation, and report writing was
developed and utilized.

- Audit resource allocation plans, which provided guidance on planning and prioritizing
audits, were developed and used effectively. These plans ensure that audit priority is given
to those companies that have the greatest potential for owing additional fees.

 
- A quality assurance review program was established to: (1) ensure that audits are
conducted effectively and in accordance with Surface Mining procedures and (2) improve
the quality of audit management and performance.

- An audit appeals system was established to formally resolve operators' disputes with
audit findings.

- Procedures were established to inform other interested Federal agencies, including the
Internal Revenue Service, of audit results.

In addition, based on our review of the working papers for 30 of the 383 audit reports issued
by Surface Mining in fiscal year 1996, we found that sufficient audit procedures were
performed to identify unreported fees, that audits were conducted in accordance with the
"Government Auditing Standards," that working papers adequately supported the
information presented in the audit reports, and that the results of the audits were timely
reported to the Financial Management Division for billing purposes.

Recommendation

We recommend that the Director, Office of Surface Mining Reclamation and Enforcement,
determine, based on an opinion from the Office of the Solicitor, the allowability and
feasibility of requiring coal operators to electronically transfer information included in the
Coal Reclamation Fee Reports (Forms OSM-1) to the Division of Financial Management.
If it is determined that the electronic transfer process is allowable and feasible, procedures
should be developed and implemented to facilitate such processing of information on Forms
OSM-1.

Office of Surface Mining Reclamation and Enforcement Response and
Office of Inspector General Reply

In the September 19, 1997, response (Appendix 2) to our draft report from the Director,
Office of Surface Mining Reclamation and Enforcement, Surface Mining concurred with our
recommendation and identified the actions that will be taken to implement the
recommendation. However, Surface Mining did not include a specific target date for
implementation, stating that corrective action is contingent upon receipt of a legal opinion
from the Solicitor's Office. Based on the response, we consider the recommendation resolved
but not implemented. Accordingly, the recommendation will be referred to the Assistant
Secretary for Policy, Management and Budget for tracking of implementation, and no further
response to the Office of Inspector General is required (see Appendix 3).

The legislation, as amended, creating the Office of Inspector General requires semiannual
reporting to the Congress on all audit reports issued, actions taken to implement audit

 
recommendations, and identification of each significant recommendation on which corrective
action has not been taken.

We appreciate the assistance of Office of Surface Mining personnel in the conduct of our
audit.

7

 
APPENDIX 1

SUMMARY OF FEE COMPLIANCE
AUDIT REPORTS REVIEWED

Office of Surface Mining         Audit Reports
    Field Offices           Issued (FY 96)

Audit Reports
Reviewed

Birmingham, Alabama                  21             3

Ashland, Kentucky                     5             0

London, Kentucky                    46             2

Madisonville, Kentucky                 19             1

Pikesville, Kentucky                   44             1
Kansas City, Missouri                  14             1
Pittsburgh, Pennsylvania                110            21

Wilkes-Barre, Pennsylvania                8             0

Knoxville, Tennessee                   12             0

Lebanon, Virginia                    36             1
Beckley, West Virginia                 36             0
Morgantown, West Virginia              32             0

Total

383

30
-

 
APPENDIX 2
Page 2 of 2

Planned Action on Recommendation in OIG Draft Survey Report -
     Fee Compliance Program (E-IN-OSM-002-97)

The table below reflects the actions planned to implement the recommendation and
a projected target date for completion of this action.

Recommendation

 

Planned Action

Projected
Completion
  Date

Action
Official

Obtain a legal opinion on    Send a letter to the Office   09/30/97    AD/FA
SMCRA's "notary       of the Solicitor seeking a
requirement" from the     legal opinion on SMCRA's
Office of the Solicitor to    "notary requirement II
determine the allowability   regarding allowability and
and feasibility of requiring   feasibility of requiring coal
coal operators to        operators to use electronic
electronically transfer     transmission when sending
information included in the   completed OSM-1 forms to
Coal Reclamation Fee       DFM.
Report (Form OSM-1) to the
Division of Financial
Management.          Based on a positive
               response from the Office of  12-15     AD/FA
               the Solicitor, initiate a pilot   months
               study, evaluate results,     after
               develop or procure      receiving a
               programing, and establish   positive
               procedures for required     response
                   electronic transmission.     from the
                                      Solicitor.

Implement electronic trans.  I3 months   AD/FA
mission process          after above
              planned
                  action.

10

 
APPENDIX 3

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/
Recommendation
Reference

Status       Action Required

1

Resolved; not
implemented.

No further response to the
Office of Inspector General is
required. The recommendation
will be referred to the
Assistant Secretary for Policy,
Management and Budget for
tracking of implementation.

11

 
ILLEGAL OR WASTEFUL ACTIVITIES
   SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:

Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street, NW.
Mail Stop 5341
Washington, DC. 20240

Our 240hour
Telephone HOTLINE
l-800-424-5081  or
(202) 208-5300

TDD for hearing impaired
(202) 208-2420 or
l-800-354-0996

Outside the Continental United States

Caribbean Region

U.S. Department of the Interior
Office of Inspector General
Eastern Division - Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

North Pacific Region

(703) 235-9221

U.S. Department of the Interior
Office of Inspector General          (700) 550-7428 or
                    COMM 9-O11-67l-472-7279

North Pacific Region
238 Archbishop F.C. Flores Street
Suite 807, PDN Building
Agana, Guam 96910

 
Toll Free Numbers:
l-800-424-5081
TDD l-800-354-0996

FIS/Commerciai Numbers:
(202) 208-5300
TDD (202) 208-2420

1849 C Street, N.W.
Mail Stop 5341
Washington. D.C. 20240