Memorandum To: Secretary Kempthorne C. Stephen Allred Assistant Secretary – Land and Minerals Management From: Earl E. Devaney Inspector General Subject: Transmittal of Office of Inspector General Report of Investigation – “Minerals Management Service: False Claims Allegations” With this memorandum, I am transmitting the Office of Inspector General (OIG) Report of Investigation, “Minerals Management Service: False Claims Allegations.” This Report of Investigation chronicles a series of events that led to the filing of multiple qui tam, or false claims, lawsuits by employees and former employees of the Minerals Management Service (MMS). It also reports on numerous incidents of alleged retaliation against these employees and former employees. This report tells the tale of Minerals Revenue Management (MRM), a program within MMS fraught with difficulties stemming from myriad causes: it presents examples of a systemic dilemma in MMS – that of the bureau’s conflicting roles and relationships with the energy industry. It also hints of a profound failure in the development of a critical MRM information technology (IT) system; it reveals a working environment in which poor communication, or no communication, compounded an already existing element of distrust; and it demonstrates a band-aid approach to holding together one of the Federal Government’s largest revenue producing operations. In addition, we discovered a number of other significant issues worthy of separate investigation, including ethics lapses, program mismanagement and process failures. Our investigation revealed a complex, and sometimes confusing, array of facts. In order to minimize complexity and confusion, we report our findings by 1) the qui tam lawsuits and their respective bases, 2) employee reporting requirements, and 3) use of official and/or proprietary data/information. We also chronicle multiple allegations of reprisal and address these in a separate section of our report. We found that the collective bases for the qui tam lawsuits were either premised on a lack of knowledge of other MMS efforts to collect royalties and interest or the relators’ (person bringing the claim) fundamental disagreement with MMS management decisions and MMS guidance that the oil companies were following. Better communication about management’s decisions may have forestalled the filing of these lawsuits. On the other hand, in the case of interest calculations – where MRM established a policy, nearly a decade ago, that it would assume that calculation of interest was a “hardship” on the oil companies if their payment forms did not include interest – no amount of communication would likely convince the relators, or the general public, that this was a sound policy decision. Rather, even the Associate Director of MRM conceded that this was the “easy way.” Instead, MRM has manually calculated interest for the oil companies for years, while it has also spent considerable amounts of money to modify its IT system to calculate interest automatically. To date, the effort to automate interest calculations has been largely unsuccessful. The original procurement of and subsequent modifications to this system are now the subject of a separate OIG investigation. In each of these cases, we found that the relators failed to follow either MMS or Departmental reporting requirements. Again, however, systemic communications failure exasperated the relators’ fundamental distrust that their management chain would proceed appropriately. As for the propriety of auditors using information obtained in the course of their jobs to bring a qui tam lawsuit, the courts have opined that government employees such as these relators were not, as a class, automatically precluded from bringing claims based on facts they learned during the course of their official duties. Our findings concerning the use of official and/or proprietary information remain inconclusive, primarily due to dated, vague policies and rules and poor overall document control. We are also given pause by certain of the relators’ assertions that, in effect, by filing qui tam lawsuits, the records never left the custody of the government, although we reserve judgment as to the validity of this assertion. Lastly, we considered 18 allegations of retaliation against the relators. Taken individually, the allegations of retaliation range from trivial to troubling. Although we found no conclusive evidence that MMS deliberately retaliated against the relators, we found some disconcerting behavior – among other things, management’s manifest inattention to personnel matters affecting the reassigned relators when MMS management should have been paying extraordinary attention. Taken collectively, this created an environment where reprisal could certainly be perceived. As you may know, two of the qui tam cases have since been dismissed – one on jurisdictional grounds, but the other on substantive grounds. The reasoning in the latter decision would suggest that the remainder of the cases might be dismissed as well. Regardless, the findings of our investigation call for a number of improvements in the management of the MRM program, particularly in regard to document control, guidance clarification (and, in the case of the interest calculation “hardship” policy, perhaps recision), and far greater attention to the management and treatment of the reassigned relators. For a manager to claim that “paperwork is not my forte?” regarding critical personnel matters is simply inexcusable. Finally, it should go without saying that my expectation is that none of the witnesses identified in our report, especially those who provided us with their most candid views, will suffer any sort of retaliation or retribution for their cooperation with the OIG in this investigation. If you have any questions or concerns about this report, please do not hesitate to contact me at (202) 208-5745. Investigative Report This report contained information that has been redacted pursuant to 5 U.S.C.§§ 552(b)(2), (b)(4), (b)(5), (b)(6) and (b)(7)(C) of the Freedom of Information Act and the Privacy Act, 5 U.S.C. § 552a. Some references indicating gender are written in the masculine form to protect the identities of individuals and to facilitate the reading of the report. TABLE OF CONTENTS RESULTS IN BRIEF 3 BACKGROUND 4 Minerals Management Service 4 Qui Tam 4 The Auditors’ False Claims Act Lawsuits 5 Employee Reporting Requirements 6 Use of Official and/or Proprietary Data/Information 6 DETAILS OF INVESTIGATION 8 Bobby L. Maxwell v. Kerr-McGee Corporation et al 9 Maxwell’s Qui Tam Complaint 9 2004 Investigation in Response to Qui Tam Filing 10 2005 [Exemption (b)(6) & (b)(7)(C)] Complaint About Maxwell 11 2006 OIG Investigation of Maxwell’s Claims 11 Legitimacy of Maxwell’s Claim 12 Maxwell’s Other Assertions 19 Reporting and Safeguarding Requirements 22 MRM Safeguarding Responsibilities and Actions 24 Declination of Prosecution 26 Little and Morris v. ENI Petroleum Company, Inc., et al 27 Little and Morris’s Complaint 27 2005 Investigation in Response to Qui Tam Filing 28 2006 OIG Investigation of the Relators’ Claims 28 MRM Support System – Interest Billing/Collection Issues 34 Potential Time Value Loss 39 MRM Collection of Interest on Interest 40 MRM Instructions to Auditors Regarding Interest Collection 41 Allegation that MRM Returned Valid Payments 43 Reporting and Safeguarding Requirements 46 Reporting Requirements 47 Safeguarding Requirements 50 Declination of Prosecution 52 Dismissal of Lawsuit 52 Little v. ENI Petroleum Company, Inc., and AGIP Exploration Company 54 Randy Little’s Qui Tam Complaint 54 Investigations in Response to Qui Tam Filing 55 Transportation Costs Questioned 56 MMS Management Response to Questioned Costs 57 Reporting and Safeguarding Requirements 63 Reporting Requirements 63 Safeguarding Requirements 63 Declination of Prosecution 64 Little and Arnold v. Royal Dutch Shell 65 Little and Arnold’s Qui Tam Complaint 65 Investigations in Response to Qui Tam Filing 67 Little and Arnold’s Actions 67 MMS’s Description of Events Pertaining to Little’s Findings and E-mail to Shell 71 Meeting With Shell 75 Transportation Deductions Taken by Oil Companies 76 Rationale for the Denett Guidance Memorandum 78 Residency Team Audit of Shell 80 Relators’ Responses Concerning the Residency Team Audit 81 Reporting and Safeguarding Requirements 82 Reporting Requirements 82 Safeguarding Requirements 83 Declination of Prosecution 85 Relator Claims of Retaliation 86 Bobby Maxwell 86 Arnold, Little, and Morris 91 OTHER ISSUES 131 RESULTS IN BRIEF We initiated this investigation at the request of Secretary Dirk Kempthorne, who asked us to assess the legitimacy of claims made in a series of qui tam lawsuits filed by Minerals Management Service (MMS) auditors against oil companies for alleged underpayments of royalties and interest owed. The Secretary also asked us to examine whether or not the auditors had followed proper procedures for reporting their allegations, whether they had improperly used proprietary information in pursuing their claims, and, finally, whether or not they had been retaliated against by MMS for filing these lawsuits. We also received multiple requests from members of Congress to examine the same concerns. Ultimately, we determined that the claims made in the auditors’ qui tam lawsuits were either based on a lack of knowledge of other MMS efforts to collect royalties and interest or the auditors disagreed with both MMS management decisions and MMS guidance that the companies were following. During the course of investigating these issues, we found a number of other significant concerns, worthy of separate investigation, including program mismanagement and process failures. We also found that the auditors did not properly report their suspicions of wrongdoing to the appropriate authorities, including the Office of Inspector General (OIG), and we determined that the auditors removed and used proprietary, sensitive, or confidential business information without authorization. While we found no evidence that MMS deliberately retaliated against the qui tam relators, we did observe a myriad of human resource faux pas, which, taken collectively, created an environment where reprisal could be perceived. We presented our findings regarding the auditors’ potential misuse of government records for their lawsuits to the Department of Justice (DOJ). DOJ declined criminal prosecution. Based on our review of MMS’s document control process, we find the prospect of any sustainable administrative action problematic. We are referring this case to the Assistant Secretary for Lands and Minerals Management for any follow-up action that he deems appropriate. BACKGROUND Minerals Management Service MMS manages the nation’s natural mineral resources on the Outer Continental Shelf and on some federal and Indian lands. MMS also collects, accounts for, and disburses more than $8 billion per year in revenue from these offshore and onshore mineral leases. Two major programs comprise MMS – Offshore Minerals Management and Minerals Revenue Management (MRM). Offshore Minerals Management manages the mineral resources on the Outer Continental Shelf, and MRM is responsible for managing all revenues associated with offshore and onshore federal mineral leases. This effort is one of the federal government’s greatest sources of non-tax revenues. MRM processes rents and royalties from nearly 70,000 leases each year and employs about 600 federal and 300 contractor personnel. The Federal Oil and Gas Royalty Management Act of 1982, 30 U.S.C. § 1701, and the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996, 30 U.S.C. § 1701, form the basis for MRM oversight and regulatory enforcement activities. MRM collects royalties from oil and gas companies through requirements established in two types of leases. Royalty in Value (RIV) leases require that the lessee pay the federal government, through MRM, a percentage of the monetary value of the oil or gas brought to the market. Royalty in Kind (RIK) leases differ in that MRM takes possession of a percentage of the product (oil or gas), at the designated delivery point, which is frequently the platform where the oil or gas is brought to the surface. MRM then arranges for transportation of the oil or gas, markets it, and sells it. A significant change under the Royalty Simplification and Fairness Act of 1996 was that oil and gas companies (leaseholders) became required to calculate interest with their late payments or underpayments for royalties owed to MRM, unless they claimed that calculation of the interest was a hardship. If companies claimed a hardship, MRM would then calculate the interest for them. The Royalty Simplification and Fairness Act also required that MRM pay interest to leaseholders who made overpayments. Qui Tam Qui tam is an abbreviation for a Latin phrase meaning “he who brings a case on behalf of our lord the King, as well as for himself.” The term qui tam is a provision of the Civil False Claims Act, 31 U.S.C. §§ 3701 – 3733, that allows a private citizen to file a suit on behalf of the United States alleging that the defendant(s) defrauded the government. The False Claims Act provides that the person who files the qui tam lawsuit, called a relator, may receive between 15 and 30 percent of any money recovered. The relator’s complaint is filed under seal in a federal district court. Copies of the relator’s complaint and a disclosure statement of evidence are provided to DOJ. Following receipt of the complaint and disclosure statement, DOJ conducts an investigation of the allegations with support from the appropriate law enforcement agency, such as the Department of the Interior’s (DOI) OIG. Upon completion of its investigation, DOJ will either intervene and prosecute the lawsuit, decline to intervene and allow the relator to proceed alone, or seek to dismiss the lawsuit. The OIG supports DOJ’s investigation of qui tam complaints that involve DOI by coordinating interviews, obtaining records, and performing other activities at the direction of DOJ attorneys who are tasked with conducting the investigation. DOJ leads the investigation and decides whether the government will participate in prosecution of the lawsuit. Between 1998 and 2004, the OIG jointly conducted royalty qui tam investigations with DOJ resulting in the recovery of more than $568 million from 25 U.S. companies operating oil, natural gas, coal, and other activities on federal and Indian lands. The Auditors’ False Claims Act Lawsuits On June 14, 2004, MRM Manager Bobby Maxwell filed a qui tam lawsuit under the False Claims Act in the Federal District Court for the District of Colorado because he believed Kerr-McGee Corporation (Kerr-McGee) had failed to properly fulfill its lease obligations, thereby depriving the government of appropriate royalties. MRM auditors Randy Little and Lanis Morris filed a qui tam lawsuit on November 30, 2005, in the Federal District Court for the Western District of Oklahoma. They alleged that 25 oil companies did not comply with the requirements of the Royalty Simplification and Fairness Act when they failed to calculate and pay interest, thereby depriving the government of interest owed on late royalty payments and underpayments of royalty obligations. On February 3, 2006, Little filed another qui tam lawsuit in the Federal District Court for the Western District of Oklahoma alleging that ENI Petroleum Company, Inc., and AGIP Exploration Company took unallowable oil transportation deductions, thereby depriving the government of appropriate royalties owed on lease production. On February 15 and March 14, 2006, MRM auditors Little and Joel Arnold jointly filed two qui tam lawsuits in the Federal District Court for the Western District of Oklahoma alleging that Royal Dutch Shell P.L.C., Shell Exploration and Productions Company, Shell Deepwater Development Systems, Inc., and Shell Offshore, Inc., (Shell) took unallowable oil transportation deductions, thereby depriving the government of appropriate royalties owed on lease production. Upon notification that the above-mentioned lawsuits had been filed, DOJ, with assistance from the DOI Office of the Solicitor (SOL) and the DOI-OIG, initiated investigations into the merits of these lawsuits. The SOL concluded, based upon the results of the investigations conducted in 2004 and 2006, and their legal analysis, that the auditors’ complaints lacked merit. DOJ declined to intervene in Maxwell’s lawsuit on January 7, 2005, and declined to intervene in the lawsuits filed by Arnold, Little, and Morris on September 8, 2006. Employee Reporting Requirements The MRM Audit Manual directs that in accordance with Part 355 of the Departmental Manual, Chapter 2.1(c), each employee has the duty to report known, suspected, or alleged fraud, waste, or abuse affecting departmental programs or operations to the OIG Assistant Inspector General for Investigations. Employees are directed to do so through official channels or by filing a complaint directly to the OIG if the employee feels the circumstances require a direct referral. MMS’s Internal Quality Control System, Audit and Compliance Policies and Procedures, advises employees that any actions that could be considered potentially fraudulent, abusive, or illegal should be brought immediately to the attention of the audit manager for appropriate follow-up in accordance with the MRM Audit Manual. We found that the MRM Office of Enforcement also conducts periodic Illegal Acts Awareness training for MMS personnel. In this training, MMS employees are advised that MRM policy requires employees to report known, suspected, or alleged illegal acts to the OIG without fear of reprisal. MRM policy requires that employees also notify their supervisor and/or the MRM Office of Enforcement if they believe these acts may have occurred. Use of Official and/or Proprietary Data/Information Our review of the MMS Information Technology Rules of Behavior revealed that employees are advised that access to confidential or sensitive information shall be restricted to authorized individuals who need the information to conduct their jobs. Additionally, employees are advised that they should not access data outside of performing their official duties and should not give information to other potentially unauthorized employees or outside individuals. We found that the MMS memorandum titled, “Guidance and Procedures for Handling Requests for Royalty Management Program Proprietary Data/Records,” dated February 27, 1995, contains the following information: * A definition of proprietary data. * Examples of reports, including the MMS Form 2014, that contain proprietary data. * Situations when employees may release proprietary data/records. * Notification that employees are responsible for protecting proprietary information from unauthorized disclosure. * Discussion of mandatory annual training on how to handle requests for proprietary data and records. The MMS Audit Manual, Chapter 5.7, Safeguarding Work Papers, directs that confidential, privileged, or proprietary information received and used by MMS employees and government contractors must be protected from unauthorized disclosure. The MMS Manual, Part 386, states that individual MMS employees are responsible for the safe-guarding and security of proprietary data/information. The MMS Manual calls for “stringent administrative action” against any MMS employee or representative who discloses proprietary data/information for any purpose other than in the performance of his/her responsibilities as an employee or representative of MMS. A review of the DOI Departmental Manual, Part 370, Chapter 752, Discipline and Adverse Actions, Table of Offenses and Penalties, disclosed the following: * Improper or unauthorized release of sensitive and administratively controlled information in which the release of the restricted information is deliberate may result in a 30-day suspension to removal. * Using public office for private gain may result in a 5-day suspension to removal. * Participating in particular matters while having a conflicting financial interest may result in a 5-day suspension to removal. * Unauthorized use of nonpublic information may result in a written reprimand to removal. DETAILS OF INVESTIGATION We initiated this investigation at the request of Secretary Dirk Kempthorne, who asked us to assess the legitimacy of claims made in a series of qui tam lawsuits filed by Minerals Management Service (MMS) auditors against oil companies for alleged underpayments of royalties and interest owed. The Secretary also asked us to examine whether or not the auditors had followed proper procedures for reporting their allegations, whether they had improperly used proprietary information in pursuing their claims, and, finally, whether or not they had been retaliated against by MMS for filing these lawsuits. We also received multiple requests from members of Congress to examine the same concerns. Initially, we focused our investigation on (1) the legitimacy of the underlying claims made in any of the qui tam lawsuits; (2) whether the MMS auditors brought their claims to the attention of MMS, DOJ, or the OIG and what response they received; (3) the relators’ use of official and/or proprietary data/information; and (4) the auditors’ claims of retaliation. During the course of investigating these issues, we found a number of other significant concerns, worthy of separate investigation, including program mismanagement and process failures. Recognizing the enormity of the investigative challenges associated with the auditors’ allegations and the need for expediency, we created an investigative team composed of investigators, special agents, and support personnel from our Program Integrity Division, Computer Crimes Unit, and all but one of our four regional offices. We interviewed over 65 individuals, many on multiple occasions, during the course of this investigation and ultimately reviewed over 7,000 e-mails and hundreds of documents to determine the facts. We organized this report into five sections. Each of the first four sections includes a specific discussion of the relators’ lawsuit, the results of our investigation pertaining to that particular lawsuit, and our findings regarding whether the relators complied with requirements for reporting suspicions of fraud and for safeguarding official and proprietary documents. The two lawsuits against Shell are presented in one section (the fourth section) due to the similarity of the issues and involvement of many of the same witnesses. The fifth section of this report presents the relators’ allegations of reprisal as well as the results of our investigation of those claims. Bobby L. Maxwell v. Kerr-McGee Corporation et al Maxwell’s Qui Tam Complaint On June 14, 2004, Bobby Maxwell, Senior Auditor, MRM, Lakewood, CO, filed a lawsuit under the False Claims Act against Kerr-McGee to recover monies owed to the United States arising from the defendant’s obligation to pay federal oil royalties. Note: Maxwell was a re-employed annuitant at the time of his filing and is now retired. A re-employed annuitant is an individual who is retired from federal service and has been rehired by the government. Maxwell, in his Complaint and Jury Demand, claimed that Kerr-McGee sold oil produced from federal lands (including offshore in the Gulf of Mexico) to Texon Corporation at a reduced price in exchange for Texon marketing the oil. He stated that Kerr-McGee was required to base its royalty payment to the government on the fair market value of the oil (but instead based it on the reduced price). According to Maxwell’s complaint, the lessee is required to place the oil in marketable condition at no cost to the government and that placing the oil in marketable condition “has been held [by the courts] to include the expense of marketing the oil.” Maxwell claimed that Kerr-McGee underreported the royalty value of oil from January 1999 through approximately July 2003. Note: Maxwell submitted these allegations based upon information he derived from an official MRM audit. Specifically, Maxwell brought his suit on behalf of the U.S. Government for the alleged false claims made by Kerr-McGee through monthly submission of MMS Form 2014, Report of Sales and Royalty Remittance, in which Kerr-McGee certified that its royalty reporting and payments complied with applicable federal laws and regulations. Maxwell asserted that Kerr-McGee was prohibited from (1) reducing the price and having the purchaser (Texon) market the oil and (2) accepting less than full market price as an accommodation for the purchaser’s marketing expense. He said Kerr-McGee violated applicable federal royalty regulations and made false statements on its monthly submission of Form 2014. Maxwell also asserted that during an MRM audit beginning on September 25, 2001, auditors found a 1996 memorandum authored by Kerr-McGee in which, according to Maxwell, Kerr-McGee conducted an economic analysis of the benefit of maintaining an existing contract with Texon to sell federal oil at below market price while allowing Texon to incur the expense of marketing the federal oil. Maxwell stated that the 1996 Kerr-McGee memorandum recommended renewal of the Texon contract because Kerr-McGee’s cost to market, [Exemption 4], exceeded the difference between the fair market value and the price received from Texon, [Exemption 4]. Maxwell concluded that Kerr-McGee had substantially underpaid its federal oil royalties by accepting less-than-market price for the oil in exchange for Texon incurring marketing expenses. Maxwell claimed that he and other MRM auditors had conducted an economic analysis of Kerr-McGee’s deficiency for January 1, 2000, through December 31, 2000, and concluded that Kerr-McGee owed the federal government approximately $7.6 million for the questioned period. 2004 Investigation in Response to Qui Tam Filing Upon receipt of Maxwell’s filed qui tam complaint on or about June 14, 2004, DOJ notified both the DOI-SOL and the DOI-OIG of the qui tam lawsuit and requested assistance in determining the merits of the claim. An SOL Attorney-Advisor was assigned to assist DOJ. An OIG Special Agent was assigned to provide investigative assistance. Associate Solicitor James Harris also participated in the review of Maxwell’s claims. According to the Attorney-Advisor, DOJ, the SOL, and the OIG conducted an in-depth investigation into the merits of Maxwell’s claims, which included multiple joint interviews, document reviews, and legal analysis. The Attorney-Advisor reported that a full analysis of Kerr-McGee’s oil/gas sales over the time period identified in the lawsuit was conducted and that no evidence was found indicating that Kerr-McGee regularly sold its products at a significantly lower rate than other companies. According to the Attorney-Advisor, the analysis determined that during the identified time period, Kerr-McGee’s sale prices were both below and above average market prices. The Attorney-Advisor stated that, in his opinion, the actions taken and the decisions made by the MMS officials not to support Maxwell’s Issue Orders were both legal and an appropriate use of discretion. Note: An “Issue Order” is a demand, often for additional royalties, sent after MRM concludes money is owed. According to both Harris and the Attorney-Advisor, upon completion of their investigation, the SOL consulted with DOJ concerning the relators’ lawsuit. Subsequently, DOJ filed its Notice of Election to Decline Intervention in the U.S. District Court for the District of Colorado on January 7, 2005. Subsequently, Maxwell proceeded with his lawsuit alone, and on January 23, 2007, in the U.S. District Court for the District of Colorado, a jury found that Maxwell had proved by a preponderance of the evidence that Kerr-McGee knowingly made or used a false record or statement in order to conceal, avoid, or decrease an obligation to pay money to the U.S. Government, in violation of the False Claims Act. The jury determined the unpaid dollar amount to be $7,555,886. However, on March 30, 2007, U.S. District Judge Phillip Figa, for the District of Colorado, dismissed Maxwell's qui tam suit. Citing Tenth Circuit precedent, Judge Figa ruled that 31 U.S.C. § 3730(e)(4) required the court to reject the claim because, in essence, Maxwell’s initial disclosure to the government of the allegations could not have been “voluntarily provided” because his job duties required him to do so. Judge Figa noted that government employees such as Maxwell were not, as a class, automatically precluded from bringing claims based on facts they learned during the course of their official duties. The court, however, dismissed the case for lack of subject matter jurisdiction. 2005 [Exemptions (b)(6) and (b)(7)(C)] Complaint About Maxwell On July 1, 2005, an MMS Employee Relations Advisor sent a memorandum to the OIG that included a complaint, [Exemptions (b)(6) & (b)(7)(C)]. The complainant alleged that two MMS managers failed to pursue underpayment of royalties by Kerr-McGee and that one of the managers may have suppressed other enforcement actions. The complaint alleged that the two managers engaged in a conflict of interest; misused government time, equipment, and information; violated the Federal Standards of Conduct for employees; obstructed official government functions; and failed to pursue enforcement actions against Kerr-McGee. [Exemptions (b)(6) and (b)(7)(C)] After receipt of the complaint, interviewing the complainant, and a discussion with a DOJ Trial Attorney, we decided not to open an official investigation until additional developments or information were forthcoming. 2006 OIG Investigation of Maxwell’s Claims In September 2006, the OIG initiated a new investigation into the legitimacy of Maxwell’s claims and his assertion that the decision made by MMS management not to pursue collection of additional royalties was improper. In addition, we addressed Maxwell’s other assertions, obtained from his response to Kerr-McGee’s request for summary judgment, and whether or not Maxwell had complied with DOI/MMS policies when filing his claim. Our repeated efforts to interview Maxwell for this investigation were unsuccessful – he would not agree to an interview with the OIG. However, his Attorney provided material that had been filed on Maxwell’s behalf in opposition to a Kerr-McGee Motion for Summary Judgment, believing it would be helpful to the OIG investigation. Included in the material was an affidavit filed by Maxwell on April 1, 2005, which asserted, in part, the following: * The Deputy Associate Director, Offshore Compliance and Asset Management, MRM (formerly the Program Manager, Offshore Compliance and Asset Management, MRM), stated that the SOL had concerns about Maxwell’s proposed Issue Orders for Kerr-McGee – requesting that Kerr-McGee pay additional royalties – and that a subsequent telephone conference with the DOI-SOL resulted in the SOL attorneys discouraging issuance of the Orders. Maxwell alleged that the attorneys did not identify any weaknesses in the proposed Orders or the underlying regulations used to support the Orders. * A Program Manager, Office of Enforcement, MRM, initially agreed that a case could be made to support Maxwell’s proposed Orders but remained silent during discussion with the SOL attorneys. The Program Manager contacted Maxwell the day following the discussion with the SOL attorneys and told Maxwell that the now former MMS Director would be upset if he (Maxwell) issued the Orders to Kerr-McGee. * MRM did not close its audit of Kerr-McGee because the issues identified by Maxwell appeared to be valid and because “outside sources” were looking into the issues. * Deborah Gibbs Tschudy, Deputy Associate Director, MRM, directed the MMS Internal Quality Control Review team to delete findings from a review of the Kerr-McGee audit file concluding that an “issue for sales to Texon had not been pursued for no apparent reason.” Legitimacy of Maxwell’s Claim In his lawsuit, Maxwell claimed that during the MRM audit of Kerr-McGee in 2002, MRM conducted an economic analysis of Kerr-McGee’s royalty payments for January 1, 2000, through December 31, 2000, and concluded that Kerr-McGee owed the federal government approximately $7.6 million for the audit period. Maxwell reported sending an Issue Letter to Kerr-McGee on November 15, 2002, requesting that Kerr-McGee pay additional royalties he believed were owed based upon the analysis noted above. Note: “Issue Letters” advise payors that MRM is questioning an action of the payor and requests a response in which the payor concurs or disputes the matters addressed in the letter. Kerr-McGee responded, through its legal counsel, on January 21, 2003. In its response, Kerr-McGee claimed that the Issue Letter was inconsistent with MMS regulations, including language in 30 C.F.R. § 206.102(c)(2)(A) that states, “MMS will not use this provision to simply substitute its judgment of the market value of the oil for the proceeds received by the seller under an arm’s-length contract.” Note: MMS defines an arm’s-length contract as a contract between two independent companies that are not affiliated and have opposing economic interests regarding the contract. Kerr-McGee also cited language in 30 C.F.R. § 206.102(c)(2)(B) that stated the following: [T]he fact that a price received by a seller under an arm’s-length contract is less than…index prices, is insufficient to establish breach of the duty to market unless MMS finds additional evidence that the seller acted unreasonably or in bad faith in the sale of oil from the lease.” Kerr-McGee, after providing additional arguments of why Maxwell’s Issue Letter was inconsistent with regulations, requested that MRM withdraw Maxwell’s Issue Letter. Subsequently, Maxwell prepared two proposed Issue Orders to Report and Pay Additional Royalties for Kerr-McGee. One Order evaluated the difference between the fair market price and the actual sales price of the oil, with accommodation for a reasonable transportation allowance, and concluded that Kerr-McGee owed approximately $9.2 million. The other Order considered the reasonable cost of marketing the oil and concluded that Kerr-McGee owed approximately $10 million. Maxwell asserted that when he requested authority to transmit the Orders to Kerr-McGee, he was expressly dissuaded by his superiors from pursuing any action against Kerr-McGee. He further alleged that the SOL attorneys did not identify any weaknesses in the proposed Orders or the underlying regulations used to support them. We interviewed the Program Manager (now retired), Offshore Compliance and Asset Management, MRM, who was Maxwell’s supervisor at the time Maxwell was pursuing the collection of additional royalty payments from Kerr-McGee. When interviewed concerning Maxwell’s claims, the Program Manager stated that Maxwell was not sure what to do about the collection issue and brought the proposed Issue Orders to him for guidance. In response to Maxwell’s request for guidance, the Program Manager said he facilitated a teleconference with the SOL. According to the Program Manager, the participants of this teleconference included Lucy Querques Denett, Associate Director, MRM; Geoff Heath, Assistant Solicitor for Royalty and Offshore Minerals, Division of Mineral Resources, SOL; the SOL Attorney-Advisor; and Maxwell. Note: When interviewed, Denett denied participating in the teleconference. Heath and the Attorney-Advisor did not recall if Denett participated. No records were found to document the actual participants of this teleconference. According to the Program Manager, the SOL noted that the regulations regarding arm’s-length contracts were specific and that the issue set out in Maxwell’s Orders could not be defended in court without additional evidence. He stated that the SOL essentially concluded that there was not enough evidence to issue the Orders to Kerr-McGee. During the interview, the Program Manager provided his opinion regarding the crude oil prices that Texon paid to Kerr-McGee. He said he believed the regulations (referring to the Code of Federal Regulations) precluded a review of arm’s-length contracts unless there was some evidence of collusion or fraud, and according to the Program Manager, Maxwell and the other auditors had presented no such evidence. The Program Manager explained that the situation was similar to houses for sale in a certain neighborhood with listed prices ranging from $120,000 to $130,000, and one of the houses selling for $80,000. He stated that the sale of the house for $80,000 could not be questioned by the IRS unless there was additional evidence indicating it was improper. He added the following information in reference to these regulations: [Y]ou can’t be in the business of sending out Orders we can’t enforce just to see…who’s going to salute the flag when you raise it…you have a regulation that says you need something besides that before you can issue that Order. If you issue it, then you’re really not following the spirit of what the law and the regs are asking you to do, and that’s what we’ve got to do. We didn’t get to make that rule; we didn’t get to make that law. We just get to try and follow them as best we can. The Program Manager opined that issuing an Order that could not be legally defended in court was “not what we do.” He said, “That’s a violation of public trust to do that, in my mind.” According to the Program Manager, he directed the auditors to obtain more information from Kerr-McGee pertaining to its royalties. He said he also decided to recommend that the Kerr-McGee leases be converted to RIK. Note: We found no evidence that Maxwell, as the manager for the auditors, or the Program Manager, as Maxwell’s supervisor, directed or encouraged auditors to seek additional information from Kerr-McGee. Geoff Heath, Assistant Solicitor for Royalty and Offshore Minerals, Division of Mineral Resources, SOL, said he participated in a teleconference with the former Deputy Associate Solicitor, Division of Mineral Resources, SOL; the Program Manager; and Maxwell regarding the potential issuance of two Issue Orders by MRM to Kerr-McGee. Heath stated that MRM was seeking advice from the SOL regarding the legal sufficiency of the proposed Orders. He stated that during the teleconference, he and the former Deputy Associate Solicitor advised the Program Manager and Maxwell that the SOL believed that, based upon the facts Maxwell presented, Maxwell’s concept behind the draft Orders was not supported by the applicable regulations. In reliance upon this guidance, he said MRM consequently decided not to issue the proposed Orders to Kerr-McGee. Note: We were unable to establish whether this was the same teleconference that the Program Manager reported that the SOL Attorney-Advisor attended. A review of the applicable regulations in the U.S. Code of Federal Regulations, Title 30, Mineral Resources, disclosed the following: * 30 C.F.R. § 206.102(c)(1) states that “In conducting review and audits, if MMS determines that any arm’s-length sales contract does not reflect the total consideration actually transferred either directly or indirectly from the buyer to the seller, MMS may require that you value the oil sold under that contract either under § 206.103 or at the total consideration received.” * 30 C.F.R. § 206.102(c)(2) states that “You must value the oil under § 206.103 if MMS determines that the value under paragraph (a) of the section does not reflect the reasonable value of the production due to either (i) misconduct by or between the parties to the arm’s-length contract; or (ii) breach of your duty to market the oil for the mutual benefit of yourself and the lessor. (A) MMS will not use this provision to simply substitute its judgment of the market value of the oil for the proceeds received by the seller under an arm’s-length sales contract [emphasis added]. (B) The fact that the price received by the seller under an arm’s length contract is less than other measures of market price, such as index prices, is insufficient to establish breach of the duty to market unless MMS finds additional evidence that the seller acted unreasonably or in bad faith in the sale of oil from the lease” [emphasis added]. Our investigation revealed further discussion of MMS policy on this subject in the Federal Register, Volume 65, Number 51, dated March 15, 2000 (page 14029), which states that “MMS emphasizes that this does not imply that lessees are somehow prohibited from marketing at the lease and must market production ‘downstream.’ Lesees [sic] may market at the lease without breaching the duty to market.” Our investigation disclosed that there was, in fact, disagreement within MRM about how to apply the regulations to the aforementioned situation involving Kerr-McGee and Texon. For instance, we found an e-mail authored by an Auditor, Indian Compliance and Asset Management, MRM, on January 13, 2004, sent to Joel Arnold, Supervisory Auditor, Compliance and Asset Management, MRM, and Lanis Morris, Auditor, MRM. A conversation record (attached to the e-mail) documented a meeting on June 4, 2003, between the Program Manager; Maxwell; a Supervisory Auditor, MRM; and the Auditor from Indian Compliance and Asset Management regarding Maxwell’s belief that Kerr-McGee was underpaying royalties. In that conversation, the group discussed the validity of Maxwell’s concerns and whether Kerr-McGee’s sales prices were unreasonably low for an arm’s-length contract. According to the conversation record, the Program Manager said Kerr-McGee had no obligation to “market off the lease.” He said the issue of underpaid royalties was a “breach of duty to market” case with the burden of proof on the government to show that Kerr-McGee’s prices were unreasonable. Other participants disagreed with the Program Manager and claimed that the “preponderance of MMS and [Interior Board of Land Appeals] decisions uphold that the duty to market is implied in the lease and is the essence of the lease.” They also said that if Kerr-McGee’s competitors could get a “Platts price netted back to the lease for transportation,” then the same prices were available to Kerr-McGee and that Kerr-McGee was not diligent in its requirement to market for the government. Note: Platts is a consulting organization that provides information on energy and metals. Platts provides industry standard assessments of energy prices that assist companies with short-term and long-term contracts. According to the conversation record, the Program Manager also said MRM could not draw the conclusion that Kerr-McGee’s prices on the arm’s-length contract were unacceptable without data showing an intentional undervaluation. He added that Kerr-McGee received about $60 million less than it could have by accepting the price negotiated in the arm’s-length contract. In addition, the group suspected that there was more to the arm’s-length contract to entice Kerr-McGee to accept less-than market price but they had no evidence to support their suspicions. The Program Manager agreed with meeting attendees, according to the conversation record, that MRM could issue an Order to Kerr-McGee for the marketing costs Kerr-McGee saved by allowing Texon to market the oil, but Maxwell and the Supervisory Auditor, MRM, did not believe that approach would be fruitful. When interviewed, the Supervisory Auditor (now retired) said he agreed that Kerr-McGee had underpaid because Kerr-McGee eliminated its crude oil marketing department and was selling all of its crude oil to Texon. He recalled participating in a conference call with Maxwell, the Auditor for Indian Compliance and Asset Management, and the Program Manager. He said he believed the Program Manager wanted impossible tasks completed relating to the verification of oil prices before issuing an Order to Kerr-McGee. The Supervisory Auditor said he did not believe the Program Manager’s reasons for neglecting to pursue the matter were adequate. According to the Supervisory Auditor, Maxwell said a Program Manager, Office of Enforcement, MRM, told him Secretary Norton did not want the Order issued and would be upset if it was. An Employee in the Office of Enforcement, MRM, opined that the issues identified in Maxwell’s lawsuit had potential merit. He said Kerr-McGee had a responsibility to market oil at a value beneficial to the company and to the government. He added that his understanding of the issue was that Kerr-McGee reported lower oil values to MRM than it actually received. The Office of Enforcement Employee, who was not directly involved in the issue, said he heard that the DOI-SOL had stopped Maxwell from sending an Issue Letter to Kerr-McGee. This Employee also said he had heard that James Cason, Associate Deputy Secretary of DOI, was involved in the decision to not send the Issue Letters. The Office of Enforcement Employee identified the Program Manager, Office of Enforcement, and Deborah Gibbs Tschudy, Deputy Associate Director, MRM, as the sources for his information. When interviewed, the Auditor for Indian Compliance and Asset Management stated that Maxwell assigned him to assist on the Kerr-McGee audit by drafting two proposed Orders to Kerr-McGee outlining the crude oil issues identified by Maxwell. He explained that Maxwell thought he was a good writer and therefore had instructed him to draft the crude oil Orders to Kerr-McGee. Further, the Auditor said, “[A]ll I had was the [Exemption (b)(7)(C)] letter and nothing else.” He identified [Exemption (b)(7)(C)] as the law firm that provided Kerr-McGee’s response to Maxwell’s initial Issue Letter. He stated that the proposed Orders were his best efforts to find a weakness in the [Exemption (b)(7)(C)] argument. The Auditor said he found it difficult to allege misconduct due to the lack of evidence. The Auditor explained that when he sent the January 13, 2004 e-mail to Arnold and Morris, he wrote, “…I think this is sufficient to document the closing of the Kerr Oil Issue.” The Auditor said his reference to the closing of the Kerr-McGee issue was not intended to imply that the Kerr-McGee oil issue was resolved. He explained that the conversation record was intended to document the decision by management not to pursue the issue any further. Furthermore, the Auditor said the Program Manager, Offshore Compliance and Asset Management, never told him or other members of the team to go back to Kerr-McGee to seek additional information. When we interviewed the Program Manager, Office of Enforcement, MRM, he recalled that Maxwell brought an oil issue to his attention pertaining to Kerr-McGee and suggested it be included in the gas settlement negotiations that he was working on with SOL attorneys and Kerr-McGee. The Program Manager, Office of Enforcement, said he participated in a teleconference with Geoff Heath; a former Deputy Associate Solicitor; the MMS Chief of Policy and Appeals; Maxwell; and the Program Manager, Offshore Compliance and Asset Management. He said the group discussed Maxwell’s proposed Orders to Pay Additional Royalties and decided not to include Maxwell’s oil issues in the gas settlement negotiations. He said that under the requirements of the arm’s-length regulations, Kerr-McGee’s decision could have been just a good business decision. He explained that without further information, there was not enough evidence to support Maxwell’s claim. The Program Manager, Office of Enforcement, said there was no evidence of kick-backs or collusion, which would have been a different issue. The Program Manager, Office of Enforcement, opined that Maxwell needed to do “more work” before they could present Kerr-McGee with an Order. He said he believed Kerr-McGee had somehow reduced its proceeds but did not agree with the amount Maxwell presented (i.e., the difference in the price that Kerr-McGee received at sale from the third party, Texon, and the price the third party received at resale, less transportation costs). When asked about the former Supervisory Auditor’s allegation that he told Maxwell that Secretary of the Interior Gale Norton did not want Maxwell to send an Order to Pay to Kerr-McGee, the Program Manager, Office of Enforcement, denied the allegation. He said he was not aware of any involvement by Norton in the discussions and decisions surrounding the issues Maxwell raised about Kerr-McGee. The Chief, Policy and Appeals, MMS, told the OIG that he served as an attorney for the SOL from [Exemptions (b)(6) and (b)(7)(C)]. He said he had no recollection of participating in a meeting or discussion about Maxwell’s proposed Issue Orders to Kerr-McGee. He recalled participating in nationwide crude oil settlements when he was the lead counsel for such actions but reiterated that he had no recollection of the issues raised by Maxwell or related discussions. The Chief explained that it would have been normal for multiple SOL attorneys to discuss a crude oil issue with MMS managers because they maintained a close relationship with their clients. He commented that many of the regulations pertaining to royalty issues were “fuzzy” and explained that reading the regulations often resulted in different interpretations, causing many of the disputes between MMS and the oil industry. We interviewed Lucy Querques Denett, Associate Director, MRM, who recalled being apprised by the Program Manager, Offshore Compliance and Asset Management, about the issue raised by Maxwell. She said the Program Manager intended to consult the SOL about it. She recalled the following: … I think they got together and they discussed [Maxwell’s proposed Issue Orders to Kerr-McGee] and the Solicitor’s Office was really clear that there is no obligation to market downstream. There is nothing in the law or the regs to say you have to do that. And we can’t go to benchmark … in a non-arm’s-length situation, unless we can show that it is a non-arm’s-length situation. And they didn’t have that. And so, [the Program Manager, Offshore Compliance and Asset Management,] may not have … he didn’t disagree with the Solicitors because he certainly didn’t come to me and say, ‘I disagree with what the Solicitor’s Office is saying.’ He basically had to concur because there was nothing in the record or anything that Bobby Maxwell showed him. [The Program Manager] didn’t like the fact that the price was lower than some of the other[s] [sic], but somebody makes a stupid business decision; it’s a stupid business decision, not just for us but for them. And that’s why we have the opportunity when we take it in-kind that … if we think we can do better …. So the decision, they backed off of sending an Order. Denett stated that the Program Manager, Offshore Compliance and Asset Management, believed MRM would fare better by taking the Kerr-McGee oil in kind and selling it. She noted that the MMS RIK Program was subsequently asked to convert the Kerr-McGee leases to in kind. We interviewed the Coordinator, Internal Quality Control Review, MRM, regarding his knowledge of Maxwell’s proposed Issue Orders. He said Maxwell visited him for about 5 minutes as Maxwell was leaving the building on his last day of work with MMS (February 25, 2005). According to the Coordinator, Maxwell told him that the Program Manager, Offshore Compliance and Asset Management, and others he did not name were listening during a telephone conversation when Maxwell was told to drop his case against Kerr-McGee. Maxwell claimed he had a conversation record regarding the discussion. According to the Coordinator, Maxwell also said the direction came from someone in Washington, D.C., and mentioned that a man named “Cason” was involved. He further said Maxwell claimed “Cason” was a former Kerr-McGee executive. Note: James Cason was appointed as Associate Deputy Secretary of the Interior in August 2001. Our investigation disclosed no evidence that Cason has ever been employed by Kerr-McGee. When we interviewed the Program Manager, Offshore Compliance and Asset Management, regarding the Coordinator’s disclosure, he acknowledged having had past conversations with James Cason but said they did not relate to the Kerr-McGee matter. In addition, he stated that he did not participate in any conversations with both Cason and Maxwell together. We questioned Geoff Heath, the SOL Attorney-Advisor, and the Program Manager, Office of Enforcement, regarding Cason’s alleged involvement in directing Maxwell to drop his efforts against Kerr-McGee. None had knowledge of Cason being involved in discussions or decisions pertaining to Maxwell’s proposed Issue Orders to Kerr-McGee. In addition, the Program Director, Compliance and Asset Management, MRM, and Deborah Gibbs Tschudy, Deputy Associate Director, MRM, said they had no knowledge of Cason’s involvement in decisions pertaining to the Kerr-McGee issues raised by Maxwell. When interviewed, Cason said he had heard of the Maxwell qui tam lawsuit but did not know much about it. He said he believed Maxwell was an MMS employee who was conducting audit work and, in doing so, concluded that additional royalties were owed by a company. Cason said he thought MMS management disagreed with Maxwell’s conclusion, which eventually resulted in Maxwell filing a qui tam lawsuit as an individual. When asked if he had any conversations with Maxwell, Cason said, “Not that I recall.” Cason explained that he worked at DOI from 1982 to 1989 and, most recently, from August 2001 to the present. Cason stated that he talked to many people about “lots of things” and said it was possible that he talked to Maxwell at some point but added, “[I]t doesn’t strike any chord with me.” Cason denied the allegation that he had worked for Kerr-McGee. When asked, he also denied ever working for the Anadarko Petroleum Corporation, which purchased Kerr-McGee. Cason also denied that he had served on the Board of Directors of Kerr-McGee or Anadarko. He said he formerly worked for the Carborundum Corporation, a manufacturer of silica-based products. He said the Kennecott Copper Corporation purchased Carborundum, and Standard Oil of Ohio later purchased Kennecott. He said British Petroleum eventually purchased Standard Oil. Cason explained that although oil companies owned Carborundum, it was involved in a “side market” that was unrelated to the oil and gas industry. Maxwell’s Other Assertions In response to Maxwell’s allegation that the Program Manager, Office of Enforcement, had told him that MMS Director R.M. “Johnnie” Burton (now retired) would be upset if he issued the Orders to Kerr-McGee, the Program Manager, Office of Enforcement, confirmed making the statement but explained that Burton had previously directed all Orders to be “clear, concise, stand on their own, and be legally defensible” before being issued. He said he had this guidance in mind when he told Maxwell he would be in trouble if he issued the Orders – because the Program Manager did not believe Maxwell’s Orders to Kerr-McGee met those conditions. As previously mentioned, Maxwell alleged in court documents that MMS had not closed the Kerr-McGee audit because the issues he identified appeared valid and “outside sources” were looking into them. Maxwell’s Attorney provided the OIG with a copy of an MMS audit report, Audit of Offshore Oil and Gas Royalties Paid by Kerr-McGee Oil and Gas Corporation, January 1, 2000, through December 31, 2000, Case Control No. 01-80016, December 2004. The report stated under the Summary of Audit Findings that “[t]he seventh issue, a crude oil issue based on Kerr McGee’s acceptance of less than the market price of its crude oil in exchange for the purchaser assuming part of Kerr-McGee’s administrative and marketing responsibilities will remain open.” The report, under Views of Responsible Officials, stated that “Kerr-McGee contested the seventh issue and it is currently under review by MMS.” We interviewed a Supervisory Auditor, Offshore Compliance and Asset Management, MRM, Oklahoma City, OK. He said he requested that the Kerr-McGee oil valuation remain open because he believed it was his professional responsibility not to close that part of the audit since an Issue Letter had been sent and the issues, to his knowledge, had not been resolved. The Supervisory Auditor added that he felt his decision to leave the issue open was the responsible decision to make for MMS; otherwise, by closing it, he would have been saying “everything was okay.” He did not recall any reference to consultation with the SOL being included in the Kerr-McGee audit file. The Supervisory Auditor said he was unsure why management elected not to include the Kerr-McGee oil valuation issue as part of the following year’s audit work plan because he believed there was some merit to Maxwell’s concerns that Kerr-McGee was not paying the appropriate royalties on its oil. He explained that Kerr-McGee was an experienced, knowledgeable payor and was paying less than others, which, in his opinion, raised questions. We also interviewed an MMS Auditor about why the audit remained open. He said by leaving the Kerr-McGee oil issue in an open status in the final audit report, MRM avoided indicating that the issue was resolved. He opined that if MRM had indicated all matters were resolved and closed, Kerr-McGee could have destroyed records. During our investigation, we discovered an unsigned, undated document in the MMS Kerr-McGee audit file in Oklahoma City, OK. The document is titled, “Review of the Kerr-McGee Oil & Gas Corporation and Texon L.P. Oil Sales Contract.” The document states the following: Based on the above, it appears Kerr-McGee underpaid royalties on crude oil produced from Federal offshore leases and sold to Texon. The primary reason for the apparent underpayment was Kerr-McGee accepting a reduced price for its oil in exchange for Texon performing Kerr-McGee’s administrative and marketing functions and thereby breached its duty to market its oil to the mutual benefit of both itself and the Federal government. This issue was subsequently dropped and the case closed on the basis that (1) absent other data regarding Kerr’s intentional undervaluation of oil for royalty purposes, the MMS cannot draw a conclusion that Kerr’s oil prices are not acceptable as arm’s-length prices because after all, Kerr themselves did not receive $60 million by accepting the prices received from Texon and (2) we do not have the ‘forensic’ audit training to adequately investigate why Kerr would take less than a market price for its crude. Lanis Morris, Auditor, MRM, Oklahoma City, OK, stated that during an MMS Internal Quality Control Review at Oklahoma City, OK, he told the Coordinator, Internal Quality Control Review, MRM, that the Program Manager, Offshore Compliance and Asset Management, had stopped the Kerr-McGee audit. According to Morris, the Coordinator responded that the Internal Quality Control Review was investigating allegations that the Program Manager, Offshore Compliance and Asset Management, was stopping audits. Morris also stated that the Coordinator told him Deborah Gibbs Tschudy, Deputy Associate Director, MRM, told the Coordinator to remove all references to the Program Manager from the final audit report. When interviewed, the Coordinator recalled that in 2004, he conducted a review of audit files at the MRM office in Oklahoma City, OK. He said the draft Internal Quality Control Review report contained the following language under Other Items regarding the Internal Quality Control Review of the Kerr-McGee audit file: The sole audit issue developed in this case was closed based on guidance from a senior level MRM official. However, that guidance did not contain documentation to support the management decision. While the guidance may have been based upon conversations with the MRM’s Office of Enforcement, legal counsel or case law known to the MRM Manager, no such support was included with the conversation record. In the future, request that Senior MRM Management issue and sign policy documents to support such determinations prior to closing an audit case. The Coordinator opined that this section was not included in the final Internal Quality Control Review report because it addressed information that was not standard to these reviews. He explained that Internal Quality Control Reviews concentrated on technical aspects of an audit and did not involve a review of the audit’s subject matter. He indicated that the decision not to include the observation was likely made by a Program Analysis Officer, Internal Quality Control Review, MRM. The Coordinator denied that he told Morris that the Internal Quality Control Review was investigating the Program Manager, Offshore Compliance and Asset Management, or that Tschudy ordered the review to remove references to the Program Manager in their report. A second Coordinator, Internal Quality Control Review, MRM, said the draft observation was not included in the final report because it addressed a management decision, which was an issue outside the scope of the Internal Quality Control Review. During his interview, the Program Analysis Officer, MRM, said he reviewed the draft report with the second Coordinator and decided not to include the observation from the draft report. He said the omitted language related to the substance of the audit, a matter not within the scope of the Internal Quality Control Review. He also said the Indian Compliance and Asset Management Auditor’s conversation record provided a sufficient basis for omitting the language in the report because it included discussion points between the Program Manager, Offshore Compliance and Asset Management, and the auditors. He added that the Internal Quality Control Review’s mission did not include reviewing management decisions. When interviewed, Tschudy denied that she ever asked for a review of the Program Manager, Offshore Compliance and Asset Management, or a review of the Kerr-McGee audit by the Internal Quality Control Review. Tschudy also denied that she ever removed language from the Internal Quality Control Review report or told anyone to do so. Tschudy provided a chronology, created by the Program Analysis Officer for the Internal Quality Control Review of the Oklahoma City, OK, Offshore Compliance and Asset Management office, conducted from July 12, 2004, through July 15, 2004. The chronology showed that the draft report was sent to Maxwell for review and that since Maxwell concurred with the report, there was no requirement to consult with Tschudy prior to publishing the final report. Reporting and Safeguarding Requirements Our investigation found that Maxwell’s MMS training records for calendar years 2003 and 2004 show that Maxwell attended the MRM Office of Enforcement Illegal Acts Awareness training on September 14, 2004. Additionally, the records disclosed that Maxwell completed the following courses: DOI Annual Ethics Training, Federal Information Systems Security Awareness, and Government Auditing Standards – 2003 Revision. A review of the MMS Information Technology Rules of Behavior database for 2004 through 2006, used to record employee acknowledgement of the rules, including discussion of safeguarding and use of official and proprietary information, disclosed no record identifiable with Maxwell from 2004 to 2006. A class list for the MMS Safeguarding Proprietary Data course obtained from the MRM Office of Enforcement disclosed that Maxwell attended the training on August 31, 2004. In an affidavit filed on April 1, 2005, in the Federal District Court for the District of Colorado (Court), Maxwell chronicled the events and actions that eventually led him to file the qui tam lawsuit. Maxwell did not include any indication that he reported his suspicions about Kerr-McGee to the OIG or any other investigative agency prior to filing his lawsuit. He did not indicate whether he removed official documents or data from MRM offices or systems. When interviewed, an Employee from the Office of Enforcement, MRM, said he did not recall Maxwell ever contacting the Office of Enforcement to complain about misconduct or improper actions by MMS managers or employees. He said there was no record in the Office of Enforcement files of Maxwell filing a complaint. He also did not recall Maxwell complaining to the Office of Enforcement about the issues identified in his lawsuit. He said the first time he learned about Maxwell’s lawsuit was when he was contacted by the OIG. In a supplemental Court affidavit, dated January 9, 2006, Maxwell related the following: The preparation and filing of this suit did not occur substantially with the time and space limits of my work when I was employed by the MMS. I met with my attorneys on my own time and to the extent any work was required of me, such work was performed when I was off work. Our investigation revealed that Maxwell sent a disclosure letter to the U.S. Attorney’s Office, Denver, CO, on June 2, 2004, and, through his attorneys, stated the following: Out of an abundance of caution, to avoid any appearance of impropriety, Mr. Maxwell has not removed the pertinent MMS files, and does not attach same hereto. The Government may locate the applicable file, CTS [Exemption 2], at the MMS office located at 4013 N.W. Expressway, Suite 210, Oklahoma City, OK 73116; [Exemption 2]. It is believed this file contains key documents, letters and analysis. Kerr-McGee, in its Motion for Brief in Support of Summary Judgment for Lack of Subject Matter Jurisdiction on December 2, 2005, asserted the following: * Paragraph 38 – “Maxwell removed approximately 90 pages of documents from the MMS Audit file (‘MMS Documents’) used to pursue this action.” * Paragraph 39 – “Maxwell removed the MMS Documents without informing or seeking or obtaining permission from the MMS.” * Page 9 – “Maxwell’s [False Claims Act] claim is premised upon this information, which Maxwell removed from the MMS’ Audit files – without permission or authorization – while he was still employed at MMS ....” * Page 10 – Maxwell “… used his position to gain access to Kerr-McGee information, removed it from the MMS without notice or approval, and then used the information to file his [False Claims Act] claim.” In a Brief in Opposition to the Defendants’ Motion for Summary Judgment for Lack of Subject Matter Jurisdiction on January 10, 2006, Maxwell stated that “[t]he Relator admits the accuracy of ¶¶ 38 -39” in reference to the Kerr-McGee motion. A Senior Auditor for Compliance and Asset Management, MRM, who worked directly for Maxwell prior to termination of his employment, believed Maxwell was out to make as much money as he possibly could. He opined that Maxwell saw how much money was made by the relators in other qui tam lawsuits and thought he could do the same thing. We showed a Freedom of Information Act (FOIA) Staff Member, MMS, four exhibits from Maxwell’s affidavit filed in the U.S. District Court for the District of Colorado on April 24, 2006. We asked him to ascertain whether the exhibits contained proprietary or other data not releasable under the FOIA. The FOIA Staff Member identified Exhibits 1-C, 1-E, and 1-D as containing proprietary business information. He said the information in Exhibits 1-C, 1-E, and 1-D would, nonetheless, be releasable in response to a FOIA request. He stated that some of the information contained in Exhibit 1-B was business proprietary and business confidential information that would be redacted before release of the document in response to a FOIA request. He added that other information in Exhibit 1-B would be redacted because it included discussion about internal government decisions that was protected under an exemption to the FOIA. An MMS FOIA/Privacy Act Officer reported that he found no record that Maxwell, his attorneys, or their law firm had made any FOIA requests to MMS. MRM Safeguarding Responsibilities and Actions As reported earlier, MRM provides information and training to its employees regarding the protection and safeguarding of proprietary and sensitive data or records. An MMS Records Officer stated that prior to his arrival at MMS in [Exemption (b)(6) and (b)(7)(C)], the records officer position was vacant for 2 years. He said the former MMS Physical Security Officer was performing the duties of MMS’s proprietary information officer until December 2006. In a January 2007 teleconference, the Records Officer was designated as the new MMS proprietary information officer. The Records Officer stated that in a June 2005 conference, MMS discussed the need to update Part 386 of the MMS Manual regarding MMS’s Safeguarding of Records and Information. He stated that he did not believe any other MMS employee other than himself had been designated as a proprietary information officer. He said MMS has other records officers but did not know whether they handled proprietary information issues. The Records Officer stated that he did not know of any formal training provided by MMS to its employees regarding the safeguarding and protection of proprietary information. He said he believed the 1995 memorandum, “Guidance and Procedures for Handling Requests for Royalty Management Program Proprietary Data/Records [emphasis added]” only applied to MRM and was not bureau-wide. The memorandum established mandatory annual training regarding the need to protect such information when it was requested through the FOIA; it did not mandate training for MMS employees with respect to the day-to-day safeguarding and protection of proprietary information. According to the Records Officer, “[E]veryone is fully aware what is going on,” yet he stated that he was not aware of any “tools put in place” to control the release of proprietary information by employees. He said he had not participated in any meetings in which the safeguarding and protection of proprietary information was the subject and he was unaware of any such meetings scheduled for the future. He said the records office was dealing with many other issues and he was simply “scrambling to keep his head above water.” During our interview of another Records Officer, MMS, he stated that according to regulations, MMS was supposed to appoint proprietary officers for each section but had never done so. When asked about the Document Control Program at MMS, he described MMS’s record of information control as “poor” and added that “MMS doesn’t give a shit about document control.” We found that the MMS Manual, Part 386.1.7A(4), requires that applicable officials are responsible for the following: Designating and reporting the designation of a Proprietary Officer to the Security Officer and the Records Manager. It is recommended that the appropriate Records Officer be designated as the Proprietary Officer. If there is no Records Officer on site or proprietary data/information is maintained by individual offices, it is recommended that the office supervisor be designated as the Proprietary Officer. In response to questions regarding the safeguarding of proprietary information, Deborah Gibbs Tschudy, Deputy Associate Director, MRM, said MMS was a small agency and had assigned two proprietary officers. She said proprietary officers were not assigned to each section, but employees knew to go to the proprietary officers if they had questions. Tschudy stated that the MRM Internal Quality Control System advised employees that audit documentation should be adequately safeguarded. She also noted that the MMS Audit Manual (Chapter 5.7, Safeguarding Work Papers) required that confidential, privileged, or proprietary information received and used by MMS employees and government contractors had to be protected from unauthorized disclosure. Tschudy added that the Internal Quality Control System section of the MRM Audit Manual included an acknowledgement form that auditors were supposed to sign when they received their Audit Manual. Tschudy noted that MMS employees were not required to sign a Proprietary Information Acknowledgement Form. Our efforts to locate Maxwell’s Internal Quality Control System acknowledgement form were unsuccessful because the MRM Audit Manual formerly assigned to Maxwell could not be located. Note: Maxwell’s employment at MRM was terminated on February 25, 2005. Declination of Prosecution On September 15, 2006, the U.S. Attorney’s Office, Denver, CO, verbally declined criminal prosecution of Maxwell for alleged removal and use of official government documents in order to pursue his False Claims Act lawsuits against Kerr-McGee, suggesting that a civil or administrative remedy might be more appropriate. Little and Morris v. ENI Petroleum Company, Inc., et al Little and Morris’s Complaint On November 30, 2005, MMS auditors Randy Little and Lanis Morris filed a False Claims Act lawsuit against ENI Petroleum Company, Inc., and 24 other oil and gas companies for allegedly filing false monthly MMS Form 2014s, Report of Sales and Royalty Remittance, submitted to MMS. Little and Morris asserted in their complaint that the companies made false claims when they certified that their reporting of interest payments on royalties (and actual payments made) to the federal government complied with federal laws and regulations. In their complaint, Little and Morris also asserted that the companies only calculated and reported royalty payments on oil and gas production for the given monthly reporting period on the Form 2014s, and, in violation of 31 U.S.C. § 3729(a)(7), did not calculate the interest on previous underpayments and late payments. In the “Statement of Reasons for the United States Department of Justice to Take On the Qui Tam Litigation Case” for their lawsuit, Little and Morris asserted that when they discovered that oil and gas companies were failing to pay interest, they informed their MMS supervisors, who failed to take action. According to Little and Morris, instead of sending out Issue Orders to Pay Late Payment Charge, MRM team leaders decided not to pursue collection of interest. Little and Morris further alleged that they had conversations with the companies about the interest payments, and the companies responded by stating that they were waiting for the government to calculate the interest and bill them for payment. Little and Morris stated that this process was contrary to federal laws and regulations, which placed the responsibility of calculating interest on the companies. To illustrate the severity of the issues raised in the lawsuit, Little and Morris collected data for the month of May 2003 and calculated that the defendant companies owed MMS a combined total of $1,589,613. In their lawsuit, Little and Morris included an e-mail from a Manager, Financial Management, MRM, dated July 22, 2005, that was sent in response to an inquiry by Little about interest collection. In his response to Little, the Manager stated that while it was true that interest was “rarely reported” on Form 2014 and that MRM Financial Management routinely billed for late interest payments, MRM’s current interest billing system “doesn’t work very well” and interest billing was deemed “less of a priority” than other MRM Financial Management responsibilities/functions. In his e-mail, the Manager continued by stating that the collection issues had resulted in a “huge backlog,” adding that many of the interest bills that had been created had still not been reviewed or issued. Little and Morris also included in their lawsuit an October 13, 2005 e-mail from the Regulatory Accounting office, Kerr-McGee Oil and Gas Corporation. In the e-mail, the Kerr-McGee Employee stated that since he knew MRM was “years behind” in calculating interest, he did not want to pay interest on a portion of the monthly Form 2014 and keep track of it until the full amount of interest was assessed. He added, “Plus, this way I don’t have to keep track of all the interest rate changes between the due date and the payment date. Yes, I’m taking the easy way out.” 2005 Investigation in Response to Qui Tam Filing Upon receipt of Little and Morris’s filed qui tam complaint in December 2005, DOJ notified both the DOI-SOL and the DOI-OIG of the lawsuit and requested assistance in determining the merits of the claim. According to an SOL Attorney-Advisor, DOJ, the SOL, and the OIG conducted an in-depth investigation into the merits of the claims in the lawsuit. The investigation included multiple joint interviews, document reviews, and legal analysis. The Attorney-Advisor stated that the investigation had determined the relators’ claim stemmed from a disagreement with management decisions. He added that, in his opinion, the actions and decisions made by MMS officials related to the lawsuit claims were legal. He noted that he believed an appropriate use of discretion had been exercised. Associate Solicitor James Harris also participated in the review of Little and Morris’s claims. According to both Harris and the Attorney-Advisor, the SOL consulted with DOJ concerning the relators’ lawsuits upon completion of the investigation. Ultimately, DOJ declined to intervene in those lawsuits. On September 8, 2006, DOJ filed a Notice of Election to Decline Intervention in the lawsuit. DOJ stated, in part, that it appeared that some or all of the material facts and documents that served to support the allegations made in the complaint were obtained by the relators while serving as employees of the U.S. Federal Government. DOJ noted that because federal employees had a fiduciary duty to use all information gained in the course of their employment solely for the benefit of the United States, the government reserved the right to object, at the appropriate time, to any award made to the relator. 2006 OIG Investigation of the Relators’ Claims We began our investigation by reviewing the Royalty Simplification and Fairness Act, which contains the following language amending the Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.), under Section 111A, Adjustments and Refunds: * “(2)(A) For any adjustment, the lessee or its designee shall calculate and report the interest due attributable to such adjustment at the same time the lessee or its designee adjusts the principle amount of the subject obligation, except as provided by subparagraph (B) [emphasis added].” * “(B) In the case of a lessee or its designee who determines that subparagraph (A) would impose a hardship, the Secretary or such delegated State shall calculate the interest due and notify the lessee or its designee within a reasonable time of the amount of interest due, unless such lessee or its designee elects to calculate and report interest in accordance with subparagraph (A) [emphasis added].” During our investigation, we also found that MMS periodically provides royalty payment training classes to the oil and gas industry. Slide 26, titled, “Reporting Your Own Interest,” from the presentation used for the training advises companies that they do not have to report their own interest. The slide contains the following language: “Do I have to? It’s too hard. The answer is NO!” We also found that on March 31, 1997, Lucy Querques Denett sent a Dear Payor Letter to all relevant oil and gas companies containing guidance stating that MRM would be sending “interest statements,” rather than “interest bills,” which would show interest for each month. Note: Our investigation revealed that MRM regularly uses Dear Payor Letters to convey regulatory interpretation, provide guidance, and inform oil and gas companies about new information or operational changes. In the letter, Denett added that the interest statement would contain totals for interest owed by MRM, interest owed by the company, and the net difference. Denett also addressed the question, “What if I do not report interest on my Form MMS-2014?” answering, “MMS will conclude that you are claiming an interest reporting hardship” and “We will then calculate the interest and notify you of any interest owed or owing on the Interest Statement.” During his interview, Geoff Heath, Assistant Solicitor for Royalty and Offshore Minerals, Division of Mineral Resources, SOL, said the Royalty Simplification and Fairness Act did not require the promulgation of regulations and that Dear Payor Letters could be used to inform lessees how MMS intended to administratively handle a certain situation, such as calculating and reporting interest. On October 1, 1997, Denett sent another Dear Payor Letter to the relevant oil and gas companies stating that they were not required to report interest to MRM. The letter stated, “If you do not report interest on your form MMS-2014, MMS will assume you have determined interest reporting to be a hardship for your company,” and “MMS will compute interest and notify you of any interest owed to you or to MMS on an interest statement.” MRM provided the following data for Fiscal Year (FY) 2002 through FY 2006 depicting the number of interest bills issued on federal and Indian oil and gas leases, the amount billed, the amount collected, and credits: * Interest Bills Invoiced o Federal Leases – 5,324 interest bills for $12,755,992 o Indian Leases – 2,940 interest bills for $8,603,861 o Total – 8,264 interest bills for $21,359,853 * Interest Bills Paid o Federal Leases – $8,449,864 o Indian Leases – $5,148,152 o Total – $13,598,016 * Overpayments Credited Back to Payors o Federal Leases – $8,597,747 o Indian Leases – $1,926,951 o Total – $10,524,698 Note: Credit for overpayments on federal leases includes interest. Interest is not paid to companies for overpayments on Indian leases. During his interview, Little recalled that MRM had issued the two Dear Payor Letters, noted above, in 1997. When we told Little that both Dear Payor Letters advised companies that if they did not calculate interest, MRM would consider it a hardship and bill them for the interest, Little responded that he “deemed it differently” and added that “[The Dear Payor Letters] didn’t say you didn’t have to pay.” He said, “It didn’t say anywhere in that letter that [the letter] would negate that statute.” Little acknowledged that the Royalty Simplification and Fairness Act did not define “hardship” and that MRM had the authority to interpret what was not defined. However, he said he disagreed with MRM’s decision to tell payors that MRM would simply assume that a company was claiming a hardship if the company did not calculate its interest. Little explained his disagreement by stating the following: I believe [Payors] are bound to follow the law. They’re bound to follow the statute ….[Lucy Querques Denett] does not have the authority and the power to circumvent what Congress has put out. She does have the authority …her agency does have authority to clarify … I believe to clarify statutes if there’s an area which they feel needs to be clarified by the way of putting together regulations and putting those out. Further, in reference to the failure of many companies to calculate and pay interest, Little stated the following: That tells me you got a major oil and gas company claiming a hardship. And I’m saying they can’t do that. I think that’s … false. And that’s why we filed [the lawsuit]; that’s why we’ve gone after these companies, because the statute is clear; they know it’s there; they know what [Lucy Querques Denett] said. ‘Follow the statute. If you don’t, we will assume that you’re claiming hardship.’ And so for those companies to do that, they are claiming a hardship, and I’m saying that is false. Little stated that when he asked the companies why they did not pay the interest, they responded, “You go ahead and bill us.” Little said he asked the companies, “Are you claiming a hardship? Do you, a major company like you, have a hardship in paying and calculating an interest?” Little claimed that the company representatives would laugh and say, “No. We just figure that, you know, we can ride you guys” and “we know your system is broken; we know it’s not working, and maybe you’ll never get around to billing us.” Little opined that the intent of the companies was the following: One, they’ll have free use of [the government’s] money for 4, 5, 6 years, if we ever do get around to billing … [and] we’re not billing the interest on that interest. That’s one. And two, that perhaps they may get away and never being [sic] interest and never be charged because our system is so screwed up. During his interview, Morris said he was aware of the two Dear Payor Letters but claimed that MRM did not have the authority or discretion to issue them because, in his view, “[Lucy Querques Denett]’s making law there.” He said, “[The Royalty Simplification and Fairness Act] says that [the oil and gas companies] will pay the interest. If they don’t then we assume they have a hardship. I think those letters are totally wrong.” Morris stated that payors should ignore guidance by MMS and “follow the law” by calculating interest. He added, “The law is plain. They’re sophisticated companies, so I don’t see any – there’s no excuse for that. If you’re a one-man operation, maybe you can’t read the law, but the Exxons and so-and-so companies have vast legal departments. I’m sure they’re extremely aware of that law.” When asked to explain how the companies committed fraud if MRM told them they did not have to calculate interest, Morris responded, “I don’t think we’ve ever contended fraud. It’s a false claim because the amount of money that they’re certifying is not correct. That’s the false claim.” Morris explained that payors were making a false claim when they certified their Form 2014s without including calculations for interest because “once [a payor] submit[s] a payment on a 2014 or information on a 2014, [the payor is] certifying to the U.S. Government that there is a hardship.” Morris asserted that the payors had not demonstrated that calculating interest would be a hardship, so their certification, in his opinion, was a false claim. Morris also said, “There is no reason to be billing out that interest. It’s not our job. Every man-hour spent on billing out, unless those companies have a bona fide hardship, is waste, fraud, and abuse.” Little and Morris noted in their “Statement of Reasons for the United States Department of Justice to Take On the Qui Tam Litigation Case” that “[h]ardship exemptions require a written request for such exemption which has not been made by the companies at issue.” We asked Morris about the assertion in his lawsuit that hardship exemptions required a written request. Morris’s Attorney, who was present during the interview, intervened and said the assertion that there was a written requirement might just be the relators’ belief. Morris’s Attorney stated that he had not researched how MRM was supposed to know when companies were claiming a hardship. When we asked Little about the assertion that hardship exemptions required a written request, he stated that the requirement was not in the statute and that he did not know where the assertion came from. He opined that companies should write a letter to MRM explaining why they were claiming a hardship regardless of the Dear Payor Letters. Little opined that the companies should comply with the law and that MRM could not override the law. Note: Our review of the Royalty Simplification and Fairness Act determined that the Act does not define a process for claiming an interest reporting hardship and does not address whether a company must submit its claim for an interest reporting hardship in writing. During his interview, Geoff Heath, Assistant Solicitor for Royalty and Offshore Minerals, Division of Mineral Resources, SOL, stated that, in his opinion, MMS had the authority as the regulating agency to define “hardship” in the Dear Payor Letters and to determine that it was more efficient for MMS to calculate and bill interest as opposed to having the lessees do it. When told the relators believed industry should ignore MMS guidance and calculate their interest, Walter Cruickshank, Deputy Director, MMS, responded, “Perhaps, but if I’m in industry’s shoes, and if the regulatory agency says, ‘This is how I want you to operate on this,’ that’s what I’m going to do.” During her interview, Denett said MMS was charged with interpreting the law and making policy guidance and the companies relied on MMS to explain how the law would be interpreted. She said she issued the two Dear Payor Letters in 1997 that provided guidance to industry on the Royalty Simplification and Fairness Act, which required MMS to pay interest on overpayments to companies and required companies to calculate interest on their adjustments. Denett said MMS and the companies could not immediately comply with the Act’s requirements without the expense of reprogramming their computer systems. Additionally, Denett opined that MMS would end up doing more work if payors calculated their interest because MMS would have to verify the payors’ calculations, and, if they were incorrect, MMS would have to bill the payors for the corrections. She concluded that it was easier for MMS to “just bill them.” She said MMS planned to be current on interest billing and collection by the end of FY 2007. When asked if the direction provided in the 1997 Dear Payor Letters was contrary to the Royalty Simplification and Fairness Act, Denett responded, “Yes and no.” She indicated that the impact of having to calculate interest could be a hardship for the oil and gas industry. She explained that a small company might be able to use a calculator to determine its interest obligation, but a large company would have to do a computer system modification to make the same determination. Denett said she believed it could be considered a hardship for a company to spend a few million dollars to change their computer system. She added that MMS would receive the interest money regardless of how it was collected, so there would be no loss to the government. In response to a question about whether she believed the public would understand that a major oil company could claim a hardship calculating interest, Denett said, “How do you define hardship, just because they have a lot of money?” She admitted that when Congress enacted the Royalty Simplification and Fairness Act, MMS should not have considered the impact on industry, but she said she believed that MMS needed to be “reasonable” in its implementation of the law. However, she stated that “if Joe Public looks at it, they probably think we’re crazy.” Denett added that MMS took the “easy way.” She said that rather than have every payor struggle to figure out how to calculate interest, MRM management took the approach that “if you don’t do it, we’re going to assume that that’s the hardship.” When asked if the reasons for issuing the Dear Payor Letters were still valid almost 10 years later, Denett concluded, “[Y]eah, we probably should be rescinding it.” The MRM Chief of Financial Management related that although the Royalty Simplification and Fairness Act required oil companies to calculate and report interest to MMS, he believed MMS had the authority to authorize oil companies not to calculate and report interest. He said that in the MRM training for the oil and gas industry, MRM advised companies that if they did not have interest calculation built into their system, MRM would bill them. In a separate interview, the Chief of Financial Management said that if the companies calculated their interest in accordance with the Act, it would create extra work for MRM Financial Management because of variances that would require MRM to have to send bills regardless of who made the calculation. The Chief of Financial Management said he participated in the 1997 business decision that resulted in Denett sending the Dear Payor Letters to oil and gas companies, and he said he still considered the decision to make “good business sense.” He explained that MMS’s interest calculations were very complicated because there were many variables. He said he believed the companies would not be able to correctly calculate interest, which would result in an additional burden on MRM Financial Management. When asked if the Dear Payor Letters should be reconsidered based upon the possible public perception that MMS appeared to be giving companies too much latitude in not calculating and reporting their interest, the Chief of Financial Management responded that it would place a large burden on the oil and gas industry and opined that many companies would not do it. He said, “They would throw a bunch of junk at us.” An Accountant, Financial Services, MRM, said that when MRM attempted to explain to payors how to calculate their own interest, including providing a calculation formula, the companies “went ballistic.” He stated that they were not receptive to the idea of calculating their own interest because it would require changes to their computer systems. MRM Support System – Interest Billing/Collection Issues Throughout our investigation, we talked to various MRM managers and support personnel, including Little and Morris, regarding the billing and collection of interest through the MRM Support System – the computer system used for conducting MRM operations. MRM employees outlined numerous concerns regarding the system since its inception, including problems when the system was first deployed; a backlog resulting from the Cobell v. Norton litigation, which required a temporary system shutdown; delays in system improvements due to system upgrading; and constant changes in priorities. Note: The MRM Support System was shut down from December 6, 2001, through March 20, 2002, due to the Cobell v. Norton litigation. According to an MRM Manager for the Project Management Office, the MRM Support System was developed through a contract awarded to Accenture, LLP, with many subcomponents. He stated that the financial subcomponent was based on PeopleSoft software modified to the needs of MRM. He explained that it was designed to account for, track, and disperse royalties paid by oil and gas companies as well as to bill and collect interest. Note: MRM awarded the original contract for the development of the MRM Support System to Accenture, formerly Andersen Consulting, on September 23, 1999. The PeopleSoft based component was deployed in November 2001, the interest billing/collection module was deployed in January 2003, and Compliance Information Management was deployed in July 2004. During his interview, Little related that MRM began to encounter problems with the interest billing and collection module of the MRM Support System when it was first deployed. He said this resulted in MRM not billing or paying interest as required under the Royalty Simplification and Fairness Act. Little expressed a belief that MRM had not billed payors for interest in many years. Little said that when he received an e-mail from a Manager, Financial Management, MRM, on July 22, 2005, in which the Manager said MRM was behind in interest billing and that MRM was focusing on other priorities, he interpreted the e-mail to mean that MRM Financial Management did not place much priority on billing and collecting interest. When interviewed, Morris said that in 2000 or 2001, the MRM Support System was shut down because of the Cobell v. Norton litigation and explained that no interest was billed or collected during the time in which the system was shut down. Morris added, “[W]e were told approximately in 2002 by [the Financial Manager] – not to try to collect interest; they had no receivables to put those funds to. And he would notify us when collections would be started again. As far as I know, [interest collections] never were [collected] from 2002 forward.” Note: The Cobell v. Norton (now former Secretary of the Interior Gale Norton) litigation was based upon complaints that DOI was not fulfilling its fiduciary responsibilities involving the Indian Trust. The judge in that litigation ordered that DOI and its bureaus, including MMS, shut down automated systems that might involve DOI’s actions pertaining to the Indian Trust. After assurances that records would be preserved, the judge allowed some of MMS’s systems to return to full operation. The ongoing lawsuit was originally filed on June 10, 1996. The MRM Support System was shut down from December 6, 2001, through March 20, 2002. When we questioned Morris about the July 22, 2005 e-mail from the Manager, Financial Management, MRM, regarding a billing backlog, he claimed that the e-mail said MRM “had other pressing projects, and they were not making any collections.” He added, “So at that point in time, [Little and I] decided that … we needed to do something.” During his interview, the MRM Chief of Financial Management said the timing of the decision to convert from the former automated financial system to the MRM Support System was primarily based on a desire not to have the expense of paying two contractors (one maintaining the former system and one developing the MRM Support System) at once. He explained that the implementation of the new system occurred in November 2001, but the billing module was not implemented until later. According to the Chief of Financial Management, at the time the decision was made to convert to the new system, there was no “show stopper” to prevent the conversion. The Chief of Financial Management stated that the system shutdown caused by the Cobell v. Norton litigation created a backlog in royalty and interest processing. At some point after the shutdown was lifted, he said the interest module was deployed. During the shutdown and prior to deployment of the interest module, he explained that MRM Financial Management chose not to bill interest manually due to a risk of double billing companies. He said any attempt to manually generate bills or collect interest would have created duplicate billing once the interest module was deployed. When asked, the Chief of Financial Management stated that MRM did not focus on actually eliminating the interest backlog created by the Cobell litigation until September 2006 because resources were being used to reduce debt collection backlogs. He said the Corrective Action Plan was going well, and he provided a copy of PowerPoint slides showing that MMS invoiced $16,732,309 for interest by issuing 3,286 bills during the first quarter of FY 2007. He contrasted this total to the interest invoiced for FY 2006 – $7,632,376 for 3,818 bills. The Chief of Financial Management noted that MRM billed more interest in the first quarter of FY 2007 than in all of FY 2006. Note: A larger number of bills does not necessarily equate to a larger billing amount because the dollar amounts for bills vary widely. The Chief of Financial Management said work on improvements to the interest billing and collection module was stopped in anticipation of an upgrade to the PeopleSoft software used by the MRM Support System. He added that completion of the upgrade would “get [MRM] out of the freeze so [MRM] can do additional improvements to the system.” He said interest billing issues would be included in the upgrade prioritization schedule. Note: We determined that the “freeze” on changes to the MRM Support System were in effect from March 2006 through February 2007. A few changes pertaining to data warehouse and RIK work were allowed during the “freeze.” A Manager, Financial Management, MRM, recalled that approximately 1 year after the Cobell v. Norton litigation shut down the MRM Support System, the interest billing module began working. He said the priority for MRM following the shutdown was to reconcile and distribute royalty payments rather than to pursue interest billing. Therefore, according to the Manager, MRM Financial Management became backlogged in its efforts to send interest bills. He noted that interest bills were being generated by the MRM Support System and then manually verified before being sent. The Manager compared the MRM Support System to the previous system, stating that some components of the new system were better. Other components, he noted, such as the interest billing and collection module in particular, were not as functional. One example, he said, could be seen in the fact that interest bills needed to be manually verified before they were sent to payors until system problems were corrected by the contractor. He also said the MRM Support System did not handle large bills very well. He added, “If there’s [a bill] you can’t do, you set that aside and work on one you can do.” During interviews with an Accountant, Financial Management, MRM, the Program Director (now retired), Compliance and Asset Management, and an MRM Manager, all stated that the Cobell v. Norton litigation shutdown contributed to the backlog in billing interest. The Program Director, Compliance and Asset Management, said the court-ordered shutdown of the MRM Support System created significant backlogs in matching royalty payments and in the processing of production reports, which was a priority following the implementation of the MRM Support System. Denett stated that the interest and general ledger modules of the MRM Support System were creating problems for MMS. However, she claimed that the system was functioning and “generally work[ed].” Denett also said she was frustrated with the MRM Support System because it did not generate reports very well. She indicated that the system was designed to track data by case so it did not easily translate information to cumulative data calls. She added that because the PeopleSoft-based financial subcomponent of the MRM Support System received funds from a debt collection that was not tied to a report, the system could not disperse the funds because it required that they be tied to a report. Denett explained that this resulted in delays while MRM attempted to match money to reports. Denett said she recognized that the payors were continuing to have use of their money, to the detriment of the government, due to the MRM interest billing backlog, but she said the MRM Support System could not handle the interest payments if payors calculated and sent them without a bill being generated by MRM. When Denett was asked whether the public would perceive that MRM gave industry a “free ride,” she responded, “I never looked at it like that.” An Accountant, Financial Services, MRM, said that after the MRM Support System interest module was deployed in January 2003, MRM found that the system had problems in that it dated bills incorrectly, billed interest when companies paid early, and did not identify overpayments made by companies. He indicated that MRM was working on correcting the issues but was presently under a freeze until an upgrade to the underlying PeopleSoft software could be completed. The Program Director, Compliance and Asset Management, said the development of the interest billing module was intentionally delayed due to its complexity, while Deborah Gibbs Tschudy stated that the interest billing module was intentionally delayed because development and deployment of other parts of the system such as royalty collection and dispersal were higher priorities. When asked what was being done to eliminate the interest billing backlog, MMS Director R.M. “Johnnie” Burton (now retired), said, “We’re doing the best we can. We don’t have very many resources to throw at the problem, outside of what needs to be done daily.” We also interviewed five MRM accountants to obtain input from users of the MRM Support System financial subcomponent. One Accountant said it took him twice as long to complete interest billing using the MRM Support System, as opposed to the previous financial system, stating that due dates and interest calculations had to be manually verified for accuracy. He acknowledged that there were problems with the previous system; however, he claimed that the MRM Support System was much worse and referred to the financial subcomponent of the MRM Support System, developed by Accenture, as “the rape of the American taxpayer.” Another Accountant said he had not experienced problems with the MRM Support System financial subcomponent but said he processed bills for Indian leases, which were generally not complicated. He said he had not used the interest calculation panel, which had been the source of many complaints from his peers who worked on federal leases. He said that under the interest backlog Corrective Action Plan, he had a quota of issuing 30 interest bills per week and that the overall goal was to be caught up on interest billing by the end of FY 2007. Another Accountant said processing interest bills and collections was much more cumbersome using the MRM Support System than it was using the prior system. He provided an example of an interest billing for British Petroleum Oil Company that he was working on at the time of his interview. He estimated that he had worked 8 hours on the bill, while under the previous system he would have completed the work in about 30 minutes. This Accountant said the Interest Calculation Panel of the MRM Support System created delays in issuing bills because it was not capable of handling all of the information needed to make revisions for interest bills. He also said he was currently holding seven interest bills for British Petroleum because the MRM Support System, in its current state, could not process them. He said 3 bills had been pending for 2 years, 1 for 1 year, and 3 for 4 months. The dollar amount for the delayed interest bills, according to him, was $321,057. He said he planned to send the bills to British Petroleum after the contractor made changes to the system so that it could handle the bills. Another Accountant said the MRM Support System did not work “real well.” He said it was a slow, difficult, manual process to clear out “hold-status” documents in the MRM Support System because the system did not recognize them. He explained that accountants had to “reactivate a lease” in order to process a hold-status payment and that they also had to use manual “work arounds” to do their jobs. The last Accountant said he was assigned as the MRM accountant to the ExxonMobil Corporation from March 2003 through March 2005 and to the Forest Oil Corporation from April 2005 through December 2006. He said he never encountered an interest-related problem with the MRM Support System. He said he issued interest bills to ExxonMobil and Forrest Oil and had not received any complaints about the interest calculations. He said there was a problem with the MRM Support System calculating payments made before the due date, and these were corrected by “deleting the lines” and making manual corrections in the system. Note: ExxonMobil has regularly included interest in its royalty payment but was included in the lawsuit because Morris and Little felt ExxonMobil was underpaying the interest. After learning of the MRM Support System’s problems and considering the fact that over $148,000,000 has been spent to implement the system, we decided to open a separate investigation to examine the procurement process, modifications to the original contract, and MMS’s management/oversight of the contractor’s performance. Potential Time Value Losses When interviewed, Little expressed a concern about time value loss of money owed to the government and said the following: And the other point is, I want to throw out to you, is the fact that you’re losing tens of millions, if not hundreds of millions, of dollars of time value of that money not paid into our coffers. Now [Lucy Querques Denett’s] trying to claim, ‘Well, it’s our fault. It’s not your fault, company. We’ll eat that interest.’ The taxpayers, again, ought to be outraged because the companies owed it at this date; they’re using this as a tool to have free use of that money for three, four, five, ten years – and maybe forever – and never pay interest on that. They know what’s happening. Believe me, industry knows what’s happening out there. They know they got a free ride. And they’re using a little loophole, if you call it a loophole. Personally, I think that they’re going to have to prove a hardship [in court]. I don’t think they’re going to be able to prove that, to be able to say, ‘Your Honor, we have a hardship, so therefore we couldn’t do it.’ Note: Time value loss means the loss of the interest the government would have accrued on the money if MRM had submitted the interest bills in a timely manner and the companies paid the bills by the due date. A Senior Auditor, Compliance and Asset Management, MRM, said that due to the interest billing backlog, the government incurred a loss of the time value of interest dollars. He explained that if MRM was supposed to bill a certain amount of interest today, and then sent an actual bill a year from now, MRM would still bill the same amount that was due today. The MRM Chief of Financial Management opined that MRM was about 2 years behind in interest billing and said there would be no loss to the government once interest billing was caught up. The Chief of Financial Management and a Manager, Financial Management, MRM, both said MRM was not at risk of surpassing the 7-year statute of limitations on collecting unpaid interest. The Chief of Financial Management admitted that due to long billing delays, there was a loss to the taxpayers in the time value of interest dollars. However, he noted that the regulations stated that interest for late payments was calculated from the due date of the royalty payment to the receipt date of the payment. The Chief of Financial Management said MRM Financial Management had, in fact, calculated an estimate for the time value loss to the government. He explained that MRM used a random sample generator to select 10 percent of interest bills issued from July 2001 through September 2006. He explained that MRM decided to determine a “ball park” estimate for the time value loss because to be more precise, they would have had to look at every bill that was issued during the sample time period. The Chief of Financial Management stated that MRM had higher priorities such as resolving the backlog; therefore, he believed that taking the time to do more than the estimate was not worth the effort. He provided a written explanation of the calculation process, which calculated a total time value loss of $489,220. MRM Collection of Interest on Interest During his interview, Little also alleged that companies were not being billed interest on unpaid interest. He opined that if MRM billed a company for interest on a late royalty payment 4 or 5 years late, the company should also pay interest on the late interest charge. He indicated that the interest should accrue like a credit card. Our review of 30 C.F.R. § 218.54, Late Payments, disclosed that interest charges should be assessed for unpaid/underpaid royalties from the date the amount is due, and interest will be charged on the amount not received (and for the number of days the payment is late). However, through interviews with various MRM officials, our investigation determined that MRM considers the receipt date of the late payment/underpayment (MMS Form 2014) as the payment date, whether interest has been included or not. Interest on late royalty payments is accrued from when the royalty should have been paid until the actual royalty payment date (receipt of the 2014). MRM then bills the company for the interest that is owed from the late payment. Interest does not continue to accrue for the period in which the government delays billing for the interest; however, 35 days after the company receives a bill from the government, the government begins charging interest on interest. Once MRM receives payment for interest on late royalty payments, MRM will send another bill for interest on the late interest payment. When interviewed, a Manager for Financial Management stated that MRM charged interest on late royalty payments by comparing the date the royalty payment was received to the due date. He explained that once MRM sent a bill to the company, the company had 35 days to pay the interest, after which it was subject to additional interest charges. He said MRM could not calculate the interest on the unpaid interest until the initial interest was paid. He added that once the initial interest payment was received, an additional interest bill was generated. According to the MRM Chief of Financial Management, when MRM received a late royalty payment or royalty underpayment from a lessee (through submission of the Form 2014) MRM stopped interest from accruing. He said that if the payor underpaid on its Form 2014, the original due date was used to calculate the interest owed. He added that late interest payments were calculated from the due date to the date MRM received the royalty payment, and interest did not accrue thereafter. We told the MRM Chief of Financial Management that Little alleged that interest should be compounded, or accrued, monthly like a credit card. He responded that Little’s assertion was incorrect and explained that in accordance with regulations, interest was only charged from the date the royalty was due until it was paid. During their interviews, an Accountant, Financial Management, MRM, and the MRM Chief of Financial Management said the relators’ allegations that MRM was not billing interest and not billing interest on late interest were unfounded. The Accountant said MRM was current on interest billing through August 2005 and had initiated a Corrective Action Plan that MRM Financial Management believed would bring MRM current on all interest billing and collection by the end of FY 2007. MRM Instructions to Auditors Regarding Interest Collection In their lawsuit, Little and Morris included examples of letters to payors that they had prepared in May 2002 in which payors were informed of the Royalty Simplification and Fairness Act requirement to calculate and report interest owed. The letters also informed the payors that a calculation of the interest owed was being provided to them as a convenience by MRM auditors. Additionally, Little and Morris included a copy of an e-mail message sent by Arnold on June 5, 2002, informing recipients that, under Maxwell’s direction, they were not to issue any Orders to pay interest. The e-mail stated that MRM Financial Management would be responsible for billing interest on any additional royalties identified by audit or compliance efforts. According to Little, Bobby Maxwell had encouraged the auditors under his supervision to include interest collection in their Issue Orders (in May 2002); however, he said MRM Financial Management stopped the auditors before they sent the modified Orders with the interest collection language. Little said he believed Financial Management did not want the auditors to include interest collection because doing so would cause a problem for Financial Management if the companies made interest payments with no receivable (bill/invoice) in the system. Morris stated that in about 2003, auditors in the Oklahoma City, OK, office prepared Issue Letters “demanding interest” from payors at the direction of Bobby Maxwell. According to Morris, approximately a week later, they were told to “stop doing what you’re doing.” Morris stated that his supervisor at the time told him the direction not to proceed with sending the letters also came from Maxwell. Joel Arnold, Supervisory Auditor, MRM, said Bobby Maxwell initiated a policy (in May 2002) for the Oklahoma City, OK, Compliance and Asset Management office to put language in their Issue Letters notifying companies of the requirement to calculate and pay interest. He added that the auditors would sometimes calculate the interest that the company owed and provide that figure to them in the Issue Letter as a convenience. When asked whether his efforts and direction to his employees to attempt to collect interest was contrary to MRM policy, Arnold responded that he believed the policy was outdated. He added that he was just doing what his supervisor (Bobby Maxwell) told him to do. We determined that the MMS Audit Manual, Release 2, dated January 16, 1998, Chapter 23.2, states, “Auditors should never generate separate interest bills for post-[Royalty Simplification and Fairness Act] audit periods because the bills will duplicate interest amounts.” The MMS Audit Manual, Release 3, dated January 1, 2005, Chapter 22.2, states, “Auditors should not generate separate interest bills because the invoices will duplicate interest invoiced on system-generated …invoices.” Little, Morris, and Arnold acknowledged that they were aware that the MMS Audit Manual directed that auditors should not issue demands for interest when they were seeking payments from payors and that auditors should notify Financial Management, which would then calculate and bill interest. An MRM Western Team Manager said that because the MRM Support System interest billing and collection module was not working well, MMS Compliance and Asset Management set up an interim process in which auditors would use a program similar to Financial Management’s program to calculate the interest. He said the auditors would then post interest calculations manually as “sort of a book entry to document what will ultimately happen when the system catches up with its backlog and bills the interest.” This Manager said there was no intention of forgiving interest owed to the government. He described the interim process as a “place holder” instituted because of the interest backlog in Financial Management. He noted that this process was communicated to auditors in an October 13, 2004 memorandum titled, “Case Management and Tracking through the Compliance Information Management Application.” The Manager said the auditors were informed through the aforementioned memorandum not to calculate and bill interest. He said the auditors were advised that billing interest directly created a burden on Financial Management because it required additional steps to account for the billing and to prevent duplicate billing. He stated the following in a July 22, 2005 e-mail to Little: I found the following in the Audit and Compliance Policies and Procedures Manual, from page 4 of the October 13, 2004 memo on case management and tracking: ‘Until we’re current in issuing automated interest bills and have a means of distinguishing interest in [Compliance Information Management], manually calculate interest due, document it in the workpapers (please see Attachment 1 for a sample workpaper to document the interest calculation), and add it as a finding and collection into the [Compliance Information Management] fieldwork subcase. Note in the comments that the interest calculation is not an actual bill.’ A Minerals Revenue Specialist, Office of Enforcement, MRM, recalled that he was assigned as the acting supervisor for the Oklahoma City, OK, Offshore Compliance and Asset Management office after Bobby Maxwell retired in June 2003. He said he served in that capacity for approximately [Exemptions (b)(6) and (b)(7)(C)]. He recalled advising auditors in that office not to calculate interest or request manual bills from Financial Management. He explained that he provided this guidance to the auditors because the payors’ Form 2014s would eventually be processed through the MRM Support System, which would automatically generate interest bills. He said that if the auditors calculated the interest or requested manual bills, the payors could be billed twice. The MRM Chief of Financial Management said the MMS Audit Manual specifically stated that auditors should not attempt to collect or calculate interest. He said that if auditors attempted to collect interest manually, it would create a duplicate billing because the MRM Support System would do it automatically as well. A Senior Auditor, Compliance and Asset Management, MRM, opined that Bobby Maxwell influenced the Offshore Compliance and Asset Management office in Oklahoma City, OK, into pursuing interest calculations. He said that office was the only group in MRM pushing to calculate interest manually. He recalled Maxwell once stating that findings “paid like slot machines” when referring to MRM efforts to get companies to pay additional royalties. A Supervisory Auditor (and Morris’s former Supervisor), Offshore Compliance and Asset Management, MRM, Oklahoma City, OK, said auditors were instructed to enter royalty collections and interest calculations in the Compliance Information Management System, which would create a “place holder” until the actual interest was calculated by Financial Management. Allegation that MRM Returned Valid Payments During his interview, Little said that in about 2005, the following situation occurred: I [got] a call from Finance, Financial. And [the MRM Chief of Financial Management]1 said, ‘We got some money [coming] in here without an offsetting receivable. What’s this about?’ And I said, ‘Well, that’s got to do with these people owed us, they shorted us on some royalty-in-kind, and there’s some of them that’s paying us in oil and we’re taking care of that, but some of them are paying us in cash.’ And they said, ‘Well, give it back to them.’ I said, ‘What do you mean, give it back to them?’ I said, ‘You’re talking about three, four million dollars here.’ He said, ‘Well, give it back to them, because we don’t have a receivable.’ I said, ‘I’m not going to – if you give this money back to those companies, we may never see it again.’ I said, ‘This money’s been collected on behalf of the taxpayer. Why would I give that money back to them?’ He said, ‘Because we don’t have receivable.’ I said, ‘That doesn’t make sense to me that you’ve got a company who’s willing to pay you.’ Note: When we contacted Little’s Attorney, subsequent to our interview of Little, he said Little had been referring to a situation involving a company named Anadarko. When asked, he also advised that Little had told him that he was referring to the MRM Chief of Financial Management as the person from Financial Management who talked to Little, as described above. Little said an Enforcement Specialist, MRM, began working on the issue above because “Finance [was] so outraged that we collected money with an offset receivable….” He said the Enforcement Specialist was working on a settlement agreement and told him that Financial Management was letting the money sit unprocessed because it did not have an offset receivable. Note: An offset receivable is the application of a payment (credit) to a payor's file to account for all or part of the royalty/interest owed by the payor (debit). If MRM does not receive the documentation (i.e. Form 2014) associated with the payment, MRM cannot apply the payment to an account as an offset receivable. The goal is to match a credit to a debit to properly reflect that payment was made. When asked if he was describing royalty payments or interest payments, Little replied, “It’s interest on the late paid royalties… We look at it as royalties owed, because they didn’t pay the royalties on the due date.” When interviewed, Morris claimed that he heard of instances where MRM returned money to companies because MRM could not match the payment to an account receivable, but he had no specific knowledge that it had actually happened. Morris added, “Why would you send [the money] back? I don’t agree with that philosophy, if in fact it was done.” Morris provided no specific examples of MRM returning the money. Our review of e-mail messages between Little and the Enforcement Specialist, obtained from Little’s government computer and via fax from Little’s Attorney, disclosed no indication that MRM had returned money or attempted to return money to Anadarko or the other two oil companies (British Petroleum and Union Oil) found to be involved in the settlement that the Enforcement Specialist was creating. The e-mails chronicled MRM’s efforts to obtain reimbursement for credits taken by the companies after MMS erroneously directed the companies to take the credits. An e-mail written by Joel Arnold, Supervisory Auditor, MRM, on January 19, 2005, to the Chief (now retired), Office of Enforcement, MRM, stated the following: During our recent review of Offshore [RIK Strategic Petroleum Reserve] oil we determined Anadarko Petroleum, Union Oil and [British Petroleum] Exploration took erroneous credits on MMS Form 2014. The companies explained that the credits were taken in response to an ‘Order to Comply’ it received via an email from a non-Management employee in the MMS RIK Group. …Because of the somewhat confusing language and perhaps the inappropriate use, delivery and structure of the Order to Comply and numerous companies’ misinterpretation of the Order, we recommend settling the issue via formal Settlement Agreements by having the companies reverse their credit entries without being liable for paying interest. Additionally, an e-mail written by Little on June 7, 2005, and sent to the Enforcement Specialist summarized the issue as follows: I discovered the Anadarko, [British Petroleum], and Union Oil problem during a reconciliation of delivered volumes for the SPR oil Phase IIa contract period of August 1999 through December 1999. I uncovered credit Form-2014 entries for each company for December 1999 for oil volumes the companies did not over-deliver. Upon contacting one of the companies, I was emailed a copy of [the Lead RIK Revenue Specialist’s] ‘Order to Comply’ without attachments. I sent you a copy of this ‘Order.’ I then had several discussions with representatives of each company concerning the accuracy of the ‘Order to Comply.’ After weeks of research, each company representative acknowledged their company did not over-deliver volumes for this time period and should not have taken the credit. They agreed to refund the credits taken, but thought they should not be responsible for interest because the MMS had ordered them to take the credit in error [emphasis added]. The Enforcement Specialist said there was no accuracy to the allegation that MRM returned a payment. He retrieved the Anadarko case, file number [Exemption (b)(2)], dated April 17, 2005. He said the MRM Office of Enforcement had opened a file based upon an erroneous RIK recoupment of oil volumes for the Strategic Petroleum Reserve. The Enforcement Specialist also said Compliance and Asset Management auditors had attempted to use an Office of Enforcement transaction code specifically designated for alternative dispute resolution (settlement) purposes and that the transaction code kept interest from accumulating in the MRM Support System. He said the Office of Enforcement took over the pending Compliance and Asset Management issue on April 17, 2005, when it found out that Compliance and Asset Management had attempted to use the transaction code, which was confidential. He said no money was returned to Anadarko in resolving this issue. The MRM Chief of Financial Management said he did not know of any situation where MRM Financial Management returned money because of a processing issue. He said Financial Management would take money from anywhere, anyone, and anything, even if there was no receivable. He explained that the money would sit on