"Washington Watchdogs," a periodic feature of the Post's Investigations blog, looks at the findings of the federal government's official investigators.

A multi-billion-dollar government program designed to reward oil and gas companies for drilling in expensive locales is plagued with bad business practices, according to an inspector general's report released last week from the Department of the Interior.

The Lakewood, Colo.-based Minerals Management Service is responsible for collecting and distributing royalties for oil and gas produced on federal and Indian land.

The service's royalty-in-kind program allows the oil and gas industry to bypass the traditional vetting process for projects where the government receives oil and gas, instead of cash, as payment.

In 2006, the royalty-in-kind, or RIK, revenues amounted to $3.75 billion.

Among the inspector general's findings:

-- Staffers had "inappropriate relationships" with industry representatives, which could have compromised objectivity in the bid process. The report pointed to one-on-one meetings between Interior government employees and oil and gas industry representatives.

-- The royalty program allowed companies to revise their bids, sometimes without explanation and sometimes after the bid deadline had passed.

-- In certain instances, contracts were awarded on the basis of an "ad hoc" decision, which might have left an impression of "subjectivity and favoritism."

No details on the ethics breaches or faulty business practices were provided.

The minerals agency released a statement today to The Post saying that receipts from the in-kind program have increased by $78 million from 2004 to 2006 "due to factors such as improved efficiency and reduced costs."

"The receipts for 2007 have not yet been officially reported, but appear to be double those for 2006," the statement reads. "This program is proving its worth to the American public."

"In our review of the report, we noted that four of the six recommendations were very similar to those in previous reviews and we have already begun taking corrective actions. We will complete our evaluation of the report's recommendations and issue our response to the IG."

The agency has been under frequent criticism by government watchdogs in the past.

In December 2006, the minerals agency was criticized in a separate inspector general's report for lacking the data, coordination and manpower to keep track of companies operating on federal land and in federal waters.

At the same time, congressional leaders faulted the agency for writing leases in 1998 and 1999 that allowed major oil companies drilling in the Gulf of Mexico to avoid billions of dollars of royalty payments. Later, the MMS negotiated with the companies in an effort to collect some of the money.

Those leases were the subject of a Government Accountability Office report, also released last week, which showed the fallout could be $4.3 billion to $10.5 billion in losses to the government over the next 25 years.