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Minerals
Management Service
Department of the Interior
Statement in
Response to Result of Kerr McGee Litigation
Statement:
“Kerr McGee has indicated
they will likely appeal the verdict. The Minerals
Management Service maintains its original position that Kerr
McGee paid the royalties it owed to the U.S. government.”
January 24, 2007
Minerals Management Service
Department of the Interior
Qs and As Concerning Mr. Bobby
Maxwell and the Kerr McGee Lawsuit
Q1. Why didn’t MMS pursue Mr. Maxwell’s
claim that Kerr McGee was underpaying royalties owed to the
U.S. government?
A1. MMS, the
Department of the Interior’s Office of the Inspector
General, and the U.S. Department of Justice investigated and
analyzed Mr. Maxwell’s claim. The United States declined to
intervene in the qui tam lawsuit that Mr. Maxwell brought
under the False Claims Act (U.S. ex rel . Maxwell v.
Kerr-McGee Chemical Worldwide, LLC, No. 04-F-1224 (D.
Colo.)).
(If asked -- MMS, the OIG and the DOJ have also investigated
the other FCA claims and declined to intervene.)
Q2.
Mr. Maxwell says very explicitly that the
overall auditing and compliance review effort has slowed
markedly in the past five years, that his complaint about
Kerr-McGee is simply a "symptom of the illness,'' which he
describes as a "passivity'' and an "unwillingness to take
risks'' on the part of MMS when the outcome is even slightly
uncertain. Why is he wrong?
A2. MMS pursues a
vigorous audit and compliance review program that generated
an annual average of more than $125 million over the last 24
years. That’s a total of more than $3 billion dollars that
flowed to the American public as a result of MMS’s audit and
compliance efforts. Without MMS’s diligence, that money
would have not been recovered.
In FY 2006, MMS reviewed and/or audited 72.5 percent of all
Federal and Indian royalty payments within three years from
the date of receipt of payment, using a system that targets
the largest properties and payors. This represents a
dramatic increase in the amount of revenue reviewed and/or
audited within three years, up from 46 percent in FY 2003
and 10.5 percent in FY 2002. This work is in addition to
legacy audit work completed beyond the 3-year cycle.
Q3.
What is the best evidence that MMS is
aggressively pursuing all
the money that oil and gas drillers owe?
A3. In November,
2005, an independent certified public accounting firm issued
a clean audit opinion of MMS’s audit program with no
material weaknesses, and no reportable conditions. The
results are clear and irrefutable, MMS is accomplishing its
job on behalf of the American public. MMS routinely bills
for interest. In fact, in FY 2006, MMS issued over 3,800
late payment interest bills for a net amount of $7 million.
What’s also clear is that our mission requires us to act in
the best interests of the American public. As government
employees, we are responsible for ensuring that oil and gas
companies pay everything they owe to the U.S. Treasury.
From FY 2002-2006, our minerals revenue program accounted
for, substantiated, and disbursed royalties totaling $44.6
billion. From 2002-2005, MMS and State and Tribal auditors
completed 1,214 audits. That compares to 784 audits
completed for the prior four year period.
Q4.
If Mr. Maxwell recovers additional millions
of dollars for the government, would the Interior Department
still contend that he was wrong to bring his case?
A4. In the case of
MMS audits, our procedures require that auditors who detect
fraud must report it to the MMS’s Office of Enforcement who
in turn must report it to the Department of Interior’s
Office of Inspector General. Alternatively, the auditors
can go directly to the OIG. Mr. Maxwell and the other
auditors who filed qui tam lawsuits did not follow these
required procedures.
Q5. Why is it
troubling for federal auditors to file lawsuits as private
citizens?
A5. The auditors
seek to profit personally using information they are paid by
the taxpayers to collect.
Audits conducted by Federal agencies are
governed by standards developed and published by the
Government Accountability Office (GAO). These standards
provide an overall framework for ensuring that auditors have
the competence, integrity, objectivity, and independence in
planning, conducting, and reporting on their work.
A False Claims Act claim filed by an MMS auditor against an
oil or gas company that he or she is responsible for
auditing results in a conflict of interest that causes both
the auditor and MMS to be in violation of auditing standards
set forth by the Government Accounting Office. That
conflict of interest exists because the auditor stands to
gain personally by receiving a percentage of the additional
royalties collected from the company against which he files
a false claim.
In addition, as stated above, the Department has a procedure
in place to pursue allegations of fraud. Rather than follow
that procedure, and have the OIG – pursue the fraud, the
auditors chose the route which is more profitable to them
than the taxpayers.
Q6.
POGO, citing MMS budget documents, says the
number of auditors has declined from 250 in 2001 to 185 in
2005? Is that correct?
A6. Since the end
of FY 2001, MMS’s overall audit and compliance staff
decreased from 420 Full Time Employees (FTE) to 369. The
reduction of 65 full-time employees (FTE) cited in the FY
2007 Budget Justification applies to the Offshore and
Federal Onshore compliance and audit staff members. However,
of that 65 FTE, 14 were sent to the MMS Indian audit and
compliance program. Of those remaining 51 FTE, 28 were
reassigned to the RIK program, 21 were eliminated, and 2
were reassigned to Indian outreach.
Further, MMS is receiving an increasing percentage of
revenues through its RIK program, thereby eliminating
valuation issues that previously required substantial audit
resources. During FY 2005, for example, MMS received about
32 percent of its revenues through RIK as compared to FY
2001 when MMS only received 15 percent.
Q7. What is the comparable number for 2006?
A7. The overall
audit and compliance staff as of January 2006 was 363.
January 24, 2007
Minerals
Management Service
Department of the Interior
Background on Mr. Bobby Maxwell’s
Case Against Kerr-McGee
Bobby
L. Maxwell, an audit manager for the Minerals Management
Service (MMS) in 2005, filed a False Claims Act (FCA) suit
charging that Kerr-McGee violated federal royalty
regulations by failing to market the oil produced from
federal lands at the highest price for the benefit of the
U.S. government and the company. Mr. Maxwell further
claimed that MMS dissuaded him from pursuing any action
against Kerr-McGee.
MMS procedures require that auditors who
believe they have detected fraudulent actions must report it
to the MMS’s Office of Enforcement who in turn must report
it to the Department of Interior’s Office of Inspector
General (OIG). Alternatively, the auditors can go directly
to the OIG. Mr. Maxwell and the other auditors who filed
qui tam lawsuits did not follow these required procedures.
A False Claims Act claim filed by an MMS
auditor against an oil or gas company that he or she is
responsible for auditing causes a conflict of interest
because the auditor stands to gain personally by using
information they are paid by the taxpayers to collect.
Upon review, MMS saw no regulatory basis for
issuing an order on the issue raised by Mr. Maxwell. Once
made aware of the suit, the Department of Justice
independently reviewed Mr. Maxwell’s claim and declined to
intervene.
January 24, 2007
Minerals
Management Service
Department of the Interior
Qui Tam Lawsuits
SUBJECT: Summary and Discussion of Qui
Tam Cases
I.
SUMMARY
This memorandum summarizes
False Claims Act (FCA) qui tam cases where,
unbeknownst to the Government, MMS auditors used
confidential materials, including documents provided by
federal lessees during the course of federal audits, to
formulate numerous private claims under the FCA.
II. DISCUSSION
The FCA,
31 U.S.C. §§ 3729-3733,
allows private citizens (“relators”) to bring actions to
redress damage to the United States caused by violations of
the FCA. Under these so-called “qui tam” actions,
relators are awarded up to 30 percent of the recovery from
the government's damages, as well as attorney fees and costs
from the defendants. Such rewards are only available to
relators who bring new information to the government not
already in the public domain. District courts have no
subject matter jurisdiction when a relator's action is based
on a “publicly disclosed” investigation or audit unless the
relator is the original source for that disclosure.
31 U.S.C. § 3730(e)(4).
Qui tam
cases are filed under seal under 31 U.S.C. §
3730(b), so that the United States may investigate the
relator’s claims and decide whether to intervene. The
government may decline to intervene under 31 U.S.C. §
3730(b)(4) or intervene under 31 U.S.C. § 3730(c)(3). If
the government does not intervene, the relator may continue
to pursue the action without the government, but the
government still shares in any recovery. If the government
intervenes, pursues the action, and prevails, the relator
still recovers a percentage of the damages. After the
government makes its decision the court unseals the case.
The government also may move to dismiss the relator’s action
under 31
U.S.C. § 3730(c)(2)(A) whether it intervenes or not.
January 24, 2007
Relevant Web Site:
MMS Main Website
Media
Contact:
Gary Strasburg (202) 208-3985
MMS:
Securing Ocean Energy & Economic Value for
America
U.S. Department
of the Interior
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