Mineral Revenues: MMS Could Do More to Improve the Accuracy of Key Data Used to Collect and Verify Oil and Gas Royalties
GAO-09-549
Published: Jul 15, 2009. Publicly Released: Sep 15, 2009.
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Highlights
In fiscal year 2008, the Department of Interior's Minerals Management Service (MMS) collected over $12 billion in royalties from oil and gas production from federal lands and waters. Companies that produce this oil and gas self-report to MMS data on the amount of oil and gas they produced and sold, the value of this production, and the amount of royalties owed. Since 2004, GAO has noted systemic problems with these data and recommended improvements. GAO is providing: (1) a descriptive update on MMS's key efforts to improve the accuracy of oil and gas royalty data; (2) our assessment of the completeness and reasonableness of fiscal years 2006 and 2007 oil and gas royalty data--the latest data available; and (3) factors identified by oil and gas companies that affect their ability to accurately report royalties owed to the federal government.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Interior | In order to improve the accuracy of royalty data and to help provide a greater assurance that federal oil and gas royalties are being accurately reported, to improve the efficiency of audit and compliance activities, to increase the likelihood of collecting additional royalties in a timely manner, and to better prevent the submission of erroneous data into MMS's database, the Secretary of the Interior should direct MMS to share with payors that submit their data through the Electronic Data Interchange (EDI), MMS's recent edit check that prevents payors from submitting data claiming processing allowances for gas that is not processed, including coalbed methane. |
Closed – Implemented
In April 2009, Interior's MMS added an edit check to prevent payers from claiming gas processing allowances for unprocessed gas and later updated this edit check in February 2010. Additionally, MMS has made available its edit checks for payers on its website.
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| Department of the Interior | In order to improve the accuracy of royalty data and to help provide a greater assurance that federal oil and gas royalties are being accurately reported, to improve the efficiency of audit and compliance activities, to increase the likelihood of collecting additional royalties in a timely manner, and to improve the quality of data that has been accepted by MMS's database, MMS should design and implement additional edit checks to evaluate the net impact of all adjustments on original entries for critical royalty variables, including sales values, royalty values, sales volumes, transportation allowances, and processing allowances, by summing each month all entries for the variable submitted by each payor for each lease and each commodity and highlight potentially erroneous submissions to payors and appropriate MMS staff. |
Closed – Implemented
Beginning in December 2009 and continuing through August 2012, Interior has added additional price and royalty edit checks. Additionally, Interior notified GAO that it had developed a new analysis tool, called the Royalty Equation Analysis dashboard which is designed to analyze key royalty variables to ensure they fall within expected ranges. Specifically, according to Interior, the dashboard sums royalty values and volumes and calculates a minimum and maximum price and royalty rate by payer, lease, commodity and sales period, and identifies differences between the maximum and minimum price. If the difference exceeds a specified limit, Interior's new Data Mining Services group analyzes the resulting exceptions and determines reasonableness of the reported values and volumes.
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| Department of the Interior | In order to improve the accuracy of royalty data and to help provide a greater assurance that federal oil and gas royalties are being accurately reported, to improve the efficiency of audit and compliance activities, to increase the likelihood of collecting additional royalties in a timely manner, and to improve the quality of data that has been accepted by MMS's database, MMS should use the monthly sums of original and adjusting entries for royalty values, sales values, and sales volumes to ensure that calculated royalty rates and unit prices for each payor on each lease for each commodity fall within expected ranges and highlight potentially erroneous submissions to payors and appropriate MMS staff. |
Closed – Implemented
Interior notified GAO that it had developed a new analysis tool, called the Royalty Equation Analysis dashboard which is designed to analyze key royalty variables to ensure they fall within expected ranges. Specifically, according to Interior, the dashboard sums royalty values and volumes and calculates a minimum and maximum price and royalty rate by payer, lease, commodity and sales period, and identifies differences between the maximum and minimum price. If the difference exceeds a specified limit, Interior's new Data Mining Services group analyzes the resulting exceptions and determines reasonableness of the reported values and volumes.
|
| Department of the Interior | In order to improve the accuracy of royalty data and to help provide a greater assurance that federal oil and gas royalties are being accurately reported, to improve the efficiency of audit and compliance activities, to increase the likelihood of collecting additional royalties in a timely manner, and to simplify the auditing of leases and compliance work, MMS should enforce current MMS requirements to populate the agreement field with the correct agreement number and to populate the agreement field for leases outside of agreements with a single unique code that is easily identifiable. |
Closed – Implemented
In August 2011, Interior reported that it had taken three actions to improve the accuracy of payer reporting on agreements. First, Interior has implemented a volume comparison process that identifies volume differences between the volumes reported on the Oil and Gas Operations Report and the volumes reported on the MMS-2014 royalty reporting form. According to Interior, most volume discrepancies it has identified are caused by agreement misreporting. Second, Interior developed and provided formal training to industry on how to correctly report agreements. Third, Interior will issue Order to Report letters and Notices of Non-Compliance to companies, when necessary, to enforce correct reporting.
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| Department of the Interior | In order to improve the accuracy of royalty data and to help provide a greater assurance that federal oil and gas royalties are being accurately reported, to improve the efficiency of audit and compliance activities, to increase the likelihood of collecting additional royalties in a timely manner, and to simplify the auditing of leases and compliance work, MMS should collaborate with state and tribal auditors on the possibility of adding more specific adjustment reason codes that describe why payors made corrections to royalty data on the Form MMS-2014. |
Closed – Implemented
In May 2011, Interior met with state and tribal auditors to discuss whether to add additional adjustment reason codes. The parties concluded that additional adjustment codes are not needed at this time, but that Interior should instead focus on ensuring that current adjustment reason codes are used properly.
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Data collectionData integrityInternal controlsLand leasesMineral leasesNatural gasPrices and pricingReporting requirementsRoyalty paymentsData storageErroneous paymentsDatabasesInformation managementQuality improvementCompliance