Interior: Losses 'Probable' at Oil Office
In congressional testimony today, Interior Department officials acknowledged that it is "probable" they would have uncovered financial losses with further investigation of a drug, sex and conflict-of-interest scandal involving employees at a Denver-based oil royalty office. However, the officials said the beleaguered royalty-in-kind program had turned a corner and needed to be continued.
Earl E. Devaney, Interior's inspector general, said the environment in the royalty office is now "decidedly different." The office, based outside of Denver in Lakewood, Colo., collects billions of dollars in oil and natural gas from companies given contracts to extract fossil fuels offshore or on federal or Indian lands.
Devaney said an enhanced ethics program, with a policy prohibiting gifts from industry representatives, would help Interior's Minerals Management Service (MMS), which runs the royalty office.
Three reports released last week found that government officials attended parties with oil and gas marketers, accepted gifts including ski trips, sports tickets and golf outings, and steered contracts to favored clients. Since 2006, the royalty program has been subjected to multiple investigations for alleged mismanagement and conflicts of interest.
"It is important to note that we believe the single most serious problem portrayed in these reports is a pervasive culture of exclusivity, exempt from the rules that govern all other employees of the federal government," Devaney said. "Simply stated, the MMS employees named in these latest reports had a callous disregard for the rules by which the rest of us are required to play."
Devaney also said he was disappointed that two retired government employees - former oil royalty office chief Gregory W. Smith and former Washington administrator Lucy Querques Denett - were not prosecuted by the Justice Department in connection with the two-year investigation.
Investigators found that Smith, 56, who was among a group of more than a dozen employees who took gifts from oil and gas marketers, was involved in illicit sexual relationships with subordinates; purchased cocaine at his office; and arranged side consulting deals that personally netted him more than $30,000 over an 18-month stretch.
The inspector general's reports alleged that Denett, 55, improperly arranged a million-dollar deal for two retired employees, who pleaded guilty to federal conflict-of-interest charges.
"I would have liked to see a more aggressive approach," Devaney said of the Justice Department's decision not to charge Smith and Denett. He said Justice officials "were aware" of his desire to have the pair prosecuted.
That decision caused a sizable rift between Interior and Justice Department officials, prompting Interior to pull resources off of an ongoing investigation by Justice's Public Integrity Section into the illegal activities of former lobbyist Jack Abramoff, who is now serving a nearly six-year sentence on corruption charges in Cumberland, Md., according to sources familiar with the investigation.
Devaney said investigators were also hampered by contract files that were in "terrible shape" and a group of Chevron employees who refused to be interviewed.
"We were unable to show that any personal relationship to any of the oil and gas companies resulted in money being lost," he said. "If we had, we might be sitting here talking about more criminal prosecutions.
Calling the conduct "inexcusable" and "tragic," Interior Department Secretary Dirk Kempthorne said he was assured that the "behavior described in these reports no longer exists in these programs" and pledged to promote "a culture of conscience."
"I am outraged that the public's trust, an important and necessary part of public service, has been abused," Kempthorne said.
Kempthorne said the ethics office at the royalty program would be expanded, with the hiring of an attorney/adviser to provide "invaluable ethics support and program oversight" and that royalty office managers would now report to a Denver-based supervisor instead of a government official in Washington.
Kempthorne has previously called for the implementation of a random drug-testing program at the agency as well.
At one point, Kempthorne proposed briefing energy firms on the government's ethics rules, a plan that prompted a sharp rebuke by Rep. George Miller (D-Calif.).
"I find it kind of disturbing that these businesses can conduct business as if nothing happened," Miller said. "Apparently, there's no lesson learned inside these corporations."
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