[Evaluation Report on the Administrative Appeals Process of the Interior Board of Land Appeals, Department of the Interior]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 99-I-924
Title: Evaluation Report on the Administrative Appeals Process
of the Interior Board of Land Appeals, Department of the
Interior
Report No: 99-I-924
Title: Administrative Appeals Process of the Interior Board of Land Appeals, DOI
Date: September 1999
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I-IN-OSS-005-98-R
EVALUATION REPORT
Memorandum
To: Assistant Secretary for Policy, Management and Budget
Assistant Secretary for Land and Minerals Management
From: Robert J. Williams
Assistant Inspector General for Audits
Subject: Evaluation Report on the Administrative Appeals Process of the Interior Board
of Land Appeals, Department of the Interior (No. 99-I-924)
INTRODUCTION
This report presents the results of our evaluation of that part of the Department of the
Interior's administrative appeals process which is managed by the Minerals Management
Service and the Office of Hearings and Appeals, Interior Board of Land Appeals. The
objective of the evaluation was to determine whether the administrative appeals process of
the Interior Board of Land Appeals as it related to the Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996 was efficient and effective. Specifically, we
determined whether Land Appeals could process oil and gas royalty appeals within the
33-month processing time frame required by the Act. Our evaluation was initiated based
upon a request from the previous Director of Hearings and Appeals.
BACKGROUND
The Office of Hearings and Appeals was created in July 1970 by delegation of the Secretary
of the Interior to consolidate the various public lands hearings and appeals functions and
Indian probate hearings throughout the Department of the Interior. Hearings and Appeals
is responsible for quasi-judicial and appellate functions within the Department and consists
of the Office of the Director, the Hearings Division, and three boards of appeals (the Interior
Board of Land Appeals, the Interior Board of Contract Appeals, and the Interior Board of
Indian Appeals). Administrative judges within the three designated boards of appeals render
decisions in cases pertaining to appeals of bureau and Hearings Division decisions regarding
public lands, contract disputes, and other determinations for the Bureau of Indian Affairs, the
Bureau of Land Management, and the Office of Surface Mining Reclamation and
Enforcement. The appeals include matters related to Indian probates, Indian oil and gas
disputes, land rights-of-way, land trespasses, timber sales, mining law violations, and mining
citations. In addition, the Office of the Director renders decisions on all appeals that are not
within the jurisdiction of an established appeals board, such as employee-management
disputes, employee conduct, and property management issues.
Land Appeals responsibilities also include adjudicating oil and gas company appeals of
decisions made by the Minerals Management Service. As of December 1998, the Board of
Land Appeals had 27 full-time employees, consisting of 11 administrative judges, 13
attorney-advisers, and 3 administrative support personnel. One of the 11 judges, the Chief
Judge, supervises the remaining administrative judges and manages the administrative
appeals process within Land Appeals. The oil and gas royalty appeals process, which
typically begins in the Minerals Management Service, is described in Appendix 1.
Prior to August 1996, there was no time limit for processing appeals of the Minerals
Management Service's decisions. However, on August 13, 1996, Public Law 104-185, the
Federal Oil and Gas Royalty Simplification and Fairness Act of 1996, imposed time frames
for processing Federal oil and gas royalty appeals. Section 4 of the Act added Section 115(h)
to the Federal Oil and Gas Royalty Management Act, which requires that the Department
resolve appeals of Service orders and determinations for companies to pay additional oil and
gas royalties within 33 months from the date the proceedings started. The Act provided that
failure to meet this time frame would result in a default decision based on the value of
royalties involved in the appeal. If no decision has been issued by the Secretary within the
33-month period, the Act (Section 115(h)) provides the following:
(A) The Secretary shall be deemed to have issued and granted a decision in
favor of the appellant as to any nonmonetary obligation and any monetary
obligation the principal amount of which is less than $10,000; and
(B) the Secretary shall be deemed to have issued a final decision in favor of
the Secretary, which decision shall be deemed to affirm those issues for
which the agency rendered a decision prior to the end of such period, as to
any monetary obligation the principal amount of which is $10,000 or more,
and the appellant shall have a right to judicial review of such deemed final
decision in accordance with the United States Code.
An attorney from the Solicitor's Office defined judicial review as the process in which the
appellant may file the appeal directly with a Federal district court, which would remove the
decision on the second appeal from the Department's jurisdiction. The Act also provides that
the 33-month period may be extended by any period of time agreed upon in writing by the
Secretary and the appellant.
To facilitate resolution of these appeals, Section 115(i) of the Federal Oil and Gas Royalty
Management Act, as amended by the Royalty Simplification Act (30 U.S.C. 1701 et seq.),
requires the Department and the appellant to consult with each other regarding settlement
negotiations. The Section states:
To expedite collections relating to disputed obligations due within the
seven-year period beginning on the date the obligation became due [from the
date the royalties were initially due], the parties shall hold not less than one
settlement consultation and the Secretary and the State concerned may take
such action as is appropriate to compromise and settle a disputed obligation,
including waiving or reducing interest and allowing offsetting of obligations
among leases.
SCOPE OF EVALUATION
The evaluation was conducted at the Office of Hearings and Appeals in Arlington, Virginia,
and the Minerals Management Service Appeals Division and the Solicitor's Office in
Washington, D.C. As part of the evaluation, we conducted interviews with the Director and
the Deputy Director of the Office of Hearings and Appeals, the Chief Judge and the Deputy
Chief Judge, 10 administrative judges, 12 staff attorneys, and an administrative support
employee of Land Appeals. We also conducted interviews with the Chief and the Senior
Appeals Analyst of the Service's Appeals Division; attorneys from the Office of the Solicitor
in Washington, D.C.; and Appeals Coordinators from the Service's Office of Enforcement
in Lakewood, Colorado. We conducted these interviews to obtain information concerning
the appeals processes used by Land Appeals and the Service and the location and
maintenance of appeals records. We also reviewed correspondence between Land Appeals
and the Service in considering whether the appeals process ensured that the 33-month
processing time frame could be met, as required by the Royalty Simplification and Fairness
Act.
This evaluation was conducted in accordance with the "Quality Standards for Inspections,"
issued by the President's Council on Integrity and Efficiency, and accordingly included such
tests and evaluation procedures that were considered necessary to accomplish the objective.
In addition, we reviewed the Departmental Report on Accountability for fiscal year 1997,
which includes information required by the Federal Managers' Financial Integrity Act of
1982, and the Office of Hearings and Appeals annual assurance statement on management
controls for fiscal year 1997 and determined that no material weaknesses were included in
these documents which directly related to the objective and scope of our evaluation. As part
of our review, we also evaluated the system of internal controls to the extent that they related
to the objective and scope of the evaluation. The internal control weaknesses identified
related to the lack of supervisory review of appeals data that were recorded in Land Appeal's
database and inadequate controls by the Service over appeals files. These control
weaknesses are discussed in the Results of Evaluation section of this report. Our
recommendations, if implemented, should improve the internal controls in these areas.
PRIOR AUDIT COVERAGE
Neither the Office of Inspector General nor the General Accounting Office has issued any
reports during the past 5 years that addressed the administrative appeals process.
RESULTS OF EVALUATION
We concluded that the Interior Board of Land Appeals should be able to process oil and gas
royalty appeals within the 33-month time frame required by the Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996. Our conclusion was based in part on the fact that
the Office of Hearings and Appeals had implemented several procedural and organizational
changes to enhance its oil and gas royalty appeals processing. However, we found internal
control weaknesses in the appeals procedures used by Land Appeals and the Service.
Specifically, Land Appeals did not have supervisory reviews over data entered into its
computerized tracking system. As a result, data entry errors were not corrected, the same
appeals were assigned to different judges, and the appeals deadlines were calculated
inaccurately. In addition, the Service did not provide adequate supervisory controls to ensure
that the appeals files sent to Land Appeals were complete and organized. Further, the
Service did not have log-in and log-out procedures to track the location and status of appeals.
If these weaknesses are corrected, we believe that appeals could be processed more
efficiently.
Appeals Processing
Since the Royalty Simplification and Fairness Act was enacted in August 1996, Land
Appeals and Service officials have implemented several organizational and procedural
changes to enhance their ability to process oil and gas royalty appeals within the 33-month
time frame required by the Act. Specifically, the Director and the Chief Judge of the Office
of Hearings and Appeals monitored the due dates of the oil and gas royalty appeals by
requiring monthly reports regarding the status of all workable cases pending more than 12
months. Also, Land Appeals increased the accountability of judges by revising their
performance standards to require them to meet "statutory and regulatory deadlines" required
by the Act. Furthermore, Land Appeals officials, with assistance from the Office of the
Solicitor, developed a provision (for inclusion in Land Appeals orders and decisions) that
required oil and gas companies (appellants) to agree to an extension of the required 33-month
time frame when the Department and the appellant were engaged in settlement discussions
or other litigation activity which might result in delays in processing the appeals. Finally,
appellants may request an extension to facilitate preparing their appeals cases.
We determined that Land Appeals oil and gas royalty appeals procedures as enhanced by the
changes discussed should be adequate to meet the 33-month processing time frame required
by the Act. To arrive at this conclusion, we also reviewed Land Appeals monthly case
activity reports for the 23-month period from August 1996 (the date of the Act) through June
1998 to determine the rate at which Land Appeals had historically processed oil and gas
appeals. As of August 1996, 97 oil and gas appeals of Service decisions were recorded in
Land Appeals computerized database. During the 23-month period, Land Appeals received
139 new appeals, or about 6 appeals per month (139 cases divided by 23 months), and
disposed of 107 appeals, or about 4 appeals per month (107 cases divided by 23 months),
which resulted in a remaining caseload of 129 appeals (97 plus 139 less 107 equals 129) as
of June 30, 1998. However, we also found that Land Appeals completion rate had increased
from 4 appeals per month over the 23-month period to 6 appeals per month during the latest
12 months of that period (June 30, 1997, to June 30, 1998).
Of the129 remaining appeals, 93 appeals, valued at about $23.7 million, were subject to the
33-month processing requirement of the Act, and 36 appeals were not related to oil and gas
royalties. For 10 of the 93 appeals, settlement negotiations were in process. Therefore, the
due dates will not be determined until negotiations are complete, in accordance with
Departmental procedures. Also, the due date for one appeal had not been computed because
the notice of appeal, which includes the date of the appeal, was not in the file. The remaining
82 appeals had due dates from May 13, 1999, to December 3, 2002. Of the 82 appeals, 33
appeals were due by May 13, 1999 (the first due date established by the Act for appeals
received on or before August 13, 1996). We found that as of June 11, 1999, the 33 appeals
had been processed or decided by the May 13, 1999, deadline. The remaining 49 appeals
were due over the next 43 months, from May 13, 1999, to December 3, 2002, thereby
requiring an average completion rate of over 1 appeal per month. Based on the preceding
information and on Land Appeals average completion rate ranging from 4 to 6 appeals per
month, we concluded that Land Appeals should be able to process its caseload of 93 oil and
gas royalty appeals within the 33-month time frame required by the Act.
Office of the Solicitor officials, who are responsible for advising the Service on matters
regarding oil and gas royalty appeals, stated that Land Appeals could process the appeals
within the 33-month time frame but that the existing backlogs of Bureau of Land
Management and Office of Surface Mining Reclamation and Enforcement appeals would
increase. However, we determined that Land Appeals backlogs were declining because it
was completing more appeals than it was receiving. Specifically, Land Appeals
computerized database contained 1,320 appeals of Bureau of Land Management and Surface
Mining decisions as of August 1996. During the 23-month period ending June 30, 1998,
Land Appeals received 902 new cases, or 39 per month (902 cases divided by 23 months),
and completed 1,386 cases, or 60 per month, (1,386 cases divided by 23 months), thereby
decreasing its case work load from 1,320 to 836 (1,320 plus 902 minus 1,386 ). Based on
these data, we believe that the backlog of Bureau of Land Management and Surface Mining
appeals should continue to decrease.
Appeals Process Control Weaknesses
We found internal control weaknesses that Land Appeals and the Service should correct to
further improve the appeals process. Specifically, Land Appeals controls did not ensure that
oil and gas royalty appeals were accurately entered into the computerized database. Also,
the Service did not have controls which ensured that case files were complete and organized
before they were transferred to Land Appeals and did not have a log-in and log-out procedure
for tracking the location and status of appeals.
The inaccurate appeals data resulted in two different judges being assigned responsibility as
the lead judge for each of two separate appeals during the 23-month period reviewed. This
occurred because each of the two appeals was assigned two separate Land Appeals tracking
numbers. We believe that an independent quality control review of data input into Land
Appeals computerized system would provide greater assurance that more than one tracking
number would not be assigned to an appeal.
Regarding incomplete and unorganized Service files, Land Appeals officials stated that
notices of appeals could not be found or were difficult to find in the case files which were
received from the Service. These notices are normally used by the judges to compute the
case due dates. Of the 93 case files reviewed, we found that 29 notices were not in the files.
However, since 28 of the 29 appeals were received prior to August 1996 and the Act
automatically provided 33 months to process appeals which were received prior to August
1996, the administrative judges were able to compute the due date for the 28 appeals. Land
Appeals officials told us that they could not compute the due date for one appeal which was
received after August 1996 because they could not find the notice of appeal in the files. An
administrative judge said that Land Appeals did not request the notice of appeal from the
Service for the one case because Land Appeals believed that it had enough time to decide the
appeal in the time frame required by the Act. According to the judge, a decision for this
appeal was made on February 25, 1999, which was more than 2 months before the first due
date required by the Act, May 13, 1999.
Finally, as part of our review, we traced the 97 oil and gas appeals of Service decisions that
were recorded in Land Appeals computerized database to the appeals tracking system at the
Service. In addition, if the files had not been sent to Land Appeals, we ascertained whether
the files were at the Service. We found that although the 97 appeals had been officially
forwarded by the Service to Land Appeals, files for 5 of the appeals had not been forwarded
because the Service did not have log-in and log-out procedures for tracking the status of the
appeals. During our review, the files for the five appeals were forwarded to Land Appeals
for processing. The identification of the missing appeals files should allow for the timely
processing of the five appeals.
Proposed Rulemaking
In addition to the procedural and organizational actions taken by Land Appeals, Service
officials issued proposed rulemaking procedures in the "Federal Register" on January 12,
1999, in response to recommendations made by the Appeals and Alternative Dispute
Resolution Subcommittee of the Royalty Policy Committee, which the Department
established in September 1995 to provide advice to the Secretary on the Department's
management of Federal and Indian mineral leases, revenues, and other mineral policies.
Comments were requested from the public by March 15, 1999. Specifically, the "Federal
Register" stated:
The Subcommittee recognized that the MMS [Minerals Management
Service's] appeals process had been under criticism and serious review since
1994 and believed that substantial reform was needed. The Subcommittee
identified deficiencies in the Service's appeals process as follows:
1. Lack of timely resolution;
2. Lack of clarity in some orders;
3. Perceived lack of independence and unfairness of MMS [Minerals
Management Service's] Director-level appeals decisions due to the internal
clearance process and communication within the Department between those
involved in making the initial decision and those involved in making the
decision on appeal;
4. Policy uncertainty--some orders issued without MMS having clearly
decided and explained policy issues;
5. Inability of the appellant to determine what the administrative record for
the order contains;
6. Allegedly conflicting roles of the Solicitor's Office in satisfying
institutional needs (assisting in setting policy and overall litigation strategy)
and acting as a legal advocate for the MMS; and
7. Duplication of effort between the MMS Director and Interior Board of
Land Appeals (IBLA) levels of review.
In the "Federal Register," the Subcommittee recommended the following "to solve the
problems and meet the principles identified":
1. MMS [Minerals Management Service] resolve all fundamental policy
questions before it or delegated States issues an order;
2. DOI [Department of the Interior] encourage the resolution of disputes
without completing the formal administrative appeals process;
3. DOI clarify the standing of Indian lessors and "States concerned" with
respect to the administrative appeals process;
4. DOI change the structure of the administrative appeals process, so that
appeals of MMS, State, or tribal orders are taken to IBLA [Interior Board of
Land Appeals], under a special set of rules applicable to royalty appeals; and
5. DOI specify the differences in appeals involving Indian leases and Federal
leases for minerals other than oil and gas because the provisions of the RSFA
[Royalty Simplification and Fairness Act of August 1996] do not apply to
those leases.
The "Federal Register" further stated that the Secretary accepted the Royalty Policy
Committee's report for implementation "with some changes and clarifications" on
September 22, 1997, and that the Service, on October 14, 1997, created an internal
committee which drafted its proposed rulemaking for its appeals process.
Under the Service's proposed rulemaking process, the Service's role would be limited to
recording development and settlement discussions at an early stage of the process, and the
Service would decide whether to modify or rescind orders prior to argument at Land Appeals
or to an Assistant Secretary. In addition, Land Appeals or an Assistant Secretary would
decide cases under a new, modified appeals process, and time limits would be imposed in
the appeals process to conform to the time restriction in the Act.
In 1997, the Service prepared an options paper evaluating the increased appeals work load
that Land Appeals might experience under the proposed rulemaking. The options paper
presented an estimate that the Service had historically processed about 300 appeals of
Service decisions and orders per year. The Service determined that Land Appeals would not
have to issue decisions on all of these appeals because the Service settles or otherwise
resolves about one-half of its appeals before they reach the stage of issuing a decision. The
Service estimated, in the 1997 options paper, that settlements and resolutions of appeals
would result in about 163 of the 300 appeals being sent to Land Appeals for a decision.
Service officials said that they were "optimistic" that the mandatory record development and
settlement processes required by Section 115(i) of the Act would increase the rate at which
cases are settled, thus reducing the rate of increase in Land Appeals work load. The
Department of the Interior issued a final rule effective May 13, 1999, published in the
"Federal Register."
Recommendations
We recommend that the Director, Office of Hearing and Appeals, ensure that:
1. Data input is reviewed independently for completeness and accuracy.
2. Appeal due dates are subjected to a supervisory or an independent review to ensure
that they are computed accurately.
We recommend that the Director, Minerals Management Service, ensure that:
3. Appeal files contain an index of critical documents, such as the notice of appeal, and
that files are reviewed for accuracy and completeness before they are transmitted to Land
Appeals.
4. Log-in and log-out procedures are established for appeals.
Office of Hearings and Appeals Response and Office of Inspector General
Reply
In the August 10, 1999, response (Appendix 2) to our draft report from the Director, Office
of Hearings and Appeals, the Office concurred with Recommendations 1 and 2, which were
addressed to the Director. Based on the response, we consider both recommendations
resolved and implemented (see Appendix 4).
Minerals Management Service Response and Office of Inspector General
Reply
In the August 10, 1999, response (Appendix 3) to our draft report from the Director,
Minerals Management Service, the Service concurred with Recommendations 3 and 4, which
were addressed to the Director. Based on the response, we consider both recommendations
resolved and implemented (see Appendix 4).
Additional Comments on Evaluation Report
In its response, the Service provided specific comments on a statement in the report
attributed to the Director, Office of Hearings and Appeals, which stated that "Land Appeals
may get about six additional full-time employees from the Service in fiscal year 2000
because of a decrease in the Service's work load." The Service stated:
Our work load will not decrease. We must now conduct a settlement
conference for each appeal as required by the Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996. This new function will more than
offset any decrease in responsibilities that "may" arise under possible future
changes in the appeals regulations.
Although the Service may realize increased efficiencies in some areas, we agree that the
expected benefits of the proposed ruling cannot be determined until the new processes are
fully implemented and evaluated over a period of time. Accordingly, we have deleted the
reference in the report concerning the possible decrease in the Service's work load and
staffing requirements.
Since the report's recommendations are considered resolved and implemented, no further
response to this report is required (see Appendix 4).
Section 5(a) of the Inspector General Act (Public Law 95-452, as amended) requires the
Office of Inspector General to list this report in its semiannual report to the Congress.
We appreciate the assistance of personnel of the Office of Hearings and Appeals and the
Minerals Management Service in the conduct of our evaluation. MINERALS MANAGEMENT SERVICE'S
OIL AND GAS APPEALS PROCESS
The Minerals Management Service is responsible for collecting royalties from oil and gas
companies that operate on Federal and Indian lands and for ensuring that royalties are paid
in accordance with those companies' lease agreements with the Department of the Interior.
To fulfill its responsibility of ensuring that the proper amount of royalties is paid, the
Service's Royalty Management Program Office conducts audits of oil and gas companies.
If a Service audit determines that a lessee has not fully paid its royalties, the Service imposes
additional royalty assessments on the lessee through the issuance of an order to pay
additional royalties or an order to perform restructured accounting. An order to perform
restructured accounting requires the lessee to recalculate royalty payments and to pay any
additional royalties due.
The Code of Federal Regulations (30 CFR 290) provides the opportunity for an oil and gas
company to appeal the Service's audit determination that additional royalties are due the
Department. More specifically, the Code states that any oil or gas company which believes
the royalty assessment is inaccurate or inappropriate can file an appeal with the Service's
Director. The Code requires that the appeal be made within 30 days from the date of the
Service's assessment.
An appeal is usually filed by an oil and gas company through a Service field office. Upon
receipt of an appeal, the Service field office enters the notice of appeal into the Service's
Appeals Tracking System and forwards the notice of appeal and any other pertinent
documentation to the Service's Appeals Division. A Service analyst within this Division
prepares a draft decision based on the contents of the appeals file and on additional
information provided by the Royalty Management Program, the appellant, and third parties
such as Indian tribes. The analyst submits the draft decision to the Chief of the Appeals
Division and to the Solicitor's Office for review and comments. The analyst prepares a final
decision considering the comments received from the Service's Appeals Division and the
Solicitor's Office and transmits the final decision to the Service's Associate Director for
Policy and Management Improvement, who ultimately signs the final decision on behalf of
the Director. The final decision is sent by certified mail to the appellant, and copies of the
decision are electronically mailed to all Service Royalty Management field offices for
informational purposes. The Code of Federal Regulations (30 CFR 290) provides that an
appellant can submit a second appeal to the Service Director within 30 days of the Service's
decision on the initial appeal.
Upon receipt of the appellant's second notice of appeal, an Appeals Division analyst reviews
the case records to ensure that they are complete and makes two copies of the case file. The
original case file and a copy are sent to the Solicitor, and one copy is maintained at the
Appeals Division. The Appeals Division's staff also sends a copy of the second notice of
appeal to Land Appeals and updates the Appeals Tracking System to show that the case file
has been forwarded to the Solicitor's Office, which, after its review, sends the original case
file to Land Appeals.
When the files relating to an appeal are received by Land Appeals, the docket attorney (an
attorney assigned to enter data into the computer system) assigns a Land Appeals docket
number to indicate that the appeal is pending. The case is assigned to a panel of two
administrative judges, with one of the two judges designated the lead judge. The staff
attorney assigned to the lead judge researches the appeal and prepares a draft decision or
order for the lead judge. The lead judge then reviews and comments as necessary on the staff
attorney's draft decision or order and passes the revised draft to the second judge for
concurrence. After the two judges assigned to the appeal concur on the draft decision or
order, the lead judge circulates the draft decision or order among all of the administrative
judges in Land Appeals for review and comments. Thereafter, the decision or order is issued
in final form by the lead judge.