OFFICE OF 

INSPECTOR GENERAL 

U.S.DEPARTMENT OFTHE INTERIOR 

The Bureau of Land Management 

Montana/Dakotas State Office 

Misused Oil and Gas Funds 

EVALUATION 

In recognition of Secretarial Order No. 3380, we are providing estimated costs 

associated with certain work products. Applying a formula involving prior salary and

benefit expenses, we estimate the cost of preparing this report to be $319,000. 

Report No.: 2019-CR-010 September 2020 

This is a revised version of the report prepared for public release.
 

 

 

 

 

OFFICE OF 

INSPECTOR GENERAL 

U.S.DEPARTMENT OF THE INTERIOR 

Memorandum 

To: William Perry Pendley 

Deputy Director for Policy and Programs 

Bureau of Land Management 

From: Mark Lee Greenblatt 

Inspector General 

Subject: Final Evaluation Report – The Bureau of Land Management Montana/Dakotas State 

Office Misused Oil and Gas Funds 

Report No. 2019-CR-010 

This memorandum transmits our final evaluation report on the Bureau of Land 

Management (BLM) Montana/Dakotas State Office’s compliance with oil and gas (O&G) fund 

expenditure requirements. We found that the BLM Montana/Dakotas State Office did not 

comply with O&G fund expenditure requirements from fiscal years 2015 through 2018. 

We make 12 recommendations that, if implemented, will help the BLM improve program 

accountability for its O&G funding. Based on the BLM’s response to our draft report, we 

consider eight recommendations resolved and implemented, one recommendation unresolved, 

and three recommendations resolved but not implemented. We will refer the four open 

recommendations to the Assistant Secretary for Policy, Management and Budget for resolution 

and/or implementation tracking. 

If you have any questions regarding this memorandum or the subject report, please 

contact me at 202-208-5745. 

The legislation creating the Office of Inspector General requires that we report to 

Congress semiannually on all audit, inspection, and evaluation reports issued; actions taken to 

implement our recommendations; and recommendations that have not been implemented. 

Office of Inspector General | Washington, DC 
 

 

Table of Contents 

Results in Brief ................................................................................................................................1 

Introduction......................................................................................................................................2 

Objective ......................................................................................................................................2 

Background ..................................................................................................................................2 

Findings ...........................................................................................................................................4 

Employees Incorrectly Charged Time to APD and I&E Subactivities ........................................4 

The BLM Did Not Document Labor Transfers............................................................................6 

The BLM Incorrectly Charged Retention Bonuses and Awards..................................................8 

The BLM Incorrectly Charged Miscellaneous Operations Expenses to O&G Subactivities ......9 

Conclusion and Recommendations................................................................................................10 

Conclusion..................................................................................................................................10 

Recommendations Summary......................................................................................................10 

Appendix 1: Scope and Methodology............................................................................................15 

Scope ..........................................................................................................................................15 

Methodology ..............................................................................................................................15 

Appendix 2: Monetary Impact ......................................................................................................17 

Appendix 3: Bureau Response.......................................................................................................18 

Appendix 4: Status of Recommendations......................................................................................25 
 

 

 

 

 

 

 

 

 

 

 

Results in Brief 

We evaluated the Bureau of Land Management (BLM) Montana/Dakotas State Office’s use of 

oil and gas (O&G) funds. We found that the BLM Montana/Dakotas State Office did not comply 

with O&G fund expenditure requirements from fiscal years (FYs) 2015 through 2018. 

Specifically, BLM employees incorrectly charged more than $1 million in labor costs to the 

O&G program. We also found that the BLM transferred more than $3.5 million in labor hours 

originally charged to non-O&G accounts (e.g., rangeland management) to O&G accounts. In

addition, the BLM incorrectly charged $268,251 to the O&G program for retention bonuses and 

awards for employees who did not perform related duties. The BLM also incorrectly charged 

$144,000 in miscellaneous operations expenses to O&G accounts. In total, we identified more 

than $4.8 million of questioned costs and funds that could have been put to better use for FYs 

2015 through 2018. 

We make 12 recommendations that, if implemented, will help the BLM improve program 

accountability for its O&G funding. 

The BLM concurred with 11 of the 12 recommendations in its response to our draft report. Based 

on the BLM’s response, we consider eight recommendations resolved and implemented, one 

recommendation unresolved, and three recommendations resolved but not implemented. We will 

refer the four open recommendations to the Assistant Secretary for Policy, Management and 

Budget for resolution and/or implementation tracking. 

1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction 

Objective 

Our objective was to determine whether the Bureau of Land Management (BLM) 

Montana/Dakotas State Office complied with requirements for expenditures of oil and gas 

(O&G) funds. 

See Appendix 1 for the scope and methodology of our evaluation. 

Background 

The BLM is a steward of the Nation’s public lands and minerals. As such, the BLM’s O&G 

Management Program is responsible for providing access to onshore energy resources after 

planning for potential environmental impacts. Oil and natural gas development is an important 

economic driver for Montana, North Dakota, and South Dakota. The BLM Montana/Dakotas 

State Office administers more than 5,000 Federal O&G leases on nearly 3.5 million acres. 

The BLM handles leasing, well permitting, inspections and oversight of ongoing operations, and 

reclamation and abandonment activities for onshore Federal minerals. As part of its permitting 

activities, the BLM processes O&G applications for permits to drill (APDs)1 and subsequent 

modifications of the permits, by evaluating and prescribing conditions for both the subsurface 

and surface operations.2 The BLM also inspects existing O&G authorizations and producing 

leases.

3 

The Energy Policy Act of 2005 established the BLM Permit Processing Improvement Fund to 

improve Federal O&G permit processing. In accordance with 30 U.S.C. § 191, this fund is 

available for the BLM to coordinate and process O&G use authorizations on onshore Federal 

lands. Additionally, the 2015 National Defense Authorization Act (NDAA) increased the BLM’s 

O&G permit processing fee for each new application and states that the BLM can only use the 

rental and fee funds to coordinate and process APDs and related training programs on onshore 

Federal and Indian trust mineral estate land. Using these funds for any other activity violates the 

Energy Policy Act, 30 U.S.C. § 191, and the NDAA. 

Congress clarifies its annual Consolidated Appropriations Act and its intent through language in 

the Joint Explanatory Statement (JES) each year. The JES specifically allocated funding for the 

BLM’s inspection and enforcement activities (I&E) for the years under our review. Furthermore, 

the BLM states that the I&E subactivity4 can be used only for I&E-related work in its directives.

5 

Additionally, the BLM’s Fund Code Handbook states that it is not appropriate to charge work 

1 Operators may not initiate any drilling operations or related surface-disturbing activities without an approved APD. 2 43 C.F.R. § 3162.3-1 details requirements for drilling applications and plans. 3 43 C.F.R. § 3161.3 mandates O&G inspections. 4 Congress allocates money to the BLM for general programs using fund codes. The BLM then further breaks those fund codes 

down into subactivity accounts that relate to specific work such as energy and minerals management. 5 The BLM Headquarters provides spending instructions per program area in compliance with laws, regulations, and 

administrative policy through its directives. Compliance with BLM directives is mandatory. 

2 
 

and time to subactivities with available funds if the related programs do not benefit from the 

work.6 Using congressionally appropriated I&E funds for other BLM subactivities is inconsistent 

with conditions and restrictions contained in the Consolidated Appropriations Act and violates 

BLM policy. 

6 BLM Handbook H-1684-1, Fund Code Handbook, Chapter 3, “Benefitting Subactivity Concept.” 

3 
-

-

Findings 

We found that the BLM Montana/Dakotas State Office did not comply with O&G fund 

expenditure requirements. Specifically, BLM employees incorrectly charged time to APD and 

I&E subactivities. In addition, the BLM did not document labor transfers, and it incorrectly 

charged retention bonuses, awards, and miscellaneous operations expenses to O&G subactivities. 

Employees Incorrectly Charged Time to APD and I&E 

Subactivities 

We found that employees who did not directly work on APD processing or I&E activities 

incorrectly charged more than $1 million during fiscal years (FYs) 2015 through 2018 (see 

Figure 1). Of the 42 employees we interviewed, we identified 24 employees charging labor to 

subactivities that did not directly relate to their work responsibilities. According to 30 U.S.C. § 

191, the 2015 NDAA, and the Consolidated Appropriations Act (as clarified by the JES), the 

APD processing funds must be used to coordinate and process O&G use authorizations and 

related training programs, while I&E funds must be used for I&E activities. 

Figure 1: Incorrect APD and I&E Charges for FYs 2015 – 2018 

FY APD ($) I&E ($) Total ($) 

2015 – 30,765 30,765 

2016 172,279 86,831 259,110 

2017 254,506 52,323 306,829 

2018 380,839 95,940 476,779 

Total $807,624 $265,859 $1,073,483 

During our evaluation, we found that 15 employees at the BLM Montana/Dakotas State Office, 

Eastern Montana/Dakotas District Office, and the North Dakota Field Office charged 11,448 

labor hours to the APD subactivities even though they did not work on APD activities. For 

example, a incorrectly charged 544 labor hours and a 

incorrectly charged 225 labor hours to the APD subactivities over the 4-year period. In 

total, the BLM incorrectly charged $807,624 to the APD subactivities in FYs 2015 through 2018. 

Similarly, we found that nine employees in the same locations charged 5,075 labor hours to the 

I&E subactivity over the 4-year period even though they did not work on I&E-related activities. 

For example, the same charged 1,319 labor hours and another 

charged 1,431 labor hours to the I&E subactivity during that timeframe. In 

total, the BLM incorrectly charged $265,859 to the I&E subactivity in FYs 2015 through 2018. 

BLM employees must code their time to the “subactivity where they are performing their work” 

according to the BLM’s Fund Code Handbook. The BLM employees we interviewed reported 

that the time they coded for their labor hours did not match the work duties performed for any 

4 
given pay period because they were following instmctions to code their time differently. The 

State office emailed individual staff with specific instrnctions on how to code their labor hours 

each pay period to match a management-determined budget regardless of work perfo1med during 

that pay period. Employees said they either coded their time propo1iionately based on the amount 

of labor hours the State office individually allocated across various subactivities or would code 

to one subactivity until they depleted the allocated labor hours and then would strut coding their 

time to another subactivity. The email in Figure 2 is an example of instrnctions for one employee 

who had minimal involvement with both the APD and the I&E prograins to code time to those 

subactivities. 

Figure 2: BLM Email with Employee Labor Hour Instructions* 

ao,e DEPARTMENT OF THE INTERIOR Mau- How 10 eode lime sheet 10 ma1ch b<Jdget 

• @blm.gov> How to code time sheet to match budget 

1 message 

m.gov, 2019 at 8:37 Aflo 

blm.gov> 

Good momlng, -

There have been some ongoing issues w~h coding labor hours in Qulcktime. Please use the formula below, that is specific to 

you, t> complete week 1 and week 2 olyourtlme sheet beginning this PP Which Is due no later than 8 a.m. Friday due to the 

potenttat shutdown. 

f the codes differ otease verif" wUh vou:-lmmed!ate SU"'6 "'~.SC:' ar.d !e! me !' .. '"!OW so we mav ge! it corrected. 

NAME ORGCODE FUNCTIONAL 

CODE 

HOURS FOR 

WEEKI 

HOURS FOR 

WEEK2 TOTAL 

1310 20 0 20 

1314 20 20 40 

131S 0 7 7 

9141 0 7 7 

9145 0 6 6 

TOTAL 40 40 30 

Thaok1m11 

*Functional Code Descriptions: 

1310: O&G Management 

1314: l&E 

1315, 9141, 9145 : APD processing 

Source: BLM. 

During our evaluation, we reviewed the O&G spending for only the BLM Montana/Dakotas 

State Office. If other State offices follow similar procedures, these issues may exist in other 

BLM offices, so we have included recommendations for Bureauwide improvements. 

5 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recommendations 

We recommend that the Montana/Dakotas State Office: 

1. Identify employees and associated work duties that benefit the APD 

subactivities, and allow only employees benefiting those subactivities to charge 

labor to those accounts 

2. Identify employees and associated work duties that benefit the I&E 

subactivity, and allow only employees benefiting the subactivity to charge 

labor to the account 

We recommend that the BLM: 

3. Monitor State office compliance with applicable laws and directives for 

employees charging to the APD and I&E subactivities 

4. Review internal controls for all offices that manage APD and I&E subactivities 

to determine whether they are charging labor to the appropriate accounts 

The BLM Did Not Document Labor Transfers 

We found that the BLM Montana/Dakotas State Office made nearly 3,000 labor transfers from 

non-O&G subactivities to O&G subactivities after employees had submitted their timesheets. 

The labor transfers resulted in more than $3.5 million of labor charges to O&G subactivities 

from FYs 2015 through 2018 (see Figure 3). The BLM did not document and could not provide 

us with the rationale for these transfers. Therefore, we could not determine whether these labor 

transfers were allowable under 30 U.S.C. § 191, the 2015 NDAA, the Consolidated 

Appropriations Act (as clarified by the JES), and the BLM directives. 

Figure 3: Labor Transfers for FYs 2015 – 2018 

$251,742 

$889,099 

$1,617,938 

$768,823 

2015 2016 2017 2018 

6 
 

 

 

 

 

 

 

 

 

 

 

 

 

We found that the BLM transferred labor hours that employees originally charged to 32 

non-O&G subactivities to O&G subactivities. For example, the BLM transferred more than 

$1.2 million in labor charges from the rangeland management program and $256,513 in labor 

charges from the riparian program to O&G subactivities from FYs 2015 through 2018 (see 

Figure 4). 

Figure 4: FYs 2015 – 2018 Labor Transfers from Non-O&G to O&G Subactivities 

Original Subactivity Transfer 

Description Amount ($) 

Soil, Water, Air Management 191,285 

Rangeland Management 1,209,527 

Riparian* 256,513 

Wildlife Management 198,762 

Cadastral,† Lands & Realty 

Management 357,975 

Resource Management Planning 268,210 

Management of Lands & 

Resources Annual & Operations 252,881 

Maintenance 

Other non-O&G‡ 792,449 

Total $3,527,602 

*The BLM’s program that manages wetlands 

adjacent to rivers and streams. 

†The BLM’s program that surveys, defines, and 

marks the boundaries and subdivisions on public 

lands. 

‡We consolidated 25 non-O&G subactivities such as 

forestry and renewable energy into “Other nonO&G.” 

The U.S. Government Accountability Office’s Standards for Internal Control in the Federal 

Government outlines the standards that Federal Government entities should have in place to 

design, implement, and operate an effective internal control system. It specifically addresses 

documenting transactions and communicating control activities through policies and procedures. 

While the BLM Montana/Dakotas State Office used the BLM National Operations Center’s 

(NOC’s) step-by-step instructions on how to perform labor adjustments, the instructions did not 

include guidance for obtaining approval or maintaining documentation supporting the 

adjustments. The BLM told us that it is in the process of creating a more comprehensive standard 

operating procedure (SOP) for labor adjustments. 

7 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recommendation 

We recommend that the Montana/Dakotas State Office: 

5. Update policies and procedures to include a process for performing labor 

adjustments, including a requirement to create and retain documentation that 

supports the rationale and approval for labor adjustments 

The BLM Incorrectly Charged Retention Bonuses and 

Awards 

From FYs 2015 through 2018, the BLM Eastern Montana/Dakotas District Office incorrectly 

charged $268,251 to the I&E subactivity for retention bonuses and awards for employees who 

did not perform I&E duties. These charges were inconsistent with conditions and restrictions 

contained in the Consolidated Appropriations Act (as clarified by the JES) and violated the BLM 

directives. According to the directives, the BLM can only use the I&E subactivity for I&Erelated work. 

In May 2014, the BLM established a 10 percent retention incentive for petroleum engineers 

(PEs) and petroleum engineering technicians (PETs) throughout the Bureau to offset the 

disparities in compensation between the U.S. Government and private industry.7 The PEs and 

PETs conduct the BLM’s primary I&E-related activities. The NOC created one code that 

charged the incentives to the I&E subactivity so the Montana/Dakotas budget analysts would not 

have to manually enter the subactivity into the Financial Business Management System (FBMS) 

each pay period. In November 2014, all employees in the Eastern Montana/Dakotas District 

Office, regardless of position, began receiving a 10 percent retention incentive using the code the 

NOC established. The BLM, however, never updated the code to reflect the change in non-I&E 

employees receiving the retention incentive. 

Recommendations 

We recommend that the Montana/Dakotas State Office: 

6. Resolve the $268,251 of retention bonus and award charges 

7. Develop and implement a policy to ensure that retention bonuses are applied 

to the correct subactivity based on each employee’s job duties 

8. Develop and implement a policy to monitor retention bonuses to ensure they 

are applied to the proper subactivity 

7 BLM Instruction Memorandum No. 2014-089, “Group Retention Incentive for Petroleum Engineers and Petroleum Engineering 

Technicians” (2014). 

8 
 

 

 

 

 

 

 

 

 

 

 

 

 

The BLM Incorrectly Charged Miscellaneous Operations 

Expenses to O&G Subactivities 

We found that the BLM charged at least $144,000 of operations expenses to the APD 

subactivities from FYs 2015 through 2018, violating 30 U.S.C. § 191 and the 2015 NDAA, 

which states that the APD processing funds must be used to coordinate and process O&G drilling 

applications and related training programs. 

Each month, the Montana/Dakotas State Office budget officer generated and reviewed a report to 

ensure that the office charged miscellaneous operations expenses to the proper subactivity. This 

report, however, did not include the APD subactivities. At our request, the State budget analyst 

generated a miscellaneous operations expense report that included the APD subactivities. The 

report showed that the BLM charged year-end variances for utilities, wireless communications, 

contracts, and space rental to the APD subactivities. For example, in FY 2018, we found an 

adjustment of $47,780 for “space rent GSA” for the NOC with no supporting documentation. 

When asked about the charge, the State office claimed that the NOC was responsible for the 

adjustment. The NOC, however, provided documentation that a State office employee made the 

account adjustment but could not provide documentation supporting the rationale or approval for 

the adjustment. Further, BLM staff told us that there was not a policy or SOP for these monthly 

operations expense reports. 

Recommendations 

We recommend that the Montana/Dakotas State Office: 

9. Resolve the $144,000 of miscellaneous operations expenses 

10.Require justification and supporting documentation for miscellaneous 

operations expenses and adjustments charged to APD subactivities 

11.Develop and implement a policy to monitor miscellaneous operations expenses 

charged to APD subactivities for possible accounting errors or misuse of funds, 

and correct any issues identified 

We recommend that the BLM: 

12.Confer with fiscal law experts in the Office of the Solicitor to determine 

whether the incorrect charges identified in this report implicate the 

Antideficiency Act 

9 
 

 

 

 

 

 

 

 

 

 

 

Conclusion and Recommendations 

Conclusion 

We found that the BLM Montana/Dakotas State Office did not comply with O&G fund 

expenditure requirements, which resulted in the BLM incorrectly charging nearly $1.5 million in 

labor and miscellaneous operations costs. Furthermore, the BLM made more than $3.5 million in 

unsupported labor transfers from non-O&G subactivities to O&G subactivities. 

While the BLM had policies in place that outline how these funds should be used, the BLM 

Montana/Dakotas State Office did not ensure that its offices followed those policies. Given the 

magnitude of oil and gas development the Montana/Dakotas State Office manages and the gaps 

in policies we identified, the BLM is at risk of not fulfilling its duty to Congress and to the public 

as trusted stewards of public funding for the purpose for which it was intended. 

The BLM’s important O&G responsibilities impact the economy, public safety, and national 

interests. If our Montana/Dakotas State Office findings reflect a Bureauwide pattern, the issues 

could significantly impact the BLM’s ability to effectively manage its O&G program. 

Recommendations Summary 

The BLM responded to our draft report on July 20, 2020, concurring with 11 of the 12 

recommendations and providing target dates and responsible officials for implementation (see 

Appendix 3 for the full BLM response). Based on the BLM’s response, we consider eight 

recommendations resolved and implemented, one recommendation unresolved, and three 

recommendations resolved but not implemented (see Appendix 4 for the status of our 

recommendations). 

We recommend that the Montana/Dakotas State Office: 

1. Identify employees and associated work duties that benefit the APD subactivities, and 

allow only employees benefiting those subactivities to charge labor to those accounts 

BLM Response: The Montana/Dakotas State Office concurred. It stated that it has 

increased oversight and will ensure that employees code their time to the correct 

subactivities associated with their duties in compliance with the BLM’s Fund Code 

Handbook. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved and implemented. 

2. Identify employees and associated work duties that benefit the I&E subactivity, and allow 

only employees benefiting the subactivity to charge labor to the account 

10 
 

 

 

 

 

 

 

 

 

 

 

BLM Response: The Montana/Dakotas State Office concurred and will ensure that 

employees code their time to the correct subactivity associated with their duties in 

compliance with the BLM Fund Code Handbook. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved and implemented. 

We recommend that the BLM: 

3. Monitor State office compliance with applicable laws and directives for employees 

charging to the APD and I&E subactivities 

BLM Response: The BLM concurred and said that it conducts regular monitoring for 

compliance with applicable laws and directives. The BLM will also implement a new 

FBMS program to automatically distribute and re-allocate support costs across 

contributing accounts “using proportional representation of funding” in the accounts in 

FY 2021. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved but not implemented. The BLM does not specifically address how it will 

periodically monitor direct labor charges to the subactivities to verify compliance with 

applicable laws and directives. We will refer this recommendation to the Assistant 

Secretary for Policy, Management and Budget (PMB) to track implementation. 

4. Review internal controls for all offices that manage APD and I&E subactivities to 

determine whether they are charging labor to the appropriate accounts 

BLM Response: The BLM concurred and identified internal controls it has put in place 

for the APD and I&E accounts. The BLM specifically stated that these controls will 

include the new FBMS module in FY 2021. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved but not implemented. While the controls the BLM listed address upfront 

planning for its annual budget and spending throughout the year, they do not address 

monitoring whether the offices are charging labor to the appropriate accounts. The BLM 

should develop a process to review the effectiveness of the internal controls in place for 

all offices that manage APD and I&E subactivities. We will refer this recommendation to 

the PMB to track implementation. 

We recommend that the Montana/Dakotas State Office: 

5. Update policies and procedures to include a process for performing labor adjustments, 

including a requirement to create and retain documentation that supports the rationale and 

approval for labor adjustments 

11 
 

 

 

BLM Response: The Montana/Dakotas State Office concurred and developed SOPs on 

how to code time and work performed to the APD, I&E, and other subactivities. The 

SOPs include a requirement to correct erroneous coding and post documentation 

supporting any corrections to a shared budget folder. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved and implemented. 

6. Resolve the $268,251 of retention bonus and award charges 

BLM Response: The Montana/Dakotas State Office concurred and moved the erroneous 

charges of $268,251 from the I&E subactivity and to the correct non-I&E subactivity. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved and implemented. 

7. Develop and implement a policy to ensure that retention bonuses are applied to the 

correct subactivity based on each employee’s job duties 

BLM Response: The Montana/Dakotas State Office concurred and developed retention 

incentive SOPs and established a list of the appropriate subactivities to use for employees 

receiving retention bonuses. In addition, the SOPs require the State office budget officer 

and budget analysts to monitor labor reports for accuracy and verify and validate that 

expenses are properly charged to the correct subactivities on a quarterly basis. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved and implemented. 

8. Develop and implement a policy to monitor retention bonuses to ensure they are applied 

to the proper subactivity 

BLM Response: The Montana/Dakotas State Office concurred and reiterated that, as 

noted in its response to Recommendation 7, it has established retention incentive SOPs. 

It also noted that the SOPs require the State office budget officer and budget analysts to 

monitor labor reports for accuracy and verify that expenses are properly charged to the 

correct subactivities on a quarterly basis. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved and implemented. 

9. Resolve the $144,000 of miscellaneous operations expenses 

BLM Response: The Montana/Dakotas State Office concurred and moved the $144,000 

of miscellaneous operations expenses to an appropriate account and documented the 

changes. 

12 
 

 

 

 

 

 

 

 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved and implemented. 

10. Require justification and supporting documentation for miscellaneous operations 

expenses and adjustments charged to APD subactivities 

BLM Response: The Montana/Dakotas State Office concurred and created an APD fund 

status report in FBMS that the budget officer will post monthly on the Montana/Dakota’s 

State Office internal budget website for program leads, budget analysts, field leads, and 

managers to review and ensure operational expenses are charged to the appropriate 

subactivities. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved and implemented. 

11. Develop and implement a policy to monitor miscellaneous operations expenses charged 

to APD subactivities for possible accounting errors or misuse of funds, and correct any 

issues identified 

BLM Response: The Montana/Dakotas State Office concurred and noted that the budget 

officer and budget analysts will review the APD fund status reports to ensure all funds 

are correctly allocated and include appropriate supporting documentation. 

OIG Comment: Based on the BLM’s response, we consider this recommendation 

resolved but not implemented. In addition to the steps that it has already taken, the BLM 

needs to develop and implement a policy to monitor miscellaneous operations expenses 

to APD subactivities. We will refer this recommendation to the PMB to track 

implementation. 

We recommend that the BLM: 

12. Confer with fiscal law experts in the Office of the Solicitor to determine whether the 

incorrect charges identified in this report implicate the Antideficiency Act 

BLM Response: The BLM did not concur with our finding and contends that the 

allocation of support costs among benefitting subactivities is consistent with the 

Statement of Federal Financial Accounting Standards 4 and applicable appropriation 

laws. 

OIG Comment: We contacted the BLM for clarification on its response to this 

recommendation. The Bureau stated that, because the BLM disagreed with our finding, 

the Office of the Solicitor “did not review the charges or issue an opinion related to the 

Anti-deficiency Act.” Based on the BLM’s response, we consider this recommendation 

unresolved. We acknowledge that indirect charges can be allocated to the APD and I&E 

subactivities on a reasonable and consistent basis. As set forth in our report, however, the 

direct charges that we reviewed did not benefit the APD and I&E functions. Accordingly, 

13 
 

 

we do not believe that the Statement of Federal Financial Accounting Standards 4 is 

pertinent to this recommendation. We reiterate our recommendation that the BLM confer 

with fiscal law experts in the Office of the Solicitor to determine whether the 

Antideficiency Act was implicated and, if so, to take appropriate action. We will refer 

this recommendation to the PMB for resolution. 

14 
 

 

 

 

 

Appendix 1: Scope and Methodology 

Scope 

We evaluated the Bureau of Land Management (BLM) Montana/Dakotas State Office’s 

compliance with oil and gas fund expenditure requirements, specifically the Permit Processing 

Improvement Fund, the application for permit to drill subactivities, and the inspection and 

enforcement subactivity from fiscal years 2015 through 2018. 

Methodology 

We conducted our evaluation in accordance with the Quality Standards for Inspection and 

Evaluation as put forth by the Council of the Inspectors General on Integrity and Efficiency. We 

believe that the work performed provides a reasonable basis for our conclusions and 

recommendations. 

To accomplish our objective, we: 

● Reviewed BLM laws and regulations for oil and gas revenue, including prohibitive and 

allowable expenditures 

● Reviewed policy defining the BLM State Director’s and budget director’s discretionary 

authority 

● Reviewed the BLM/s budget subactivity descriptions and requirements 

● Reviewed BLM Montana/Dakotas State Office documents, including: 

o Cost Target Sheets 

o Subactivity sheets 

o Position descriptions 

o Budgets and Annual Work Plans 

o Table of Organization 

● Visited and conducted interviews at the following BLM locations: 

o Montana/Dakotas State Office, Billings, MT 

o Eastern Montana/Dakotas District Office, Miles City, MT 

15 
o North Dakota Field Office, Dickinson, ND 

o National Operations Center, Lakewood, CO 

o BLM Headquarters, Washington, DC 

We relied on computer-generated data the BLM provided, including the Financial Business 

Management System, but we did not review the data reliability of the various information 

systems. 

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Appendix 2: Monetary Impact 

This table presents questioned costs for fiscal years 2015 through 2018. Because the Bureau of 

Land Management Montana/Dakotas State Office told us that it cannot adjust its labor costs for 

prior years, we have presented those costs as funds to be put to better use. 

Description of Questioned Funds To Be Put 

Cost Costs ($) To Better Use ($) 

Miscellaneous 144,000 – operations costs 

APD charges – 807,624 

I&E charges – 265,859 

Labor adjustments – 3,527,602 

Retention bonuses – 268,251 

Total $144,000 $4,869,336 

Abbreviations: APD = application for permit to drill, 

I&E = inspection and enforcement 

17 
 

 

Appendix 3: Bureau Response 

The Bureau of Land Management’s response follows on page 19. 

18 
 

 

 

Digitally signed by 

Date: 2020.07.20 

15:07:13 -06'00' 

United States Department of the Interior 

BUREAU OF LAND MANAGEMENT 

Washington, D.C. 20240 

http://www.blm.gov 

In Reply Refer To: 

1245/3071/1690/3160 (830/310/880) 

Memorandum 

To: Mark Lee Greenblatt 

Inspector General 

Through: Casey Hammond CASEY Digitally signed by 

Date: 2020.07.20 Principal Deputy Assistant Secretary, HAMMOND 

Exercising the Authority of the Assistant Secretary, 

Land and Minerals Management 

From: William Perry Pendley WILLIAM WILLIAM PENDLEY 

Deputy Director for Policy and Programs, PENDLEY 

Exercising the Authority of the Director 

Subject: Office of the Inspector General Draft Evaluation Report, “The Bureau of Land 

Management Montana/Dakotas State Office Misused Oil and Gas Funds” 

(2019-CR-010) 

Thank you for the opportunity to review and comment on the Office of the Inspector General’s 

(OIG) draft report entitled, “The Bureau of Land Management Montana/Dakotas State Office 

Misused Oil and Gas Funds.” Effective management of the Bureau of Land Management’s 

(BLM) oil and gas funding is a top priority for the agency. The BLM welcomes this opportunity 

to review our policies and procedures for budgeting, specifically oil and gas expenditures, and 

the analysis offered by the OIG on this issue. The BLM recognizes the importance of accurate 

accounting to enable informed decision-making and program planning to comply with all 

applicable appropriation laws. The OIG issued twelve recommendations regarding use of oil and 

gas funding by the BLM Montana/Dakotas State Office (MT/DAKs). 

The BLM continues to appropriately use sub-activities for all necessary support service 

functions. The Statement of Federal Financial Accounting Standards (SFFAS) 4 requires the 

BLM to separate direct costs (costs that can be specifically or readily identified with producing a 

specific product or service) from indirect costs (costs that cannot be specifically identified with 

producing specific products or services, but can be shown to bear a relationship to results or be in 

support of the products or services). Additionally, SSFAS 4 requires the BLM to spread these 

17:42:12 -04'00'

CASEY HAMMOND 

19
indirect costs to the direct costs of output program elements to determine the full cost of 

producing specific products or services. 

The BLM, and the BLM MT/DAKs specifically, allocate support costs among dozens of 

benefiting sub-activities, including the oil and gas program. Examples of support costs include 

information technology staff and systems, human resources (HR) operations, budget and 

contracting operations, data and records management, Freedom of Information Act processing, 

facility security, safety programs, and public contact operations, etc. Each of these functions 

meet the SFFAS 4 definition of “can be shown to bear a relationship to results or be in support of 

the product or services.” For example, an Application for Permit to Drill (APD) cannot be 

processed without a customer service representative to accept the application, a computer 

program to host the application, HR staff to hire the customer service representative, a building 

to house the public access room, and a financial system to accept the funds. 

Using the SFFAS 4 as governing direction, the BLM generally agrees with the findings and 

concurs with eleven of twelve recommendations. We non-concur with Recommendation 12 since 

the allocation of support costs among benefitting sub-activities is consistent with the SFFAS 4. 

Provided below are the corrective actions taken or planned by the BLM as well as the name of 

the responsible officials and the target dates of implementation. 

Recommendation 1: Identify employees and associated work duties that benefit the APD subactivities and allow only employees benefiting those sub-activities to charge labor to those 

accounts. 

BLM Response: Concur. The BLM MT/DAKs has increased oversight to ensure only 

employees with duties related to the APD and inspection and enforcement (I&E) accounts are 

charging to those accounts as direct costs. Specifically, the state leadership worked with the 

Branch Chiefs and Field Managers to update the work months by assigning the appropriate 

number of work months to the program offices and to ensure employees were coded correctly to 

the APD sub-activity associated with their duties in compliance with the BLM Fund Code 

Handbook. Direction in the BLM’s annual Planning Target Allocations (PTA) and Annual Work 

Plan (AWP) was given to all employees to achieve compliance. For the indirect costs, the BLM 

MT/DAKs will continue to equitably allocate support costs among the contributing subactivities, following SFFAS 4 direction as previously described. 

Target Date: Completed. 

Recommendation 2: Identify employees and associated work duties that benefit the I&E subactivity, and allow only employees benefiting the sub-activity to charge labor to the account. 

BLM Response: Concur. As noted in the response to Recommendation 1, the BLM MT/DAKs 

state leadership has increased its oversight to ensure that employees charging direct costs are 

assigned to perform work in a sub-activity with funding provided in the AWP. Employees 

charging to the sub-activity as indirect costs are likewise identified and tracked. 

2 

20
Target Date: Completed. 

Recommendation 3: Monitor State Office compliance with applicable laws and directives for 

employees charging to the APD and I&E sub-activities. 

BLM Response: Concur. The BLM conducts regular monitoring to confirm compliance with 

applicable laws and directives; including reviewing the BLM Fund Coding Handbook (H-1684-

1) which contains appropriate funding procedures for all BLM programs. The BLM also 

publishes annual Budget Planning Directives, which include procedures for expending funds for 

all BLM programs, including the APD and I&E sub-activities. 

The BLM is implementing a new Financial Business Management System (FBMS) program to 

automatically distribute support costs among contributing accounts. The “L0777 Program 

Support Cost” effort will re-allocate support costs using proportional representation of funding in 

the accounts. This will provide for fair and equitable distribution. 

Target Date: June30, 2021 

Responsible Official: Barbara L. Eggers, Assistant Director, Business, Fiscal and Resources 

Management, and Nicholas E. Douglas, Assistant Director, Assistant Director, Energy, Minerals, 

and Realty Management. 

Recommendation 4: Review internal controls for all offices that manage APD and I&E subactivities to determine whether they are charging labor to the appropriate accounts. 

BLM Response: Concur. As noted in the response to Recommendation 3, internal controls are in 

place to monitor proper expenditure of the APD and I&E accounts, as well as all program areas. 

These include, but are not limited to: annual PTA and AWP general directives, annual PTA and 

AWP program directives, the annual mid-year budget reviews, monthly budget reports, 

performance certifications, the Fund Code Handbook, Washington Office program lead specific 

reviews, and in FY21, the L0777 Program Support Cost FBMS module. 

Target Date: Completed. 

Responsible Official: Barbara L. Eggers, Assistant Director, Business, Fiscal and Resources 

Management, and Nicholas E. Douglas, Assistant Director, Energy, Minerals, and Realty 

Management. 

Recommendation 5: Update policies and procedures to include a process for performing labor 

adjustments, including a requirement to create and retain documentation that supports the 

rationale and approval for labor adjustments. 

BLM Response: The BLM MT/DAKs developed Standard Operating Procedures (SOPs) on 

how to code time and work performed to the APD, I&E, and other sub-activities. The SOPs also 

require the State Office (SO) Budget Officer and Budget Analyst to generate detailed labor 

reports and to take immediate actions to correct erroneous coding and any labor adjustments. The 

3 

21
labor reports and the documentation to support the corrections are posted online to a restricted 

MT/DAKs Budget Folder. 

Target Date: Completed. 

Recommendation 6: Resolve the $268,251 of retention bonus and award charges. 

BLM Response: Concur. The BLM MT/DAKs has reviewed the fiscal years 2015 through 2018 

retention bonus charges and took the required actions to reconcile its records and transfer the 

charges. The erroneous charges of $268,251 were removed from the I&E sub-activities and 

charged to the correct non-I&E sub-activities. 

Target Date: Completed. 

Recommendation 7: Develop and implement a policy to ensure that retention bonuses are 

applied to the correct sub-activity based on each employee’s job duties. 

BLM Response: Concur. The BLM MT/DAKs developed Retention Incentive SOPs and 

established a list of the appropriate sub-activities to be used for employees receiving retention 

bonuses and any other related bonuses. The SOPs require the SO Budget Officer and Budget 

Analysts to monitor the labor reports for accuracy and to verify and validate the expenses were 

properly charged to the correct sub-activities on a quarterly basis. 

Target Date: Completed. 

Recommendation 8: Develop and implement a policy to monitor retention bonuses to ensure 

they are applied to the proper sub-activity. 

BLM Response 8: Concur. As noted in the response to Recommendation 7, the BLM MT/DAKs 

developed Retention Incentive SOPs and established a list of the appropriate sub-activities to be 

used for employees receiving retention bonuses and any other related bonuses. The SOPs require 

the SO Budget Officer and Budget Analysts to monitor the labor reports for accuracy and to 

verify and validate the expenses were properly charged to the correct sub-activities on a quarterly 

basis. 

Target Date: Completed. 

Recommendation 9: Resolve the $144,000 of miscellaneous operations expenses. 

BLM Response: Concur. The BLM MT/DAKs has moved the $144,000 of identified 

miscellaneous operations expenses to an appropriate account and appropriately documented 

these changes. The SO Budget Officer will run reports monthly to ensure miscellaneous 

operations expenses are charged to the appropriate sub-activity. This report has been expanded 

to include all fee accounts, which includes the APD sub-activity. 

Target Date: Completed. 

4 

22
Recommendation 10: Require justification and supporting documentation for miscellaneous 

operations expenses and adjustments charged to APD sub-activities. 

BLM Response: Concur. The BLM MT/DAKs created a Fund Status Report for L91XX 

accounts in the Financial Business and Management System (FBMS). The SO Budget Officer 

will post this report monthly on the MT/DAKs Budget Intranet Website to serve as a summary of 

operational expenses to ensure that SO Program Leads and Budget Analysts, Field Leads, and 

Managers will have access to review and monitor that operational expenses are charged to the 

appropriate sub-activities. 

Target Date: Completed. 

Recommendation 11: Develop and implement a policy to monitor miscellaneous operations 

expenses charged to APD sub-activities for possible accounting errors or misuse of funds, and 

correct any issues identified. 

BLM Response: Concur. As noted in the response to Recommendation 10, the allocation of 

L91XX funds will be uploaded in FBMS upon receipt of BLM MT/DAK’s PTA and AWP. The 

MT/DAKs will use the Cost Target Sheets to obtain funding amounts to allocate the funds in 

FBMS. The SO Budget Officer and Budget Analysts will be required to update and review the 

L91XX allocation of funds to ensure all funds are correctly used and supporting documentation 

is submitted. 

Target Date: Completed. 

Recommendation 12: Confer with fiscal law experts in the Office of the Solicitor to determine 

whether the incorrect charges identified in this report implicate the Anti-deficiency Act. 

BLM Response: Non-Concur. The BLM conferred with the SOL and the allocation of support 

costs among benefitting sub-activities is consistent with the SFFAS 4 and applicable 

appropriation laws. 

If you have any questions about this response, please contact Barbara L. Eggers, Assistant 

Director, Business, Fiscal and Resources Management at 202-208-4864; Nicholas E. Douglas, 

Assistant Director, Energy, Minerals, and Realty Management at 202-208-4201; or John 

Mehlhoff, Montana/Dakotas State Director at 406-896-5012. 

cc: 

ASLM (2) (6628 – MIB) 

WO-100 (5662 – MIB) 

WO-300 (5625 – MIB) 

WO-800 (5623 – MIB) 

MT/DKs 

5 

23
WO-310 (M Street) 

WO-830 Official Copy (M Street) 

WO-830 rf/hold (M Street) 

WO-830: LStevenson: 6/24/2020:912-7077:DOC-ID: final_Draft Response OIG-2019-CR-010 

6.12 Mary 

6 

24
 

 

 

 

 

 

Appendix 4: Status of Recommendations 

In its response to our draft report (see Appendix 3), the Bureau of Land Management concurred 

with 11 of the 12 recommendations. We consider eight recommendations resolved and 

implemented, one recommendation unresolved, and three recommendations resolved but not 

implemented. Based on the response, we will refer the four open recommendations to the Office 

of Policy, Management and Budget (PMB) for resolution and/or implementation tracking. 

Recommendation Status Action Required 

1, 2, 5 – 10 Resolved and implemented No additional action is required. 

We will refer this 

12 Unresolved recommendation to the PMB for 

resolution. 

We will refer these 

3, 4, 11 Resolved but not implemented recommendations to the PMB to 

track implementation. 

25 
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