```

[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]

 
RECENT INTERIOR DEPARTMENT INSPECTOR GENERAL INVESTIGATIONS ON FEDERAL 
                    OIL AND GAS ROYALTY COLLECTIONS

=======================================================================

                           OVERSIGHT HEARING

                               before the

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                      Thursday, September 18, 2008

                               __________

                           Serial No. 110-86

                               __________

       Printed for the use of the Committee on Natural Resources

  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                                   or
         Committee address: http://resourcescommittee.house.gov

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                     COMMITTEE ON NATURAL RESOURCES

              NICK J. RAHALL, II, West Virginia, Chairman
              DON YOUNG, Alaska, Ranking Republican Member

Dale E. Kildee, Michigan             Jim Saxton, New Jersey
Eni F.H. Faleomavaega, American      Elton Gallegly, California
    Samoa                            John J. Duncan, Jr., Tennessee
Neil Abercrombie, Hawaii             Wayne T. Gilchrest, Maryland
Solomon P. Ortiz, Texas              Chris Cannon, Utah
Frank Pallone, Jr., New Jersey       Thomas G. Tancredo, Colorado
Donna M. Christensen, Virgin         Jeff Flake, Arizona
    Islands                          Stevan Pearce, New Mexico
Grace F. Napolitano, California      Henry E. Brown, Jr., South 
Rush D. Holt, New Jersey                 Carolina
Raul M. Grijalva, Arizona            Luis G. Fortuno, Puerto Rico
Madeleine Z. Bordallo, Guam          Cathy McMorris Rodgers, Washington
Jim Costa, California                Louie Gohmert, Texas
Dan Boren, Oklahoma                  Tom Cole, Oklahoma
John P. Sarbanes, Maryland           Rob Bishop, Utah
George Miller, California            Bill Shuster, Pennsylvania
Edward J. Markey, Massachusetts      Bill Sali, Idaho
Peter A. DeFazio, Oregon             Doug Lamborn, Colorado
Maurice D. Hinchey, New York         Mary Fallin, Oklahoma
Patrick J. Kennedy, Rhode Island     Adrian Smith, Nebraska
Ron Kind, Wisconsin                  Robert J. Wittman, Virginia
Lois Capps, California               Steve Scalise, Louisiana
Jay Inslee, Washington
Mark Udall, Colorado
Joe Baca, California
Hilda L. Solis, California
Stephanie Herseth Sandlin, South 
    Dakota
Heath Shuler, North Carolina

                     James H. Zoia, Chief of Staff
                       Rick Healy, Chief Counsel
            Christopher N. Fluhr, Republican Staff Director
                 Lisa Pittman, Republican Chief Counsel
                                 ------                                

                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Thursday, September 18, 2008.....................     1

Statement of Members:
    Costa, Hon. Jim, a Representative in Congress from the State 
      of California..............................................     8
    Grijalva, Hon. Raul M., a Representative in Congress from the 
      State of Arizona, Prepared statement of....................    48
    Miller, Hon. George, a Representative in Congress from the 
      State of California........................................     7
    Pearce, Hon. Stevan, a Representative in Congress from the 
      State of New Mexico........................................     4
        Prepared statement of....................................     6
    Rahall, Hon. Nick J., II, a Representative in Congress from 
      the State of West Virginia.................................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Devaney, Hon. Earl E., Inspector General, U.S. Department of 
      the Interior...............................................    15
        Prepared statement of....................................    16
    Kempthorne, Hon. Dirk, Secretary, U.S. Department of the 
      Interior...................................................     9
        Prepared statement of....................................    12

  OVERSIGHT HEARING ON ``RECENT INTERIOR DEPARTMENT INSPECTOR GENERAL 
      INVESTIGATIONS ON FEDERAL OIL AND GAS ROYALTY COLLECTIONS.''

                              ----------                              

                      Thursday, September 18, 2008

                     U.S. House of Representatives

                     Committee on Natural Resources

                            Washington, D.C.

                              ----------                              

    The Committee met, pursuant to call, at 10:01 a.m. in Room 
1324, Longworth House Office Building, Hon. Nick J. Rahall, II 
[Chairman of the Committee] presiding.
    Present: Representatives Rahall, Costa, Sarbanes, Miller, 
Markey, DeFazio, Kind, Pearce, Bishop, Sali, Lamborn, Fallin 
and Scalise.
    The Chairman. The Committee on Natural Resources will come 
to order, please.
    Mr. Secretary, Inspector General Devaney, we thank you for 
taking the time to appear before the Committee today and 
appreciate the work that you have done.
    I want to say in the very beginning, I certainly agree with 
the comment made in your latest report, Mr. Devaney, that 99.9 
percent of all the employees at the Department of the Interior 
are hardworking, professional, and have the interests of the 
American taxpayers at heart.
    Let me state that I am not going to rehash the sordid 
details of the jaw-dropping antics of certain employees of the 
Minerals Management Service that were revealed last week in 
three IG reports.
    Mr. Secretary, I want to commend you. You took forthright 
action, even before the release of these reports, and you have 
called me on this latest report and updated me on the status of 
the actions that you have taken, and I commend you for taking 
those actions.

STATEMENT OF THE HONORABLE NICK J. RAHALL, II, A REPRESENTATIVE 
          IN CONGRESS FROM THE STATE OF WEST VIRGINIA

    The Chairman. What I do want to focus on during this 
hearing are three matters.
    The first is whether the culture of ethical failure that 
the IG found within the Royalty-In-Kind Program is just the tip 
of the iceberg. Are we faced with a burgeoning scandal in terms 
of ethical lapses within the MMS, or were the instances set 
forth in the three IG reports issued last week the total extent 
of it?
    Second, to what extent can we determine how much those 
ethical lapses have cost the American taxpayer? We certainly 
know from both the IG and GAO investigations and hearings that 
have been conducted by this full Committee and our 
Subcommittees that programmatic failures are costing taxpayers 
money.
    Just last week, for instance, GAO reports found that the 
United States receives one of the smallest--one of the 
smallest--shares of oil and gas revenues in the world, that 
Federal oil and gas leases are not being diligently developed 
and that production is only occurring on 12 percent of offshore 
leases and five percent on onshore leases, and we found that 
the Interior Department is unable to provide certainty that 
companies are paying the royalties owed the American people.
    So, I think it is now appropriate to see if we can get some 
inkling as to the extent the draconianism between MMS employees 
and the oil and gas companies have cost the Treasury in terms 
of royalty underpayments, lack of royalty payments and 
shortcomings in the Royalty-In-Kind transactions.
    Finally, third and finally, from what I can tell to date, 
only two MMS employees have been prosecuted: Jimmy Mayberry, 
who pleaded guilty in July to conflict of interest, and Milton 
Dial, who entered a guilty plea just this last Monday for 
rigging bids.
    I am curious as to whether the IG has sought further 
prosecutions from the Justice Department and what the response 
has been. As we all know, these are serious issues, but they 
are more serious now as we face a certain prospect that vast 
areas of Federal waters will become open to oil and gas leasing 
in the very near future.
    These issues are serious within the context of onshore oil 
and gas leasing and leasing within the Gulf of Mexico, but they 
will become more amplified when we expand leasing off the 
Atlantic and Pacific coasts.
    Mr. Devaney, I do thank you. I thank you very much for your 
diligence on these matters. I note the number of hours, the 
amount of time that it has taken for this investigation, the 
frustration that we all felt with it due to lack of cooperation 
from the big oil companies--one in particular, Chevron--but I 
do appreciate your diligence.
    I have also been at this a long time myself, longer than I 
care to mention. I was on this Committee, for example, when we 
crafted the first Federal Onshore Oil and Gas Royalty 
Management Act of 1982 and we thought we had solved it then.
    I was Chairman of what was then the Energy Subcommittee in 
1987 when our previous full Committee Chairman who is with us 
this morning, Mr. George Miller, and I championed the Federal 
Onshore Oil and Gas Reform Act, and I have to say that the only 
issue before the Committee that has been more vexing in my 
tenure here is reforming the Mining Law of 1872.
    So, Mr. Secretary, I just want to state here and now that I 
greatly respect you, and I have complimented the reforms you 
have made. You are a person of courage and conviction, and I am 
aware of your attempts to emphasize ethics and stewardship 
within the Department, stewardship and our responsibility to 
the American taxpayer for the disposition of their resources.
    Certainly the ethical failures that were the subject of the 
IG's reports issued last week took place, as you have told me 
and as we are all aware, between 2002 and 2006, and I would 
note that you were confirmed by the Senate on May 26, 2006.
    I am also aware that you are taking action presumably with 
respect to certain civil service employees named in those 
investigations and, as such, would not be able to delve into 
the details of those actions during this hearing. I recognize 
that there are criminal investigations, for example, ongoing to 
which we cannot refer.
    So, gentlemen, thank you again for appearing before this 
Committee.
    [The prepared statement of Chairman Rahall follows:]

       Statement of The Honorable Nick J. Rahall, II, Chairman, 
                     Committee on Natural Resources

    Mr. Secretary, Inspector General Devaney, thank you for taking the 
time to appear before this Committee today.
    Let me state that I called this hearing, not to rehash the sordid 
details of the jaw-dropping antics of certain employees of the Minerals 
Management Service revealed last week in three IG reports.
    What I will focus on during this hearing are three matters. First 
is, whether the ``culture of ethical failure'' the IG found within the 
Royalty-In-Kind program represents just the tip of the iceberg. Are we 
faced with a burgeoning scandal in terms of ethical lapses within the 
MMS, or were the instances set forth in the three IG reports issued 
last week the extent of it.
    Second, to what extent can we determine how much those ethical 
lapses have cost the American taxpayer. We certainly know from both IG 
and GAO investigations and hearings conducted by this Committee last 
year that programmatic failures are costing taxpayers.
    Just last week, for instance, GAO reports found that the United 
States receives one of the smallest shares of oil and gas revenue in 
the world. That federal oil and gas leases are not being diligently 
developed. Production is only occurring on 12 percent of offshore 
leases and five percent of onshore leases. And that the Interior 
Department is unable to provide certainty that companies are paying the 
royalties owed to the American people.
    So I think it is now appropriate to see if we can get some inkling 
as to the extent that the cronyism between MMS employees and the oil 
and gas companies has cost the Treasury, in terms of royalty 
underpayments, lack of royalty payments, and shortcomings in Royalty-
In-Kind transactions.
    Third, from what I can tell, to date, only two MMS employees have 
been prosecuted: Jimmy Mayberry who pleaded guilty in July to conflict 
of interest and Milton Dial, who entered a guilty plea just this past 
Monday for rigging bids. I am curious as to whether the IG has sought 
further prosecutions from the Justice Department and what the response 
has been.
    These are serious issues, but they are more serious now as we face 
the certain prospect that vast swaths of Federal waters will become 
open to oil and gas leasing in the very near future. These issues are 
serious within the context of onshore oil and gas leasing, and leasing 
within the Gulf of Mexico, but they will become amplified when we 
expand leasing off the Atlantic and Pacific Coasts.
    Mr. Devaney, I want to thank you for your diligence on these 
matters. I have also been at this for a long time, longer than I care 
to mention. I was on this Committee when we crafted the Federal Onshore 
Oil and Gas Royalty Management Act of 1982. We thought we solved it 
then. I was the Chairman of what was then the Energy Subcommittee in 
1987, when George Miller and I championed the Federal Onshore Oil and 
Gas Reform Act. I have to say that the only issue before this Committee 
that has been more vexing is reforming the Mining Law of 1872.
    Mr. Secretary, I just want to state here and now that I greatly 
respect you. You are a person of courage and conviction, and I am aware 
of your attempts to emphasize ethics and stewardship within the 
department. Certainly, the ethical failures that were the subject of 
the IG's reports issued last week took place between 2002 and 2006, and 
I would note that you were confirmed by the Senate on May 26, 2006. I 
am also aware that you are taking action, presumably with respect to 
certain civil servant employees named in those investigations, and as 
such, would not be able to delve into details on those actions during 
this hearing.
    Gentlemen, thank you again for appearing before this Committee and 
I recognize the Ranking Member for any remarks he may care to make.
                                 ______
                                 
    The Chairman. I would now recognize the Ranking Member, the 
gentleman from New Mexico, Mr. Pearce, for any comments he may 
wish to make.

 STATEMENT OF THE HONORABLE STEVAN PEARCE, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW MEXICO

    Mr. Pearce. Thank you, Mr. Chairman. First of all, I would 
like to thank you for holding this hearing.
    Today, we are going to hear from the Secretary of the 
Department of the Interior, Dirk Kempthorne, and the DOI 
Inspector General, Earl Devaney. I would like to personally 
welcome back the Inspector. It is always a pleasure to visit 
with you here before this Committee.
    The subject is the recently completed reports by the 
Inspector focusing on the shameful, disgusting and deceptive 
behavior by a handful of career employees in the Department of 
the Interior. I can say that each of the times that these 
reports have been leaked to the press I have found them equally 
disgusting every single time, and all the reports have been 
about the same behavior by the same people.
    I expect that no one here today will attempt to defend 
these career employees, many who served from the Carter and 
Clinton Administrations. There is no defense for their actions. 
The juicy details of the salacious behavior are more 
appropriate for the pages of People magazine than the 
Congressional Record or the front pages of the Washington Post. 
However, clearly these details draw the media's attention and, 
by their attendance, the attention of my Democrat colleagues.
    Mr. Chairman, in the last 18 months since the Inspector 
first mentioned this investigation, it has cost nearly $5.5 
million. During this lengthy process, many of the worst 
offenders have continued to hold jobs at the Department of the 
Interior while the Secretary was unable to take action against 
them, awaiting the Inspector's report.
    Some of those employees were allowed to go into retirement 
rather than face disciplinary action while we were waiting on 
the report to be issued. I have confidence that we will hear 
from the Secretary his plans to take decisive disciplinary 
action against these individuals now that he has finally gotten 
the reports, and I would like to hear what we are going to do 
about those people who have been allowed to retire before 
action was taken against them.
    Let there be no doubt. The reckless behavior by these 
employees has brought shame and cast a shadow over all 
outstanding and responsible employees of the Department of the 
Interior. Sadly, many may now question the behavior of other 
employees in other parts of the Department. There may be those 
who ask, are the Park Service employees too close to 
concessionaires? Did those Fish and Wildlife Service personnel 
fabricate data or provide inside information to environmental 
lawyers? Are those agency officials lobbying for legislation?
    It is unfortunate that this fog is cast over this historic 
agency. What is more unfortunate, however, Mr. Chairman, is 
that it takes an issue like this for our Committee to hold a 
hearing focusing on the most important issues facing the 
American people--energy.
    At a time when our constituents are struggling to make 
their budgets balance, while they face $4 gasoline, rising food 
costs, increasing taxes, the Committee responsible for 
legislation addressing America's energy production has gone 
nearly half this year without a hearing on energy.
    We have had no hearing on the newest energy proposal that 
went before the House Floor a couple of nights ago. We have had 
two historic highs on energy prices without holding a hearing. 
We had the largest hurricane since 1909 hit right in the heart 
of the Houston energy corridor, and still we had no hearings.
    It is not that there aren't solutions out there. Among the 
many proposals before this Committee, I have introduced 
legislation to bring more than six million acres of new solar 
power to the American people, but the opposition by radical 
environmental groups has prevented this bill from even getting 
a hearing.
    Mr. Peterson and Mr. Abercrombie have introduced bipartisan 
legislation dealing with the OCS. Our Ranking Member has 
legislation that would increase America's domestic supply by 20 
percent from only 2,000 acres. Mr. Lampson, Mr. Green, Mr. 
Bishop and Mr. Cannon all have legislation before this 
Committee which could help address America's energy problems, 
yet we have gone nearly half this year without debate, 
consideration or hearing on energy.
    Instead, on the House Floor we are passing legislation 
telling the American people to spend more time riding bicycles. 
We are giving more stimulation to bicycles in the latest energy 
plan than we did to nuclear power. We should be helping lower 
the price of energy across the board, lowering the price of 
gasoline and the price of electricity for people to heat their 
homes.
    China gets it. China is converting from bicycles to 
nuclear. China is building a new coal powered plant each week. 
Meanwhile, Americans are facing a winter with possibly the 
highest home heating cost ever.
    Americans are worried about our standard of living. They 
are worried about the ability to pay for their kids' college, 
and we are sitting here discussing the intimate behavior of at 
least 12 30-year career analysts and one 30-year career analyst 
from an Interior office in Denver. With all due respect, I 
wonder if our time wouldn't be better spent debating energy 
legislation and finding a bipartisan solution for the American 
people.
    Last year, we had the courage to debate in this Committee. 
Over several weeks we debated our views and proposals for 
energy in America. Each of us got the opportunity to put 
forward proposals to solve the energy crisis facing America. 
This year we are holding one hearing in the last half of this 
year, and the subject of this hearing could be the subject of a 
cable TV mini-series, instead of the real problems that face 
Americans.
    Mr. Chairman, I think I speak for every one of us on this 
side of the aisle when I say it is not too late in this session 
to have the courage to debate energy legislation in this 
Committee. It is not too late to put our proposals on the table 
and find a bipartisan solution to the energy crisis that is 
facing Americans.
    I believe in American exceptionalism. I believe in our 
ability to bring hope to the entire world. I believe in our 
ability to solve this energy crisis. I believe this Committee 
can, and should, help America solve the energy problems that we 
have.
    I would yield back my time, Mr. Chairman. I thank you.
    [The prepared statement of Mr. Pearce follows:]

       Statement of The Honorable Stevan Pearce, Ranking Member, 
              Subcommittee on Energy and Mineral Resources

    Mr. Chairman, I want to thank you for holding this hearing. Today, 
we will hear from the Secretary of the Department of the Interior, Dirk 
Kempthorne, and the DOI Inspector General, Earl Devaney. I would like 
to personally welcome back the Inspector as it is always a pleasure to 
have him here before this Committee.
    The subject is the recently completed reports by the Inspector 
focusing on the shameful, disgusting, and deceptive behavior by a 
handful of career employees in the Department of the Interior.
    I expect that no one here today will attempt to defend these career 
employees, many who have served from the Carter and Clinton 
administrations, for there is no defense for their actions. The juicy 
details of their salacious behavior are more appropriate for the pages 
of People magazine than the Congressional Record or the front page of 
the Washington Post.
    However, clearly these details draw the media's attention and, by 
their attendance, the attention of my Democrat colleagues.
TIME AND DELAY
    Mr. Chairman, in the 18 months since the Inspector first mentioned 
this investigation it has cost nearly $5.5 million. During this lengthy 
process, many of the worst offenders have continued to hold jobs at the 
Department of the Interior while the Secretary was unable to take 
action against them awaiting the Inspectors report. I have confidence 
that we will hear from the Secretary his plans to take decisive 
disciplinary action against these individuals now that he finally has 
these reports.
    Let there be no doubt, the reckless behavior by these employees has 
brought shame and cast a shadow over all the outstanding and 
responsible employees at the Department of the Interior. Sadly, many 
may now question the behavior of other employees in other parts of the 
Department.
    They may ask are these Park Service employees too close to 
concessionaires? Did those Fish and Wildlife Service personnel 
fabricate data or provide inside information to environmental lawyers? 
Are those agency officials lobbying for legislation?
    It is unfortunate that this fog is cast over this historic agency.
HEARINGS
    What is more unfortunate however, Mr. Chairman, is that it takes an 
issue like this for our Committee to hold a hearing focusing on the 
most important issue facing the American people, energy.
    At a time when our constituents are struggling to make their 
budgets balance. While they face $4 gasoline, rising food costs, 
increasing taxes, the Committee responsible for legislation addressing 
America's energy production has gone nearly half this year without a 
hearing on energy.
    It's not that there aren't solutions out there. Among my many 
proposals before this Committee, I have introduced legislation to bring 
more than 6 million acres of new solar power to the American people but 
the opposition by radical environmental groups has prevented that bill 
from even getting a hearing.
    Mr. Peterson and Mr. Abercrombie have introduced bipartisan 
legislation dealing with the OCS.
    Our Ranking Member has legislation that would increase America's 
domestic supply by 20% from only 2000 acres.
    Mr. Lampson, Mr. Green, Mr. Bishop, Mr. Cannon all have legislation 
before this committee which could help address America's energy 
problems, yet we have gone nearly half this year without debate, 
consideration, or hearings on energy.
FLOOR
    Instead on the House floor, we are passing legislation telling the 
American people to spend more time riding bicycles, when we should be 
helping lower the price to fill their tanks.
    China gets it. China is converting from bicycles to nuclear. China 
is building a new coal power plant each week.
    Meanwhile, Americans are facing a winter with possibly the highest 
home heating costs ever.
    Americans are worried about our standard of living. They are 
worried about the ability to pay for their kids' college, and we are 
sitting here discussing the intimate behavior of a 30 year career 
analyst from an Interior office in Denver.
CLOSING
    With all due respect, I wonder if our time wouldn't be better spent 
debating energy legislation and finding a bipartisan solution for the 
American people.
    Last year, we had the courage to debate in this Committee. Over 
several weeks we debated our views and proposals for energy in America. 
Each of us got the opportunity to put forward proposals to solve the 
energy crisis facing America. This year, we will hold one hearing in 
half the year and the subject could be a cable TV miniseries.
    Mr. Chairman, I think I speak for every one of us on this side of 
the isle when I say it's not to late in this session to have the 
courage to debate energy legislation in this Committee. It's not to 
late to put our proposals on the table and find a bipartisan solution 
to the energy crisis facing Americans.
    I believe in American exceptionalism, I believe in our ability to 
bring hope to the entire world, and I believe this Committee can help 
America solve the energy problems we face.
                                 ______
                                 
    The Chairman. I thank the gentleman for his stump campaign 
speech.
    The gentleman from California, Mr. Miller, wish 
recognition?

 STATEMENT OF THE HONORABLE GEORGE MILLER, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Miller. Yes. Thank you, Mr. Chairman. Thank you very 
much for holding these hearings.
    As disgusting and as serious as the behavior of these 
employees is, it is far more important I think to us whether or 
not we can properly determine whether the Royalty-In-Kind 
project is in the best interest of the taxpayer and, in fact, 
whether our whole current royalty system is in the best 
interest of the taxpayers. I think that hopefully this hearing 
will shine some light on those issues.
    At a time when this Administration has run up a $500 
billion deficit, I think we ought to be looking at making sure 
that we are getting a fair shake for the people's resources, 
and in fact, the last part of the gentleman's statement, this 
Committee did take a big step forward when it brought to the 
Floor the other night comprehensive energy legislation to 
develop the resources of this country, all of the resources of 
this country.
    I think that was a very important piece of legislation to 
be under consideration in the Senate, I guess today and 
tomorrow, and hopefully they will take some action on energy 
legislation and we can pass that on to the President.
    But I think we should get on with this hearing. Two 
important matters, one of grave ethical concern and the other a 
fiscal concern that this Committee should continue to monitor.
    Thank you.
    The Chairman. I thank the gentleman from California.
    The gentlelady from Oklahoma wish to be recognized? I am 
not sure who was here first. I am sorry.
    Ms. Fallin. Thank you, Mr. Chairman.
    The Chairman. OK.
    Ms. Fallin. Actually, he was here before I was. Mr. Lamborn 
was. Congressman Lamborn. I will have questions later on.
    The Chairman. Anybody desire recognition on the minority 
side?
    Ms. Fallin. I would like to wait and ask questions after I 
hear the testimony.
    The Chairman. Sure. The gentleman from California, Mr. 
Costa, Chairman of our Subcommittee on Energy and Mineral 
Resources?

   STATEMENT OF THE HONORABLE JIM COSTA, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Costa. Thank you very much, Mr. Chairman. Last year, 
the Subcommittee on Energy and Minerals held a series of 
hearings, as it related to the challenges that we face with the 
Minerals Management Service--and the questions of whether or 
not the Royalty-In-Kind Program was being applied in the best 
interest of American taxpayers--not only as it relates to 
ensuring that those revenues are received but, in turn, that we 
have an energy policy that reflects our current needs.
    Last year, it was clear that there were many problems that 
existed within the Minerals Management Service. The Inspector 
General indicated that these investigations were taking place 
at the time, that conclusions had yet to be reached, and still 
today I think many of us have questions as to where we make the 
changes, how we deal with the issues of 1998 and 1999 when the 
program first began and how we move forward as a part of a 
comprehensive energy policy that we are attempting to bring 
together on a bipartisan basis here in Congress as we speak.
    Today, I am looking forward to seeing the Inspector 
General's report from the discussions that subcommittee held 
last year as to not only the depth of the clearly inappropriate 
activities that were taking place, how widespread they were, 
what the costs were to the American taxpayers, but, more 
importantly, I am also seeking from the Inspector General and 
from the Secretary of the Interior what reforms you advise us 
in terms of where we go from here.
    The Chairman mentioned in his opening statement that when 
he chaired the Subcommittee back in the 1980s and in the early 
1990s, the different reforms that had taken place. Clearly, 
some of them worked better than others in light of what we are 
dealing with today.
    So, I am interested in not only trying to understand the 
dimensions of the size of the inappropriate behavior and the 
loss of revenue to U.S. tax dollars that took place as a result 
of the criminal action--at least in two cases because of the 
prosecutions that took place we know that criminal action has 
taken place--and to determine, most importantly, what changes 
are being made within the Department, Mr. Secretary, to ensure 
that it doesn't happen again.
    Of course, the separate issue is where do we go from here 
as it relates to the Royalty-In-Kind Program? America needs a 
comprehensive energy program. We are attempting to try to put 
one together.
    The Royalty-In-Kind Program, especially with the 
determination for the expansion of oil and natural gas on 
Federal lands, whether they be on OCS properties or whether 
they be on the Outer Continental Shelf or whether they be on 
land here within the continental United States or in Alaska, is 
going to happen, in my view, and therefore we need to determine 
whether or not the Royalty-In-Kind Program should be reformed 
or whether it should be dismissed altogether and how we move 
on.
    So, I am looking forward to the testimony in both cases as 
it relates to the current issue at hand with regard to the 
Minerals Management Service, but also the application as we try 
to cobble together a comprehensive bipartisan energy package 
that will reflect America's long-term energy needs.
    Thank you very much, Mr. Chairman.
    The Chairman. I need to apologize to Members on my side of 
the aisle. Mr. Devaney does have to leave at noon. Unless there 
is a pressing, urgent, burning desire to make an opening 
statement, I would like to move on with the witnesses.
    [No response.]
    The Chairman. Thank you. I appreciate that.
    OK. Mr. Secretary, again, welcome to the Committee. We 
appreciate your time and patience, and you may proceed as you 
desire.

  STATEMENT OF THE HONORABLE DIRK KEMPTHORNE, SECRETARY, U.S. 
                   DEPARTMENT OF THE INTERIOR

    Secretary Kempthorne. Mr. Chairman and Members of the 
Committee, let me begin by saying that I deeply regret the 
reason for this hearing. I find the conduct of a small group of 
long-term career employees, described in the reports issued by 
the Inspector General's Office, inexcusable.
    I am outraged that the public's trust has been abused. I am 
outraged that the ethics laws have been violated. I am dismayed 
that these activities could negatively reflect on the vast 
numbers of outstanding public servants that work in both MMS 
and in the Department of the Interior.
    I know that Assistant Secretary Steve Allred and MMS 
Director Randall Luthi, both of whom are here with me today to 
respond to any technical questions, share these feelings.
    When I accepted the President's nomination to be the 
Secretary of the Interior, I made clear, during both my 
confirmation hearing in May of 2006 and my first days at 
Interior, that I expect the employees at the Department to 
conduct themselves in accordance with the highest standards of 
ethical behavior. You can, therefore, appreciate my disgust 
when I read the three reports released by the Department's 
Inspector General, Earl Devaney.
    The first focused on three employees in the Minerals 
Revenue Management Division of MMS who were found to have 
circumvented the laws regarding conflicts of interest, post-
employment restrictions and Federal acquisition requirements. 
All three of these 20-year employees have left government 
service. Two have pled guilty to charges brought by the 
Department of Justice as a result of the investigations and 
await sentencing.
    The second report focused on the inappropriate and 
inexcusable behavior of one employee, the head of the MMS' 
Royalty-In-Kind Program. The details of this report are 
profoundly disturbing. This employee left government service 
prior to completion of the Inspector General's investigation.
    The third report focuses on the improprieties of some 
employees in the RIK Program between January of 2002 and July 
of 2006. Within hours of being informed by the Inspector 
General of specific names and his preliminary findings in 
December of 2006, the decision was made to transfer a number of 
these employees out of the RIK Program.
    In the memo conveying the reports, the Inspector General 
affirmed my frustration with the length of time that it has 
taken to receive these investigative reports. I have regular 
meetings with the Inspector General. I appreciate his interest 
in good government. We share that.
    At these meetings over the past two years we have discussed 
the necessity of awaiting completion of these reports before 
taking any disciplinary action. The Inspector General has 
assured me that he believes the behavior described in these 
reports no longer exists in these programs.
    When I received the report, I took action. Within hours of 
receiving the Inspector General's final reports, Assistant 
Secretary Allred and Director Luthi initiated procedures to 
determine appropriate disciplinary action.
    We will follow the letter of the law. All employees are 
long-term career employees and must be afforded due process. I 
can assure the Committee that this process will be completed as 
swiftly as possible, and we will examine the full spectrum of 
disciplinary actions, including termination.
    Though these particular problems occurred in the past, I 
have also decided that the Department should expand its Ethics 
Office by placing an attorney-advisor in Denver, Colorado. This 
attorney-advisor will provide oversight and technical 
assistance to the ethics counselors of the Department's bureaus 
to ensure that each of the bureaus' ethics programs is in 
compliance with all applicable ethics laws, executive orders 
and regulations. Given the extensive Departmental presence in 
the Denver area and the Rocky Mountain Region, this individual 
will provide invaluable ethics support and program oversight.
    The Inspector General recommended four actions. We are 
undertaking all four actions. We have initiated appropriate 
administrative corrective actions. We have enhanced our ethics 
program and oversight capacity in Denver, where the RIK Program 
operates. We are crafting a code of conduct. We have 
implemented organizational changes.
    The Inspector General pointed out that the reporting 
hierarchy of the RIK Program bypassed the Deputy Associate 
Director in Denver, where the program is located. Instead, the 
RIK Program management reported directly to the Associate 
Director for MRM in Washington, D.C., 1,500 miles away. MMS 
Director Luthi has changed this reporting structure.
    I am committed to an ethical culture at the Department. I 
hope that the Inspector General would agree that we have 
undertaken efforts to promote a culture of conscience 
throughout the Department. In fact, at my first all-employee 
meeting on the second day of my tenure, I emphasized ethics 
compliance.
    I appointed a new designated agency ethics official, 
Melinda Loftin, who has decades of experience in government 
ethics. I also expanded the Department's trained ethics staff 
and initiated implementation of a set of best practices 
compiled by the Office of Government Ethics at my request.
    In 2007, I was invited by Inspector General Devaney to 
address all the Inspectors General at their annual meeting. I 
was also invited by Ric Cusick, Director of the Office of 
Government Ethics, to address 600 Federal ethics officers at 
their annual meeting that same year.
    Through these actions, we are affirming a culture of 
conscience. We developed a DVD where I discuss ethics standards 
at the workplace for the employees. We have published an ethics 
guide for new employees. Just last week, the Office of 
Government Ethics recognized this new guide by awarding the 
Department an Education and Communication Award.
    In March of 2007, I appointed a new independent 
subcommittee to the Royalty Policy Committee, the Subcommittee 
on Royalty Management, charging it to conduct a full and candid 
assessment of the Department's Mineral Revenue Management 
system.
    This seven-member panel was co-chaired by former United 
States Senators Bob Kerrey and Jake Garn, and some very 
talented and knowledgeable people worked with this Committee. I 
asked Senators Garn and Kerrey to look at everything. They were 
given a free hand to scrutinize all key processes from 
production accountability and royalty collections to audits, 
compliance and enforcement. All issues were on the table for 
consideration.
    In January 2008, Senators Kerrey and Garn gave me their 
report, which states that, ``The Subcommittee members 
unanimously agree that the MMS is the Federal agency best 
suited to fulfill the stewardship responsibilities for Federal 
and Indian leases.'' The report also identified a number of 
needed improvements to the program. We have begun 
implementation of many recommendations provided by the 
Subcommittee.
    Though my entire leadership team and I are offended by the 
misconduct of these employees, the issue arises whether their 
actions should call into question the merits of the entire RIK 
Program. Several studies of the RIK Program indicate it is a 
valuable tool that can result in increased revenue, reduced 
administrative costs for MMS, reduced incidence of valuation 
disagreements and earlier receipt of royalty revenues.
    Finally, Mr. Chairman, let me say something about the good 
that MMS employees are doing. With back-to-back hurricanes this 
season, members of an expanded MMS Hurricane Response Team have 
worked nonstop since late August. Some of these individuals 
have lost or received major damage to their homes. Many left 
their families and homes in New Orleans, reporting to work in 
Houston in order to assist in restoring oil and gas production.
    I cannot help but feel a great sense of irony these past 
days as we have been dealing with the preparation for and the 
impacts of the hurricanes in the Gulf of Mexico. One hour I am 
discussing huge storms, acts of nature passing through the Gulf 
and the heroic efforts by MMS, including meeting environmental 
and safety standards to deal with these storms. The next hour I 
am discussing an ethics storm, the result of ethics failures by 
a handful of employees.
    Both of these storms demand our attention. One shows the 
immense good that agency staff provide. One does not. I know, 
as I am sure you do, Mr. Chairman, that the actions of those 
discussed in these reports are not indicative of the quality of 
employees within the MMS or the Department of the Interior as a 
whole, and I appreciated your comments that you made at the 
opening.
    The vast majority of MMS employees are at their duty 
stations doing excellent work every working hour of every day, 
and they deserve our commendation. I am committed to ensuring 
that the Department's employees carry out their activities with 
the utmost of integrity.
    You quoted, Mr. Chairman, and I would quote also, the IG, 
who said, ``99.9 percent of DOI employees are hardworking, 
ethical and well-intentioned.'' I share that view and trust 
that the actions of these few do not serve to tarnish the hard 
work by the vast majority of our employees and the ethical and 
diligent way in which they carry out their work.
    The abuse of the public trust in this instance is tragic. I 
assure you that we are taking swift and appropriate actions to 
restore this important trust.
    Again, Director Luthi and Assistant Secretary Allred are 
here with me to respond to questions as well. Thank you, Mr. 
Chairman.
    [The prepared statement of Secretary Kempthorne follows:]

        Statement of The Honorable Dirk Kempthorne, Secretary, 
                    U.S. Department of the Interior

    Mr. Chairman and Members of the Committee, let me begin by saying 
that I deeply regret the reason for this hearing. I find the conduct of 
the small group of long-term career employees described in the reports 
issued by the Inspector General's Office inexcusable. I am outraged 
that the public's trust, an important and necessary part of public 
service, has been abused. I am outraged that the ethics laws and 
regulations applicable to Department of the Interior personnel have 
been violated. I am dismayed that these activities could negatively 
reflect on the vast numbers of outstanding public servants that work in 
both the MMS and the Department. I know that Assistant Secretary Steve 
Allred and MMS Director Randall Luthi, both of whom are here with me 
today, share these feelings.
Background
    When I accepted the President's nomination to be the Secretary of 
the Interior, I made clear during both my confirmation hearing in May 
2006 and my first days at Interior that I expect the employees at the 
Department to conduct themselves in accordance with the highest 
standards of ethical behavior. You can, therefore, appreciate my 
disgust when I read the three reports released by the Department's 
Inspector General, Earl Devaney.
    The first focused on three employees in the Minerals Revenue 
Management (MRM) Division of MMS who were found to have circumvented 
the laws regarding conflicts of interest, post-employment restrictions, 
and Federal acquisition requirements. All three of these 20-year 
employees have left government service; two have pled guilty to charges 
brought by the Department of Justice as a result of this investigation 
and await sentencing.
    The second report focused on the inappropriate and inexcusable 
behavior of one employee, the head of the MMS's Royalty-in-Kind (RIK) 
Program. The details of this report are profoundly disturbing. This 
employee left government service prior to completion of the Inspector 
General's investigation.
    The third report focuses on the improprieties of some employees in 
the RIK Program between January 2002 and July 2006. Within hours of 
being informed by the Inspector General of specific names and his 
preliminary findings in December 2006, the decision was made to 
transfer a number of these employees out of the RIK Program.
Immediate and Long-Term Actions
    In the memo conveying the reports, the Inspector General affirmed 
my frustration with the length of time it has taken to receive these 
investigative reports. I have regular meetings with the Inspector 
General. At these meetings over the last 2 years we have discussed the 
necessity of awaiting completion of these reports before taking any 
disciplinary actions.
    The Inspector General has assured me that he believes the behavior 
described in these reports no longer exists in these programs.
    When I received the reports, I took immediate action. Within hours 
of receiving the Inspector General's final reports, Assistant Secretary 
Allred and Director Luthi initiated procedures to determine appropriate 
disciplinary action.
    We will follow the letter of the law. All employees are long-term 
career employees and must be afforded due process. I can assure the 
Committee that this process will be completed as swiftly as possible, 
and we will examine the full spectrum of disciplinary actions, 
including termination.
    I have an outstanding leadership team, including those responsible 
for Land and Minerals Management. Steve Allred, the Assistant 
Secretary, was confirmed on September 30, 2006. Randall Luthi, the MMS 
Director, was appointed on July 23, 2007. On January 20, 2008, a new 
RIK program manager was appointed. In June 2008, Director Luthi chose a 
new Associate Director for the Minerals Revenue Management Program, 
under which the Royalty in Kind program is located. This individual 
came from outside the Minerals Revenue Management program.
    Though these particular problems occurred in the past, I have also 
decided that the Department should expand its Ethics Office by placing 
an Attorney-Adviser in Denver, Colorado. This Attorney-Adviser will 
provide oversight and technical assistance to the Ethics Counselors of 
the Department's bureaus to ensure that each of the bureaus' ethics 
programs is in compliance with all applicable ethics laws, executive 
orders, and regulations. Given the extensive Departmental presence in 
the Denver area and the Rocky Mountain Region, this individual will 
provide invaluable ethics support and program oversight.
    The Inspector General recommended four actions. We are undertaking 
all four actions. We have initiated appropriate administrative 
corrective actions. We have enhanced our ethics program and oversight 
capacity in Denver where the RIK Program operates. We are crafting a 
code of conduct. We have implemented organizational changes.
    The Inspector General pointed out that the reporting hierarchy of 
the RIK Program bypassed the Deputy Associate Director in Denver where 
the program is located. Instead, the RIK Program management reported 
directly to the Associate Director for MRM in Washington, D.C., 1500 
miles away. MMS Director Luthi has changed this reporting structure.
Affirming a Culture of Conscience
    I am committed to an ethical culture at the Department. I hope that 
the Inspector General would agree that we have undertaken efforts to 
promote a culture of conscience throughout the Department. In fact, at 
my first all-employee meeting on the second day of my tenure, I 
emphasized ethics compliance. I appointed a new Designated Agency 
Ethics Official, Melinda Loftin, who has decades of experience in 
government ethics. I also expanded the Department's trained ethics 
staff and initiated implementation of a set of best practices, compiled 
by the Office of Government Ethics at my request.
    In 2007 I was invited by Inspector General Devaney to address all 
of the Inspectors General at their annual meeting. I was also invited 
by Ric Cusick, Director of the Office of Government Ethics, to address 
600 Federal Ethics Officers at their annual meeting that same year.
    Through these actions, we are affirming a culture of conscience. We 
developed a DVD where I discuss ethics standards at the workplace. We 
have published an ethics guide for new employees. Just last week, the 
Office of Government Ethics recognized this new guide by awarding the 
Department a 2008 Education and Communication Award. The award 
recognized that the Department demonstrated ``a strong commitment to 
ethics education and communication; created a stronger ethical culture 
as a result of these efforts; and utilized model practices to encourage 
understanding and awareness of ethical behaviors.''
    The Department's Deputy Secretary, Lynn Scarlett, working with a 
team of Interior employees, developed our core values statement, 
``Stewardship for America with Integrity and Excellence,'' which we 
place on name badges, published materials, and our website. Because we 
are all only human, our efforts can't guarantee that everyone is immune 
from activities like those under discussion. But we have set a standard 
of excellence. My entire leadership team embraces this standard. I will 
tell you that the vast majority of the Department's workers are 
excellent employees.
    In March 2007, I appointed a new, independent subcommittee of the 
Royalty Policy Committee, the Subcommittee on Royalty Management, 
charging it to conduct a full and candid assessment of the Department's 
mineral revenue management system. This seven-member panel was co-
chaired by former U.S. Senators Bob Kerrey and Jake Garn, and some very 
talented and knowledgeable people worked with them. I asked Senators 
Garn and Kerrey to look at everything. They were given a free hand to 
scrutinize all key processes, from production accountability and 
royalty collections to audits, compliance and enforcement. All issues 
were on the table for consideration.
    In January 2008, Senators Kerrey and Garn gave me their report, 
which states that ``[t]he Subcommittee members unanimously agree that 
MMS is the Federal agency best suited to fulfill the stewardship 
responsibilities for Federal and Indian leases. This includes the RIK 
Program, which has grown under MMS's management from a small pilot to a 
major component of the royalty management program.'' The report also 
identified a number of needed improvements to the program. We have 
begun implementation of many recommendations provided by the 
Subcommittee.
Program and Personnel Value
    Though my entire leadership team and I are offended by the 
misconduct of these employees, the issue arises whether their actions 
should call into question the merits of the entire RIK Program. Several 
studies of the RIK Program indicate it is a valuable tool that can 
result in increased revenue, reduced administrative costs for MMS, 
reduced incidence of valuation disagreements, and earlier receipt of 
royalty revenues.
    Moreover, MMS overall has consistently received a clean audit 
opinion from the Inspector General's contracted independent auditing 
firm as part of its Chief Financial Officers audit. In 2005, an 
independent CPA firm issued MRM a clean opinion regarding MRM audit 
functions, with no material weaknesses and no reportable conditions. In 
fact, just two weeks ago, we were informed that MMS will once again 
receive a clean audit opinion for audits from 2005 through May 31, 
2008. Assistant Secretary Allred and Director Luthi can provide further 
facts and answer any questions that you may have on the various audits 
and reviews that MMS has completed.
    Finally, Mr. Chairman, let me say something about the good that MMS 
employees are doing. With back-to-back hurricanes this season, members 
of an expanded MMS Hurricane Response Team have worked non-stop since 
late August. Some of these individuals have lost or received major 
damage to their homes; many left their families and homes in New 
Orleans, reporting to work in Houston in order to assist in restoring 
oil and gas production.
    I cannot help but feel a great sense of irony these past few days 
as we have been dealing with the preparation for and impacts of the 
hurricanes in the Gulf of Mexico. One hour I am discussing huge storms, 
acts of nature, passing through the Gulf and the heroic efforts by MMS, 
including meeting environmental and safety standards, to deal with 
these storms. The next hour, I'm discussing an ethics storm, the result 
of ethics failures by a handful of employees. Both of these storms 
demand our attention. One shows the good that agency staff can do; one 
does not. I know, as I am sure you do, Mr. Chairman, that the actions 
of those discussed in these reports are not indicative of the quality 
of employees within the MMS or the Department of the Interior as a 
whole. The vast majority of MMS employees are at their duty stations 
doing excellent work every working hour of every day. They deserve our 
commendation.
Conclusion
    I am committed to ensuring that the Department's employees carry 
out their activities with the utmost integrity. As the Inspector 
General states in his reports, ``99.9 percent of DOI employees are 
hard-working, ethical and well-intentioned.'' I share that view and 
trust that the actions of these few do not serve to tarnish the hard 
work by the vast majority of our employees and the ethical and diligent 
way in which they carry out their work. The abuse of the public trust 
in this instance is tragic. I assure you that we are taking swift and 
appropriate actions to restore this important trust.
    Mr. Chairman, this concludes my statement.
                                 ______
                                 
    The Chairman. Thank you, Mr. Secretary.
    Before I recognize Mr. Devaney, one of those individuals of 
the 99.9 percent is with us today. She was singled out in the 
IG's report, head of the Denver RIK Program.
    She was singled out as having good behavior, the highest 
ethical conduct, so much so that it made those working under 
her go around her and report 1,500 miles away to Washington 
rather than directly to her, and that is Debbie Gibbs Tschudy.
    I understand she is with us today. Would you mind standing 
up so we can thank you for your well-intentioned and good 
behavior? Is Ms. Tschudy with us? I understood she was. There 
she is. Thank you.
    [Applause.]
    The Chairman. Mr. Devaney?

STATEMENT OF THE HONORABLE EARL E. DEVANEY, INSPECTOR GENERAL, 
                U.S. DEPARTMENT OF THE INTERIOR

    Mr. Devaney. Mr. Chairman and Members of the Committee, I 
want to thank you for the opportunity to testify today about 
recent Office of Inspector General reports that address a 
number of issues concerning the Minerals Management Service.
    I will keep my remarks brief today, as I believe that the 
body of our work over the last several years speaks for itself. 
From a programmatic standpoint, our earlier four reports, 
including the investigation of price thresholds, the 
investigation of false claims allegations, the audits of the 
compliance review process and the evaluation of the RIK sales 
process, were the most substantive in content.
    As you know, our most recent three investigation reports 
issued last week focused on egregious conduct by MMS employees. 
It is important to note that we believe the single most serious 
problem portrayed in these last three reports is a pervasive 
culture of exclusivity, exempt from the rules that govern all 
employees of the Federal government. Simply stated, the MMS 
employees named in these reports had a callous disregard for 
the ethical rules by which the rest of us are required to play.
    Although it was not an inconsiderable number of individuals 
who accepted gifts and engaged in improper conduct, I believe 
it is important to emphasize that the majority of employees in 
the Royalty-In-Kind Program were not part of such conduct, and 
perhaps were not even aware of it.
    While the individuals involved in the improper contracting 
extended beyond RIK, this does not implicate the whole of MMS. 
I reiterate my belief that 99.9 percent of DOI employees are 
ethical, hardworking and well-intentioned. Unfortunately, the 
conduct of a few does cast a pall over the whole, at least for 
a time.
    I am also at a loss to explain the behavior of the oil and 
gas representatives involved in these matters. It is 
disingenuous for employees of such major organizations, each 
with highly touted ethics programs, to pretend that they 
thought it was permissible to provide Federal government 
employees with gifts in excess of well known limits.
    As you know, all seven of these OIG reports have made 
headlines, some more sensational than others. That, however, 
was never our goal. Rather, our goal has always been and is 
today to effect positive change.
    To this end, I must credit Secretary Kempthorne, Assistant 
Secretary Allred and MMS Director Luthi for their receptiveness 
and responsiveness to the findings and recommendations 
contained in all of our reports, particularly for taking swift 
action in response to misconduct exposed in these most recent 
reports.
    Implementing controls and competencies, however, is far 
easier than imparting character. I am hopeful that our 
recommendations to the Secretary will help in this regard. 
First, there is a need to develop an enhanced ethics program 
designed specifically for the RIK Program, to include an 
explicit prohibition against the acceptance of any gifts or 
gratuities from industry, regardless of value.
    Second, MMS must develop a clear, strict code of conduct 
for the RIK Program, and, finally, a change to the reporting 
structure of RIK should be made to help avoid misconduct going 
undetected by long-distance management.
    I believe that the environment of MMS today is decidedly 
differently than that described in our most recent reports. 
While there is undoubtedly more that needs to be addressed, 
programmatic improvements must be matched with controls and 
strong oversight to ensure that this bureau, which is so 
lucrative to the United States Treasury and the American 
public, does not again veer widely off track.
    I suspect that it is now clear to this Committee, as well 
as to anyone else who has taken the time to read our reports, 
why I had identified the greater need for OIG monitoring over 
MMS in general and in their royalty programs in particular.
    When I testified before this Committee in March, I 
described the beginnings of what is now called our Royalties 
Initiative Group, a modest audit and investigative unit located 
in Denver dedicated to royalties-related oversight and 
improvements.
    This group is currently responding to a congressional 
request to review the status of nonproducing DOI leases. They 
will soon be conducting an audit of MMS' processes for 
verifying volumes delivered as RIK, including oil destined for 
the Strategic Petroleum Reserve. Ultimately we would also like 
to expand our oversight coverage beyond MMS to the energy and 
minerals programs at the Bureau of Land Management and Indian 
Affairs.
    Mr. Chairman, I have deliberately kept my prepared remarks 
short today so that I can better answer all the questions that 
you or other Members undoubtedly have in this matter. Thank 
you.
    [The prepared statement of Mr. Devaney follows:]

           Statement of Earl E. Devaney, Inspector General, 
                    U.S. Department of the Interior

    Mr. Chairman and members of the Committee, I want to thank you for 
the opportunity to testify today about recent Office of Inspector 
General (OIG) reports that address a number of issues concerning the 
Minerals Management Service (MMS) at the Department of the Interior 
(Department or DOI).
    I will keep my remarks brief today, as I believe that the body of 
our work over the last several years speaks for itself. From a 
programmatic standpoint, our earlier four reports--Investigative Report 
on the Lack of Price Thresholds in Oil and Gas Leases in the Gulf of 
Mexico, Audit Report on Minerals Management Service Compliance Review 
Process, Investigative Report on Minerals Management False Claims 
Allegations, and Evaluation Report of Minerals Management Service 
Royalty-in-Kind Oil Sales Process--were the most substantive in 
content. Our most recent three reports issued last week, of course, 
focused on egregious conduct by MMS employees.
    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. 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. Although it was not an inconsiderable 
number of individuals who accepted gifts and engaged in improper 
conduct, I believe it important to emphasize that the majority of 
employees in the Royalty in Kind Program were not part of such conduct, 
and perhaps, were not even aware of it. While the individuals involved 
in the improper contracting extended beyond RIK, this does not 
implicate the whole of MMS. I reiterate my belief that 99.9% of DOI 
employees are ethical, hard-working and well-intentioned. 
Unfortunately, the conduct of a few does cast a pall over the whole, at 
least for a time.
    I am also at a loss to explain the behavior of the oil and gas 
representatives involved in these matters. It is disingenuous for 
employees of such major organizations, each with highly touted ethics 
programs, to pretend that they thought it was permissible to provide 
Federal Government employees with gifts in excess of well known limits.
    As you know, all seven of these OIG reports have made headlines, 
some more sensational than others. That, however, was never our goal. 
Rather, our goal has always been, and is today, to effect positive 
change. To this end, I must credit Secretary Kempthorne, Assistant 
Secretary Steve Allred and MMS Director Randall Luthi for their 
receptiveness and responsiveness to the findings and recommendations 
contained in all of our reports and particularly for taking swift 
action in response to the misconduct exposed in these most recent 
reports. Implementing controls and competencies, however, is far easier 
than imparting character. I am hopeful that our recommendations to the 
Secretary will help in this regard--that MMS 1) develop an enhanced 
ethics program designed specifically for the RIK program, to include an 
explicit prohibition against acceptance of any gifts or gratuities from 
industry, regardless of value; 2) develop a clear, strict Code of 
Conduct for the RIK program; and 3) consider a change to the reporting 
structure of RIK, an anomaly that contributed, in part, to misconduct 
going undetected by long-distance management.
    I believe that the environment of MMS today is decidedly different 
than that described in our reports. While there is undoubtedly more 
that needs to be addressed, programmatic improvements must be matched 
with controls and strong oversight to ensure that this bureau, which is 
so lucrative to the United States Treasury and the American Public, 
does not again veer wildly off track.
    I suspect that it is now clear to this Committee, as well as to 
anyone else who has taken the time to read our reports, why I had 
identified the need for greater OIG monitoring over MMS, in general, 
and their royalty programs in particular. When I testified before this 
Committee in March of this year, I described the beginnings of what is 
now called our Royalty Initiatives Group, (aptly known as RIG) a modest 
unit, located in Denver, dedicated to royalties-related oversight and 
improvements. This group is currently responding to a congressional 
request to review the status of non-producing DOI leases. They will 
soon be conducting an audit of MMS' processes for verifying volumes 
delivered as RIK, including oil destined for the Strategic Petroleum 
Reserve. Ultimately, we would also like to expand our oversight 
coverage beyond MMS to the energy and minerals programs at the Bureau 
of Land Management and Indian Affairs. In another forum, I will 
undoubtedly be seeking your support for more funding in order to do 
everything I have laid out here, and more.
    Mr. Chairman, I have deliberately kept my prepared remarks short 
today so that I can better answer all of the questions that you or 
other members undoubtedly have.

                                 * * *

    NOTE: A copy of ``OIG Investigations of MMS Employees'' has been 
retained in the Committee's official files. In addition, these reports 
can be viewed at the following websites:

http://www.doioig.gov/upload/Smith%20REDACTED%20FINAL_080708%20
        Final%20with%20transmittal%209_10%20date.pdf
http://www.doioig.gov/upload/RIK%20REDACTED%20FINAL4_082008%20
        with%20transmittal%209_10%20date.pdf
http://www.doioig.gov/upload/FBS%20REDACTED%20with%20Transmittal%209_
        10%20date.pdf
                                 ______
                                 
    The Chairman. Thank you, Mr. Devaney and Mr. Secretary.
    Let me begin the questioning with the issues I raised in my 
opening remarks. I would ask you first, Mr. Devaney, in regard 
to the effect that these lapses have had, can you assure this 
Committee that such lapses involving the Federal oil and gas 
leasing and royalty management issues within the Interior 
Department, can you assure us that there is reason to believe 
that this culture of ethical failure--is there a reason to 
believe that it persists throughout the administration of the 
leasing and royalty programs?
    I know the assurances that you have said in your testimony 
just now, but it would seem with such a gross behavior 
occurring that we must be sure somehow that there are not 
others still there that have not been yet identified that 
perhaps feel they can still get away with such ethical 
behavior.
    Let me refer specifically, for example, to a report in the 
Salt Lake Tribune last week that indicated an investigation is 
underway regarding royalty collections on BLM and tribal lands. 
Could this extend even beyond the oil and gas leasing program?
    Mr. Devaney. Mr. Chairman, as you noted earlier, these 
things that we looked at in these three reports occurred 
sometime between 2002 and 2006.
    As soon as I understood what we were dealing with, with 
regard to the focus of this investigation, I did speak to 
Assistant Secretary Allred and Secretary Kempthorne, and they 
immediately removed the four people we knew about at the time--
I mean, it was within the same day, so it couldn't have been 
quicker--to satisfy ourselves that those people weren't in 
place continuing to do what they were doing.
    Since that time, we have observed--and this is both on an 
audit and investigative side--we have observed a marked change 
in the Royalty-In-Kind Program. Several long-term career 
professional people have been put in charge of that program 
now. We are working well with those people. We are interacting 
daily out in Denver with those folks. I know they have put 
policies and procedures in place that never existed before.
    I would hope that this is a loud wake-up call for anyone 
who would even think about doing something like this again. I 
suspect that it will be a long time before the oil and gas 
company representatives begin to give gifts again to any of our 
employees. I would hope that those oil and gas companies look 
to themselves and also do the requisite ethics training that 
they obviously need.
    So, I guess the answer to the first part of your question 
is I will never say never, but I think the program is on a 
steady course right now. It is being led by professional people 
who have ethics at the very top of their list.
    With respect to the second, without talking about a 
specific case, we all the time look at allegations about 
underpayments of royalties. There are a lot of reasons for that 
happening. Clearly, when that happens, we look to see if it was 
deliberate, and if it is we take that to a U.S. Attorney's 
Office. If it isn't deliberate--it was a mistake, for 
instance--usually it goes to the civil side for some sort of 
attempt to collect the monies.
    So, we are always looking at allegations that royalties 
have been unreported, and we do that all the time, but that is 
a behavior that we observe outside of Interior as opposed to 
inside.
    The Chairman. So, you can assure us this is it? It is not 
just the tip of the iceberg, but this is it?
    Mr. Devaney. This concludes my current investigations of 
Minerals Management.
    The Chairman. Let me ask you a second issue that I have 
already brought up.
    Is there any way to measure the potential loss, or I should 
say probable loss, to the taxpayers as a result of the serious 
ethical lapses within the RIK Program that were the subject of 
your recent investigations?
    Now, I realize it is probably impossible to put a precise 
price tag on the probable loss to the American taxpayers, but 
would you say the losses are probable, and would you say they 
are significant?
    Mr. Devaney. Well, it was, in fact, very difficult to even 
get near a figure when we looked at this matter, principally 
because within the program the contract files that we got our 
hands on were in terrible shape.
    They were unauditable by the forensic auditors working with 
our investigators, so we were unable to show that any 
particular personal relationships resulted in particular 
benefits to any of the oil and gas representatives.
    If we had, we might be sitting here talking about more 
criminal prosecutions because that is the kind of evidence that 
would have led to that, but we couldn't simply because there 
were no rules. There was no policy. There was no guidance 
during that period of time.
    Now, that has all changed, but when we were looking at 
those contract files they were in horrible shape and we 
couldn't tell about losses. I would say that there probably 
were some losses, but we have no idea what that figure would 
be.
    The Chairman. And MMS can't give us any idea either. We 
found that through previous hearings of this Committee and 
investigations that we have asked for. They cannot say ``yes'' 
or ``no''----
    Mr. Devaney. Right.
    The Chairman.--with regard to probable losses to the 
American taxpayer and lapses in their fiduciary 
responsibilities.
    Mr. Devaney. All I can say is if we were to, and I don't 
think this will happen, but if we were to go back, in similar 
circumstances today, I think we would find the records that 
would allow us to tell you that answer.
    The Chairman. OK. My time has expired. There will be a 
second round of questions I am sure.
    Mr. Pearce?
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Devaney, if we are going to continue the line of 
questioning about the loss to the Federal government, I would 
guess we are saying that maybe the loss could be less than $1 
billion, so that gives us a benchmark.
    I wonder--you spent two years looking at this entire 
investigation. In a previous hearing I asked if you would go 
back and ask Secretary Babbitt about those 1998-1999 leases 
that we were discussing. Those are $20 billion to $60 billion 
according to different estimates. Did you ever ask him was it a 
mistake or was it directed?
    You remember we presented that letter to you that you left 
out of your report that declared that the Clinton 
Administration--it was not an oversight, that this was a 
dedicated piece, and so as we are discussing losses of revenue 
to the government my question is did you go back and ask 
Secretary Babbitt was this really a mistake, or was it 
intentional?
    He is the one who could unravel the whole thing. We have 
different viewpoints. Did you ask that question?
    Mr. Devaney. No, I don't believe we did ask that question 
of Secretary Babbitt.
    Mr. Pearce. You know, I had requested before that you would 
do that. So, we spent two years looking at something that is 
definitely under $1 billion--I would guess it is way under $1 
billion--and we have a $60 billion question according to some 
out on the table saying that it was a mistake, and we have then 
the letter from the Clinton Administration employee who said 
no, that it was a mistake. We didn't think the price of oil 
would ever get high enough.
    It is distressing that you would not ask significant 
questions about things that you have written reports about that 
this Committee has asked you to ask those questions about. It 
is distressing that we still now a couple years later have not 
asked that single question.
    Second, Mr. Kempthorne, is it within your agency rules to 
allow leaks of reports, these leaks of confidential reports? Is 
it within your rules to allow that?
    Secretary Kempthorne. Congressman, confidential reports are 
to remain confidential.
    Mr. Pearce. And so it would be against the agency rules to 
allow that.
    Is there--I am going to use Mr. Devaney's words--a 
pervasive culture of exclusivity in the IG that turns a blind 
eye? This is the seventh report that has been leaked to the 
press. He says that there was no attempts to get headline 
press, but this is the seventh one that has been leaked.
    Has Mr. Devaney indicated any desire to give the full 
amount of attention to leaks inside the Department, his group, 
that he has given to the two and a half years of investigation 
to the sex and lies? Believe me, I believe we should have done 
that investigation, but I think the culture of exclusivity 
should be looked at in several regards.
    Has anyone in your Department requested an IG look at the 
leaks inside the IG that caused these headlines to appear in 
the New York Times before we even see the reports on this 
Committee?
    Secretary Kempthorne. Congressman, my conversations with 
the Inspector General, and again, we meet on a monthly basis 
where he informs me and keeps me up to date, but I really 
cannot respond to the aspect of the nature of leaks.
    Mr. Pearce. I will put that in a request that we actually 
take a formal look at the seven times that this same report has 
been leaked, in its process, before we actually get it here.
    We were not able to prosecute any of the individuals 
involved. We allowed them to move toward retirement and get 
into retirement where--according to the testimony in our last 
hearing, and I have that testimony here--according to the 
testimony, many of the times when they moved to retirement, 
they were beyond the reaches to do anything to them.
    And so I am going to ask that we get an answer of why these 
leaks are allowed, and I would like to request a formal 
investigation. We will actually put that letter in too.
    Mr. Devaney, you mentioned that it is unthinkable that with 
the touted ethics programs that members of the Federal 
government would think it is permissible to provide government 
employees with gifts in excess of known limits.
    Did you ask the question were those employees ever told or 
did they have a reason to believe that such gifts were required 
or expected?
    Mr. Devaney. Are you talking about the representatives from 
the oil and gas companies or----
    Mr. Pearce. That they ever have been led to believe that 
such gifts were required or expected because in payola as a 
business owner I will tell you that there are people who can 
give you the word that these contracts might come with the 
right little touch.
    I am asking did you actually ask the question of those oil 
company employees was there the expectation or were they ever 
led to believe that such gifts were expected from the members 
of the Department?
    Mr. Devaney. I don't know if we asked the question that 
way. I mean, we asked them why they gave gifts and they gave us 
answers, a range of answers.
    Mr. Pearce. Did those answers include such things like they 
were expected?
    Mr. Devaney. No. Nobody told us that for giving a gift they 
would get something in return in terms of the bidding going on 
with the oil and gas. No.
    Mr. Pearce. I see my time has elapsed. I will come back to 
that, but I find it amazing that you did not ask, was there 
ever an implicit expectation? That just seems amazing because 
in all payola schemes, that knowledge is out there without the 
words ever being conveyed.
    Thank you, Mr. Chairman, for your tolerance.
    The Chairman. Perhaps it would have helped if Mr. Devaney 
had better cooperation from the big oil companies. That is 
another issue.
    The gentleman from California, Mr. Miller?
    Mr. Miller. Thank you. Mr. Secretary and Mr. Devaney, thank 
you for being here this morning.
    What is the status of the prosecutions here? Mr. Pearce 
mentioned that people were allowed to transfer or to leave 
service. I don't know that when you leave the government 
service you are then immune from prosecution.
    What is the status of efforts to seek justice, if you will, 
here?
    Mr. Devaney. Well, I think we are done. We have two guilty 
pleas, and they are awaiting sentence. The Department of 
Justice has declined to prosecute anyone else.
    Mr. Miller. You have sent individual requests for 
prosecution to the Department of Justice?
    Mr. Devaney. Well, we were working with the Department of 
Justice, in this case the Public Integrity Unit at Main 
Justice, all the time. We were working with them since day one, 
so there was ongoing dialogue.
    At a point in time toward the end of the investigation they 
decided to prosecute two people and not prosecute others.
    Mr. Miller. And that would end it with respect to the 
employees with respect to the Justice Department?
    Mr. Devaney. Yes. Yes.
    Mr. Miller. What about the representatives of the oil 
companies?
    Mr. Devaney. No.
    Mr. Miller. Were any recommendations made for prosecution 
by you?
    Mr. Devaney. No, I did not.
    Mr. Miller. Why not?
    Mr. Devaney. Quite frankly, we were never able to show. 
Going to Congressman Pearce's question, we were never able to 
show that there was any connection between the getting of gifts 
and the manipulation of any bidding.
    We really wanted their cooperation and sought and got their 
cooperation from three of the companies on making their 
individuals available to us for interview to ask them, ``Why 
were you giving our employees gifts, and to what extent did you 
do so?''
    Mr. Miller. So, in this situation, the liability runs only 
to the government employee?
    Mr. Devaney. It did in this situation.
    Mr. Miller. There is no bar of offering gifts?
    Mr. Devaney. Oh, I think there is, but I think a decision 
was made at the Department of Justice in conjunction with my 
investigators to approach the oil and gas people in a different 
way.
    Mr. Miller. Mr. Secretary, are we still doing business with 
these people who offered gifts under these circumstances?
    Secretary Kempthorne. Congressman, we are still doing 
business with the companies, yes.
    Mr. Miller. So, the same people who offered gifts over the 
last couple years are still in daily contact with the Mineral 
Management Services?
    Secretary Kempthorne. I can't respond if they are in daily 
contact or if they are the same individuals, but you could 
assume that that is happening.
    Mr. Miller. So, what is the ethical message we are sending 
to those companies?
    Secretary Kempthorne. Well, I think they are seeing, 
Congressman, the fact that we are dealing with it within the 
Department. We are dealing with personnel issues where actions 
will be taken. Because they are longstanding career employees, 
we will afford them all due process.
    Mr. Miller. No. I understand that. I want to know about the 
companies. So, the companies just go on and do business 
tomorrow just as they did yesterday?
    Secretary Kempthorne. Congressman, no. In fact, I think if 
we had others who could speak to this, but there has been a 
discussion that we will do an outreach so that they fully 
understand what parameters our employees must work under and, 
therefore, the companies will know not to offer beyond that 
because it puts our employees in a very tough situation.
    Mr. Miller. Not to offer what beyond that?
    Secretary Kempthorne. Gifts that would exceed the gift ban, 
activities that would go beyond what is in the ethical 
standards.
    Mr. Miller. So, they can offer a gift. They just have to 
make a decision of whether or not it violates the gift ban. Is 
the gift ban no gifts? Some gifts? A threshold? Is it $100? 
$150? $200?
    Secretary Kempthorne. There is a threshold, and the 
threshold is $20. Yes, there is a threshold that has been 
identified.
    Mr. Miller. So, it is $20 per gift?
    Secretary Kempthorne. Correct.
    Mr. Miller. So, I can give you a gift every day for $20?
    Secretary Kempthorne. No. It is cumulative, too.
    Mr. Miller. So, what is the upside level here?
    Secretary Kempthorne. Well, I will make that a part of the 
record. I will get back with all of that.
    Mr. Miller. I just find it kind of disturbing that one-half 
of the crime here just goes on and conducts business as if 
nothing happened. I mean, there apparently is no lesson learned 
in the sense inside that corporation because the same people 
are on the front lines holding onto the same relationships.
    You have transferred people, and I thank you for doing that 
and I think you have handled this rather well, but we are right 
back with the same people who apparently thought there was some 
reason, some benefit to that behavior, and that behavior isn't 
outlawed. We don't debar them from working with the government 
for a year or whatever it is. There are no prosecutions.
    It says employees shall not directly or indirectly solicit 
or accept a gift from a prohibited source, but that apparently 
doesn't prohibit you from offering so you can continue to try 
to ingratiate yourself to an employee or bribe an employee, and 
if the employee says yes you are in. If the employee says no, 
you are out.
    Secretary Kempthorne. Yes. Congressman Miller, what we have 
discussed and what I would like to initiate is an outreach 
program so that we do sit down and we go through this with the 
corporations so that they know exactly what the rules and the 
requirements are.
    Mr. Miller. They know what the rules are. I have all these 
companies in my district. They know what ethical behavior is 
and isn't.
    I don't know. I know the chairmen of the boards. They know 
what ethical behavior is. They just apparently have chosen not 
to participate in it. We are going to take big, grown up and 
successful people. We are going to give them ethics lessons. I 
don't get it.
    Secretary Kempthorne. Congressman?
    Mr. Miller. I suspect the prosecution would focus the mind 
on the ethical problem, as opposed to a DVD. I just don't 
understand it.
    You know, in the Department of Education we go to the 
Inspector Generals, and millions of dollars went out the back 
door, went out in conflicts of interest. People were allowed to 
move on. People were allowed to retire. People kept the 
millions of dollars wrongfully found. They kept it. The 
contracts are in place. They continue to be enriched. I don't 
get it.
    Secretary Kempthorne. Congressman, it is all part of what 
is being evaluated now based upon the fact that we have 
received the report last week. As the Inspector General has 
pointed out, many of these practices no longer happen. They 
have not happened.
    Mr. Miller. What is the standard of conduct you are 
developing for the people having contact with the United States 
Government? What is the standard you are imposing on the 
contractors?
    Secretary Kempthorne. Well, it is to be of the highest of 
ethical standards.
    Mr. Miller. How do they know that?
    Secretary Kempthorne. I think they are knowing that from 
activities such as this hearing. They are knowing that by 
seeing that there are----
    Mr. Miller. What is in the contract? You do business with 
us. How do you conduct yourself? You have a written standard 
for the employees, but the other guy can keep baiting them and 
baiting them and baiting them, and I guess they will either 
love to take it or they will resist or whatever they will do. 
What about the behavior by the private sector here?
    Secretary Kempthorne. Congressman, I think that the private 
sector is also seeing that there are consequences. There are 
consequences.
    Mr. Miller. What would those be for the private sector? One 
company chose not to cooperate. They are still doing business. 
The other company has cooperated. We appreciate that. The 
employees are still employees. What is it they are learning 
from this lesson?
    Secretary Kempthorne. Well, they are learning that as we 
have future activities that we are adhering to a particular set 
of standards.
    Mr. Miller. What standards are you expecting them to adhere 
to?
    Secretary Kempthorne. Congressman, there are standards of 
appropriate behavior by businesses, and they are seeing that 
there are consequences.
    Mr. Miller. Well, the American public would probably be 
surprised as they watch a meltdown all across the country in 
the pillars of American society, the financial institutions, 
where clearly when you started loaning money based upon a 
liar's loan--that is what it was known as, a liar's loan. You 
were loaning money to liars who had no ability to pay it back. 
And we want to talk about ethical standards?
    Here you are dealing with a very precious resource in a 
very delicate program with billions of dollars at stake, and we 
are telling the companies, ``Well, you should learn something 
because we have transferred some people from one department to 
another, or what have you, and we have prosecuted a couple 
government employees, but you don't have to change anything.'' 
I don't get it. I just don't get it.
    Secretary Kempthorne. Congressman, this is all part of a 
process that is under review, that is being evaluated and 
examined so that there are lessons learned. There are certainly 
consequences that are being paid by it.
    Mr. Miller. I want to know what are those consequences? We 
are back to the beginning here.
    The same employees are dealing with the MMS. The same 
representatives are there. The companies have no greater burden 
imposed upon them. There is no changing of the contractual 
liabilities or the conditions of employment or engagement of 
these companies.
    Apparently you can't answer the question. I have great 
respect for you, Mr. Secretary, and your ethical standards are 
way beyond this. Somehow that has to be transmitted to the 
private sector.
    The private sector has to know you don't get to come around 
and start offering gifts to people in a program when you have 
billions of dollars at stake and a little bit of change here 
and a little bit of change there can be worth a lot.
    Secretary Kempthorne. Congressman, I have a great deal of 
respect for you as well. As I have indicated, all of this is 
being evaluated as we look at what has transpired so that it 
does not continue.
    Mr. Miller. I look forward to seeing what standards of 
conduct will be mandatory with respect to the private sector 
here because, like many other Americans, I am rapidly losing my 
confidence that they have any ethical standards.
    Thank you.
    The Chairman. The gentleman's time has expired.
    The gentlelady from Oklahoma, Ms. Fallin?
    Ms. Fallin. I appreciate both of you gentlemen coming 
today. Secretary Kempthorne, I appreciate you and your agency 
taking time to develop new ethical standards to review the 
process. Inspector General, I appreciate your recommendations.
    I will say that I am very disappointed and find the 
behavior in the Mineral Management Services employees' behavior 
unacceptable, and so I thank you for what you are doing.
    I have a couple of questions to the Inspector General. When 
you were reviewing the information about the gift giving, did 
you find any evidence from the people that you reviewed that 
there was any directive from the top of the oil companies--the 
CEOs, the leadership--to tell their employees to give gifts to 
curry favors from the Mineral Management Services?
    Mr. Devaney. No, there was no evidence of that.
    Ms. Fallin. And how many employees did you say you found 
that were acting inappropriately within the agency?
    Mr. Devaney. There was about a dozen.
    Ms. Fallin. About a dozen that you found? OK. Now, you said 
you began your investigation for a time period of 2002 to 2006. 
It took two years to conduct this investigation. When was the 
report finished on this investigation?
    Mr. Devaney. Well, there were three reports, so they were 
each finished slightly at a different time.
    Ms. Fallin. And when was your first report finished?
    Mr. Devaney. It was probably about--I would make a 
distinction between when the investigation was finished, and 
then there is a back and forth with the Department of Justice 
as to what we might prosecute, and what we are not going to 
prosecute.
    Ms. Fallin. So, when was something available for someone to 
see on this Committee?
    Mr. Devaney. On this Committee?
    Ms. Fallin. Or any committee, anybody. When was there a 
piece of paper that you could say, ``Hey, we have a problem 
here?''
    Mr. Devaney. Well, we signaled that in a number of 
testimonies that we had these investigations ongoing.
    Ms. Fallin. And what date was that? Was that March?
    Mr. Devaney. The report was delivered on September 10 to 
Congress.
    Ms. Fallin. So, just a couple weeks ago----
    Mr. Devaney. Yes.
    Ms. Fallin.--for your first inkling that there was a 
problem, even though you have been investigating this for two 
years?
    Mr. Devaney. Oh, no. No.
    Ms. Fallin. OK.
    Mr. Devaney. Not at all.
    Ms. Fallin. I am just trying to figure out the timeline 
here.
    Mr. Devaney. No. The investigation took two years. Like any 
white collar criminal investigation, we hold that 
investigation. We don't talk about it. We don't issue updates, 
if you will.
    There can be conversations. For instance, the Secretary 
mentioned he and I have had conversations. I have been trying 
to keep him updated. We shared the frustration of how long it 
was taking.
    But nonetheless, ``finished'' means that all three 
investigations are finished. All the discussions with the 
Department of Justice have concluded, and then it goes through 
the quality control process in my office. It is printed; it is 
bound, and then it is put out.
    Ms. Fallin. OK.
    Mr. Devaney. That was September 10.
    Ms. Fallin. I have to ask you. When did you notify this 
Committee that there was a problem within this agency?
    Mr. Devaney. I think I alluded in previous testimony that 
we were conducting a criminal investigation.
    Ms. Fallin. Which is when?
    Mr. Devaney. Probably the last time I was up here in March.
    Ms. Fallin. March? OK. I guess my point is here we are a 
week before we are getting ready to go home for the election 
cycle, but yet we are just now having a hearing on this issue.
    And here we have let from March to this time period go that 
nothing has transpired within this congressional body to look 
into a major issue of corruption and selling of favors within a 
few people. You said 99 percent of the people in the agency 
were not involved.
    I guess my question is why are we waiting for this time 
period a month before an election and a week before the session 
is over to be discussing this when we should have been dealing 
with this a long time ago?
    Mr. Devaney. Well, I have been doing this for 38 years. I 
have been in Federal law enforcement for that amount of time, 
and I would venture to say that white collar crime cases with 
this amount of witnesses to be interviewed and this amount of 
documents to be looked at and these amount of witnesses that 
had to be brought before and given consideration by the 
Department of Justice, two years is actually not a long time.
    But with respect to when the report came out, it came out 
when all that process I just discussed with you was done--not a 
day later and not a day sooner--regardless of what time of year 
it was.
    Ms. Fallin. But you first started telling this Committee 
and some of the people about it in March. I guess that is what 
bothers me, Mr. Chairman, is why haven't we had this discussion 
before this week?
    I also heard some talk about the loss of revenue from 
royalty leases because of the behavioral problems. Could I also 
ask our Secretary have we lost any revenues for our nation on 
royalty leases because of the time delays of the lawsuits, the 
protests over the leases and the applications?
    Secretary Kempthorne. I don't see how you would construct 
that we have lost.
    Ms. Fallin. The time delays that it takes to actually 
produce a lease once a lease is let. We talked about losses 
because of corruption. Have we lost any money for our nation 
because of the time it takes to go through the protests and the 
lawsuits?
    Secretary Kempthorne. I am not aware of that having been 
quantified.
    Ms. Fallin. OK. I think my time has expired, Mr. Chairman. 
Thank you.
    The Chairman. As far as this first coming to light, our 
hearing record is well documented back at the beginning of this 
Congress, our hearings we have had on this issue and the 
potential loss of revenue.
    We have always known this cozy relationship existed. I 
would say to the gentlelady we just didn't know how cozy it was 
until recently.
    Mr. Kind. Mr. Chairman, would you yield for a second? I 
just have a quick question.
    The IG's report wasn't concluded until last week. Isn't 
that right?
    The Chairman. That is correct.
    Mr. Kind. So, the Committee is not going to compromise an 
ongoing investigation by holding hearings until the conclusion 
of a report.
    The Chairman. Correct.
    Mr. Kind. OK. Thank you.
    The Chairman. The gentleman from Massachusetts, Mr. Markey?
    Mr. Markey. Thank you, Mr. Chairman. You know, Mark Twain 
always said that history doesn't repeat itself, but it does 
tend to rhyme.
    This isn't exactly like the Powder River Basin scandal 
during the Reagan Administration when James Watt turned a blind 
eye to the undersale of $100 million of resources at the Powder 
River Basin. I was the Chairman of the Oversight Committee of 
this Committee back then, and I commissioned the GAO report 
that brought back all of the findings on that scandal, which 
ultimately led to the resignation of James Watt.
    I know this didn't happen on your watch, Secretary 
Kempthorne. I appreciate that, but this is a blistering, 
scalding indictment of the Bush Administration oversight of the 
Department of the Interior. This is something that is a stain 
on the Department of the Interior and its operations.
    Mr. Devaney, I congratulate you on your work. Chevron did 
not agree to allow any of their employees to be interviewed by 
you. Is that correct?
    Mr. Devaney. It is fair to say, Congressman, that at some 
point Chevron obtained counsel for five of their employees, and 
then we began negotiations--``we'' being the Department of 
Justice and our investigators--to try to get those employees in 
for an interview. It never happened.
    Mr. Markey. It never happened. So, Chevron has stonewalled 
this investigation, and Shell has refused to allow one of their 
employees to be interviewed. Is that correct?
    Mr. Devaney. I think he is a former employee, and he was 
exercising, as everybody has, their right to remain silent.
    Mr. Markey. Now, are you saying he is doing that as an 
individual, or is that Shell as well?
    Mr. Devaney. I think he was a Shell employee when the 
events occurred. My understanding is he is no longer a Shell 
employee, and he did not afford himself the opportunity to talk 
to us.
    Mr. Markey. Are the Chevron employees still at Chevron?
    Mr. Devaney. I believe they are.
    Mr. Markey. Are they refusing to testify in conjunction 
with legal advice from Chevron?
    Mr. Devaney. No. First of all, let me be very specific 
about Chevron. We gave subpoenas to all of the companies for 
documents, and all of them, including Chevron, produced billing 
records and emails and et cetera, so with respect to 
documentation requests they were cooperative.
    When it came time to do individual interviews Shell, Gary 
Williams and Hess made their employees available. Chevron 
obtained outside counsel, who then did not make those employees 
available.
    Mr. Markey. So, the lack of cooperation by the Chevron and 
Shell employees slowed down your investigation?
    Mr. Devaney. It did.
    Mr. Markey. It did not allow you to get all of the 
information which you needed in order to make a definitive and 
final set of conclusions with regard to what was going on.
    Mr. Devaney. That is true.
    Mr. Markey. That is true. Did Chevron then demand that the 
employees there no longer have any work relationship with the 
Department of the Interior?
    Mr. Devaney. I don't know anything about that.
    Mr. Markey. Should they demand and should the Secretary of 
the Interior demand that those Chevron employees no longer have 
any relationship with the Department of the Interior with 
regard to any of the matters that we are talking about in the 
leasing area?
    Mr. Devaney. Well, I would hope that Chevron might do an 
internal----
    Mr. Markey. No. I am not asking that. They are not doing 
it. They are not cooperating. Chevron is not cooperating.
    I am asking you what do you think the standard from the 
Department of the Interior should be with regard to these five 
employees? Should they continue to have business as usual in 
representing Chevron at the Department of the Interior?
    Mr. Devaney. Well, there are some suspension and debarment 
possibilities here obviously for the company, which----
    Mr. Markey. What is your recommendation in terms of keeping 
an arm's length distance now between these employees and the 
agency?
    Mr. Devaney. Well, I am charged with oversight over our 
employees, and I am satisfied that we are on the right track. I 
wish I had the same oversight and authorities with outside 
entities. I don't.
    Mr. Markey. So, you still don't know the full extent of 
what is going on at MMS because you haven't been able to do a 
complete set of interviews of these or existing employees in 
this case of Chevron?
    Mr. Devaney. I would say that it is incomplete because they 
didn't make themselves available. Yes.
    Mr. Markey. Now, to your knowledge were any oil company 
executives aware at any point that their company's employees 
were engaging in these illegal, improper or unethical actions 
with Interior Department employees?
    Mr. Devaney. Well, I think that the actual representatives 
ranged in rank. I don't know where the executive level is, but 
I don't think it went too high.
    I think these are essentially market people that deal with 
our folks at that level as well. Certainly they are not 
corporate executives of the corporations.
    Mr. Markey. The Justice Department has thus far declined to 
prosecute any of the current Interior employees involved in 
this scandal. Decisions to not prosecute are based on many 
factors. One is the culpability of the persons involved, but 
another is the ability to obtain a conviction.
    Do you think that had the companies been more cooperative 
and not shielded their employees from providing evidence to you 
that you or the Justice Department might have uncovered 
something worthy of prosecution?
    Mr. Devaney. It is hard to tell, Congressman. I don't know.
    Mr. Markey. But is it not possible?
    Mr. Devaney. It is possible. Sure, it is possible.
    Mr. Markey. So, what do you recommend then as a course of 
action if the basis of your testimony today is that you don't 
have enough information because the oil companies are not 
allowing you to interview the witnesses so that you can make a 
recommendation as to how we make sure that there is proper 
accountability? What do you recommend?
    Mr. Devaney. Well, we discussed that whole issue with the 
Department of Justice. You know, I have been doing this for a 
long time, and this isn't the first time I have been 
disappointed by decisions made over there. It probably won't be 
the last.
    Mr. Markey. When you say ``disappointed,'' what do you 
mean?
    Mr. Devaney. It means that I would have liked a more 
aggressive approach and I would have liked to have seen some 
other people prosecuted here, but that is not my decision to 
make. I get to decide what to investigate. They get to decide 
who to prosecute.
    Mr. Markey. So, what is your recommendation with regard to 
how we now deal with Chevron and their existing employees who 
you have not interviewed and this former Shell employee that 
you have yet to interview, given the fact that you don't have 
to be Dick Tracy to figure out that they are the ones that 
might have the very information you need in order to make a 
definitive recommendation as to what type of action should take 
place? What should happen?
    Mr. Devaney. Well, first of all there is a discussion about 
how we would reach out to those companies.
    I am probably not the best person to do that, but certainly 
the Office of Government Ethics is a possibility, maybe some 
folks from the Ethics Department with Interior, and to make 
sure and to put our marker down as to what our expectation is 
not only of our own employees, but with their employees who are 
doing business with us. I think there are suspension and 
debarment considerations we could give to the employees.
    So, I think there is a variety of things that can be done, 
and I would think that as the Secretary goes about his 
``lessons learned'' process that some of those issues will come 
up. I would certainly stand ready to help him with that.
    Mr. Markey. Well, I have sent a letter to the CEOs of those 
two companies because I believe that the taxpayers have a right 
to have these answers from ``big oil.'' I think they have a 
right to know what happened to the money that rightly belongs 
to the taxpayers of our country.
    This is something that goes right to the heart of 
accountability in terms of tax evasion, and I don't think that 
we can rest until we have gotten to the bottom of this.
    I thank you, Mr. Devaney, for your work and for all the 
people who work for you, and with that, Mr. Chairman, I yield 
back.
    The Chairman. The gentleman from Colorado, Mr. Lamborn? I 
am sorry. Mr. Sali. The gentleman from Nevada, Mr. Sali?
    Mr. Sali. Actually, from Idaho, Mr. Chairman.
    The Chairman. Idaho. I will get it all right here in a 
minute.
    Mr. Sali. Somewhere out west.
    The Chairman. The gentleman from somewhere out west is 
recognized.
    Mr. Sali. First of all, I want to thank both of you for 
being here today, and I want to try and add a little scope to 
what is going on here.
    Secretary Kempthorne, first of all I know that a number of 
people have praised you for the job that you have done in 
handling this situation. Some of them have chosen immediately 
after that to treat you in a way that I would suggest is 
disrespectful under the circumstances. I appreciate the fact 
that you have been here and the temper that you have shown in 
trying to respond to these questions.
    Mr. Devaney, if I understand things correctly, your job as 
the Inspector General is to deal with the issues that relate to 
employees of the Department of the Interior.
    Mr. Devaney. Yes.
    Mr. Sali. And if there was a prosecution of anybody from 
any of the oil companies, that would be outside the scope of 
your office. Isn't that correct?
    Mr. Devaney. We would probably be involved in the 
investigation, but the decision to do that would be at the 
Department of Justice.
    Mr. Sali. And that decision would be solely in that office 
and have nothing at all to do with you?
    Mr. Devaney. Right.
    Mr. Sali. And if there were going to be a real 
investigation of any of those oil companies, that would not 
take place in your office as a primary effort. It would take 
place in the Department of Justice. Isn't that correct?
    Mr. Devaney. Yes.
    Mr. Sali. And so the notion that somehow you ought to be 
held responsible for whether people were being held to the 
right ethical standards or whether they were being prosecuted, 
that is really unfair to ask people on this Committee to have 
you make that kind of judgment call. Isn't that correct?
    Mr. Devaney. Well, it is true that I don't have any 
authority over those folks.
    Mr. Sali. Thank you.
    Secretary Kempthorne, the same is true for you. You don't 
have any control over what the Department of Justice does with 
people outside of your Department, correct?
    Secretary Kempthorne. That is correct.
    Mr. Sali. And so the notion or suggestion that somehow you 
should be responsible for the ethical conduct of those who are 
outside of your office, that is out of sight of your authority, 
isn't it?
    Secretary Kempthorne. That is correct.
    Mr. Sali. All right. Thank you.
    I guess I want to note that I am a little dismayed that we 
have had so much important business that has been before 
Congress dealing with energy, and a lot of it deals with your 
Department, Mr. Secretary, and we have not had the opportunity 
to even have a hearing on those, any of those matters.
    We had a bill that we voted on just the other night that 
was a fairly broad scope energy bill. We didn't even have a 
hearing on that, and yet we are dealing with a hearing on the 
issues that are before us. I want to try to get to the scale of 
what those issues are.
    Now, both of you have testified that 99.9 percent of the 
employees within the Department of the Interior act in a way 
that I think would be approved by the taxpayers of this 
country. Do you agree with that? Both of you agree with that?
    Mr. Devaney. Yes.
    Secretary Kempthorne. We agree.
    Mr. Sali. And so I have heard the term, ``a culture of 
exclusivity.'' I think that was your term, Mr. Devaney.
    Mr. Devaney. Right.
    Mr. Sali. When you are talking about one-tenth of one 
percent--and I know that is a generalization--it may not even 
be that much. How do you get a culture of anything out of a 
tenth of a percent?
    Mr. Devaney. Congressman, I was talking about the culture 
of that program--the RIK Program. I think, over a period of 
time, they developed that culture that the rules simply didn't 
apply to them that the rest of us in government have to follow.
    Mr. Sali. But anybody who wants to characterize a culture 
of corruption within the Department of the Interior 
specifically, that would be a gross exaggeration, wouldn't it? 
Both of you agree with that?
    Mr. Devaney. Yes.
    Secretary Kempthorne. I would agree with that.
    Mr. Sali. OK. And so I guess when we get to the point of 
the scale of this, it was a limited number of people, and I 
think the Chairman had one of the people that was in charge 
stand up and acknowledge her as a person who did have high 
ethical standards.
    I guess my point is this. If we were going to be concerned 
about this in terms of scale, it is a limited number of people. 
Both of you agree with that.
    Second, I think both of you have agreed that this is not 
something that you have a concern that this is a continuing way 
of doing business either in the RIK Program or anywhere else 
within the Department of the Interior. Is that correct?
    Mr. Devaney. I am satisfied that we are on the right track 
with the RIK Program. It has been put on track.
    Mr. Sali. OK. Mr. Devaney, are you telling us that there 
are issues in other parts of the Department of the Interior 
that you are concerned about?
    Mr. Devaney. Like any group of people, so many thousand 
people, there are always going to be problems.
    Mr. Sali. Are you investigating any of those things 
currently?
    Mr. Devaney. Of course.
    Mr. Sali. That relate to this kind of activity?
    Mr. Devaney. No. No.
    Mr. Sali. All right. So, the kind of activity, as the 
Secretary has indicated, you have assured him there is no 
problem with this kind of activity on an ongoing basis? That is 
a correct statement and you support that, right?
    Mr. Devaney. Yes.
    Mr. Sali. All right. Thank you, Mr. Chairman. I see my time 
has expired.
    The Chairman. The gentleman from California, Mr. Costa?
    Mr. Costa. Thank you very much, Mr. Chairman.
    It has been noted that we acted on an important energy bill 
this week. While I would have liked to have had the opportunity 
to have this go through the Subcommittee or the full Committee, 
and while there has been criticism raised there, I think it is 
important to note that the Subcommittee has held 14 hearings on 
energy-related matters, at which the Department and the various 
agencies within the Department have testified--14 hearings in 
2007 and 2008, and at our joint Subcommittee hearings, we have 
had an additional six hearings this year, in 2008.
    So, for the record, let us be clear. We have been trying to 
do due diligence on a host of issues that involve not just the 
Minerals Management Service, but the issues of expansion of the 
Outer Continental Shelf, the potential impacts of seismic 
issues relating to energy recovery, uranium recovery. The list 
goes on and on and on.
    I will submit that for the record, Mr. Chairman, so that we 
make the record straight as to our efforts to do our due 
diligence. We can always do better clearly.
    The Chairman. Without objection. It will be made part of 
the record.
    Mr. Costa. Mr. Devaney, I am very interested in the area 
that you talked about. First of all, you talked about the 
expansion on the investigation. I assume you have the resources 
to continue that expansion?
    Mr. Devaney. We have now dedicated a discrete number of 
auditors and investigators in Denver to provide constant 
oversight over the Royalty-In-Kind Program.
    As I indicated in my opening remarks, I would like, someday 
in the not too distant future, to expand that oversight over 
the oil and minerals activity on BLM land and on Indian lands. 
I don't have the resources to do that right now.
    Mr. Costa. Can you tell us how much resources you would 
need to deal with that?
    Mr. Devaney. It is in the vicinity of $2 million probably.
    Mr. Costa. All right. We will pursue that.
    Are there other aspects of the Minerals Management Service 
that you think should be studied by your office, especially as 
it relates to the potential if we do, as I said in my opening 
statement, expand the Outer Continental Shelf, which I think we 
need to do for both oil and natural gas?
    Mr. Devaney. We intend to provide oversight in areas that 
we haven't done it before.
    We intend to, in the very near future, look at volume--for 
instance, the Strategic Petroleum Reserve--so we are going to 
be getting into some areas that we haven't looked at before, 
but the resources that we have now and the ones I just 
mentioned should be sufficient.
    Mr. Costa. OK. But I think in terms of further expansion we 
should have further discussion to ensure that you are able to 
do your job.
    I was appalled, I suspect like many other Members of the 
Committee, to hear you say that in terms of your investigation 
on the Royalty-In-Kind Program the contracts were so poor the 
way they were written that no real audit could be performed. I 
think your statement was policy contracts were so poor they 
were unable to be audited.
    What has been changed now as we write policy contracts for 
the Royalty-In-Kind Program?
    Mr. Devaney. Well, the observation of our office is that 
all the policies and guidance and procedures that were missing 
have now been put in place, that those contracts are done in a 
way that resembles what you would imagine an auction would 
resemble as opposed to what we found when we looked at it.
    Mr. Costa. Mr. Secretary, is there now a pro forma 
tightened policy contract that is established for every 
royalty-in-kind that is transpired on a legal basis between the 
Department of the Interior through the Minerals Management 
Service to any of these energy companies that are entering into 
these new processes so that we don't have a repeat of this?
    Secretary Kempthorne. Congressman, we have made a number of 
changes in policy and procedures.
    One of the things I would mention, as well as in my opening 
testimony, is the fact that we asked seven individuals that 
were headed by Senators Kerrey and Garn to look at this, the 
entire program. One of the things that they recommended was the 
fact that we needed additional transparency, and that is one of 
the things that we are addressing so that these types of----
    Mr. Costa. I believe the Committee is going to want to see 
what that transparency is.
    I mean, it seems to me I find it hard to imagine that there 
wasn't a standard contract, a standard contractual procedure. I 
mean, this is not a program that started yesterday or last 
week.
    Secretary Kempthorne. Right.
    Mr. Costa. I mean, this has been since the late 1990s.
    Secretary Kempthorne. Congressman, there are standard 
contracts that are approved by the Solicitor.
    Mr. Costa. And when have they been approved to be 
initiated?
    I mean, if they were standard contracts, why would the 
auditor state that, in fact, the policy contracts were so 
poorly written that they were--I mean, what? Did you just leave 
things blank? How is it poorly written so that you are unable 
to have an audit trail?
    Secretary Kempthorne. We have required further 
demonstration to support the contracts, further information to 
support the contracts.
    Mr. Costa. Under the new procedure?
    Secretary Kempthorne. That is correct.
    Mr. Costa. OK. So, everybody now understands what the new 
rules are as a result of the Kerrey-Garn Commission that you 
referenced?
    Secretary Kempthorne. They have made a number of 
recommendations, of which some have already been implemented, 
of which we are moving forward to implement a large number of 
those.
    So, yes, there has been significant improvement. There will 
continue to be improvement. I don't think this will be a static 
situation. I think that we will continually seek ways that we 
can improve and improve transparency and improve an audit trail 
as well.
    Mr. Costa. Well, America's energy future, as we have all 
discussed in this debate, truly depends in large part on our 
ability to provide greater stability through the expansion of 
our own domestic resources in the near term, especially with 
regards to our oil and natural gas.
    These are America's taxpayers' resources. I think we all 
acknowledge that. Therefore, we have a fiduciary 
responsibility, all of us, to ensure that those resources that 
belong to all of us are used most effectively as we deal with 
$4 gas prices.
    My time has expired, but I would like to have a further 
discussion with the Department and with the Minerals Management 
Service, along with the Inspector General, to ensure that the 
new contracts as we look at, possibly, which I believe will be 
an expansion of those leases, both onshore and offshore, that 
everybody clearly knows what the rules are.
    My further questioning, Mr. Chairman, and because my time 
has expired, hopefully in the second round, I will get a chance 
to get your sense, Mr. Secretary--given all of your exposure 
and the time you have spent examining this fiasco--whether or 
not you would recommend that the Royalty-In-Kind Program 
continue, or whether we end it and, if we continue it, under 
what circumstances you would suggest to us that we continue it, 
and with what reforms.
    Secretary Kempthorne. Mr. Chairman, may I respond to that?
    The Chairman. Certainly.
    Secretary Kempthorne. Congressman, no. I do believe that we 
should continue the Royalty-In-Kind Program.
    As has been indicated by the testimony of the Inspector 
General, a number of items did not allow him to identify a 
variety of information. Procedures have been changed and are in 
place. The fact that you now have key personnel that were not 
in the organizational chain of command, that has been corrected 
so they now are in that position.
    So, it is procedures. It is policies. It is personnel that 
had been put in specific places. It is an enhancement of the 
communication of what the ethics are. It is not that there was 
an absence of ethics. It was an absence of the adherence of 
ethics that existed that much of this investigation is about.
    I would also indicate that as the Kerrey-Garn report said, 
the RIK Program is the appropriate program to carry this out, 
the responsibilities. They gave us a series of recommendations. 
A GAO report has given us recommendations.
    And so we continue to make improvements and refinements, 
but I believe great progress has been made.
    Mr. Costa. Thank you, Mr. Chairman.
    The Chairman. The gentleman from Louisiana, Mr. Scalise, is 
recognized.
    Mr. Scalise. Thank you, Mr Chairman.
    I first want to thank the Office of Inspector General for 
the investigation, and the report that goes along with it, in 
giving us a detailed summary of not only the allegations, but 
of the findings, which are very disturbing. I want to express 
especially my disappointment and disgust with the activities 
that took place by the people that are mentioned in this 
report, the employees of MMS, and the activities that they 
conducted.
    I have some questions to the Secretary first about the 
severity of the charges. What is your feeling as you have 
reviewed the report and the various options that are on the 
table in terms of penalties at the Federal level that exist to 
deal with the charges that came out in the report?
    Do you feel that the penalties that we have, the laws that 
we have to go after the people who did these things, are they 
adequate to fit the severity of the crime?
    Secretary Kempthorne. Congressman, as has been pointed out, 
two individuals who have now pled guilty, they await 
sentencing. I cannot state what the outcome of that will be. 
The Department of Justice, those were the only two where there 
was going to be the criminal charges brought to bear.
    The other employees that still are within the employment of 
the Department, they are long-term career employees. I think 
1998 is----
    Mr. Scalise. When did Gregory Smith----
    Secretary Kempthorne. Pardon me?
    Mr. Scalise.--the program director for the RIK Program. 
When did he come to the Department?
    Secretary Kempthorne. I believe that he came--he is a 20-
year employee, I believe. In the 1980s.
    Mr. Scalise. And for the charges that are against him, as 
you look at what penalties are available and, of course, you 
wouldn't be the one to do the prosecutions, but as the 
Secretary of the Department and to us, as the policymakers, do 
you feel that the penalties that the prosecutors would have if 
they were able to go after to the maximum extent, does that 
maximum extent reach high enough to the severity of the charges 
or should those maybe be increased?
    Secretary Kempthorne. Congressman, no. I cannot articulate 
for you here in this setting if I believe that the severity--I 
think they have a range of options.
    Let me also add that I have to be mindful that because 
these are career employees there is a due process and so I hope 
you can understand and appreciate I cannot get into specifics 
and go by names and talk about who would be considered.
    Mr. Scalise. Right. And we would all hope that that process 
carries itself out as swiftly as possible and if, in fact, the 
various people--some have pled guilty and not been charged yet?
    Secretary Kempthorne. Right.
    Mr. Scalise. But for the people that are still facing 
charges, if they are found guilty, I would hope that they would 
be prosecuted to the fullest extent of the law.
    One of my concerns is--is the law that we can prosecute 
them under severe enough for the violations that they have been 
charged with if, in fact, they are guilty, or do we maybe need 
to look at increasing those penalties?
    Secretary Kempthorne. Congressman, again that may be 
something that both the Inspector General and the Department of 
Justice on the side of the prosecution, they would, I would 
imagine, have meaningful input for you.
    Mr. Scalise. Yes.
    Secretary Kempthorne. With regard to the personnel actions, 
we are looking for the full spectrum that does include 
termination, which is the final action that we could take with 
regard to an employee within the Department.
    Mr. Scalise. And for the Inspector General, is that 
something that you looked at and something that your office is 
in the position to make recommendations on?
    Mr. Devaney. On the potential administrative action?
    Mr. Scalise. And criminal. On both sides.
    Mr. Devaney. Well, on the criminal side, Congressman, there 
are a variety of laws that could be brought to bear here.
    Mr. Scalise. And obviously drug laws are involved.
    Mr. Devaney. Sure. But the Department of Justice decided 
not to prosecute Mr. Smith. We made a referral. They decided 
not to prosecute, and he is no longer with the Department so 
the Secretary does not have the option to take an 
administrative action against him.
    I suspect if he was still there he might be in that 
category, but he is gone and so, actually, the bottom line here 
is he is not going to face criminal prosecution and he is not 
going to get fired because he retired.
    Mr. Scalise. As far as you know at least, was there any 
kind of negotiation on his departure that included a waiver 
from prosecution?
    Mr. Devaney. No, and that kind of negotiation would have 
been between the Department of Justice and Mr. Smith, if he had 
an attorney--not the Department of the Interior.
    Mr. Scalise. And what is the statute of limitations there, 
and is that something that they can go and revisit at some 
other time?
    Mr. Devaney. I suspect if new information came forward we 
could revisit it, but as of right now the Department of Justice 
has decided to decline prosecution.
    With respect to the administrative sanctions, my view is 
that sanctions up to and including removal are sufficient. I 
mean, the highest sanction that the Secretary could impose 
would be to remove somebody from office. You know, they have 
their due process and we will see.
    Mr. Scalise. Thank you.
    Mr. Secretary, I think it is alluded to in the report about 
implementing a drug testing policy. Is there currently a drug 
testing policy, and was there one in place during the time that 
these allegations occurred?
    Secretary Kempthorne. Congressman, there is a drug testing 
policy in the Department for certain categories. The RIK 
Program, to the best of my knowledge, at this point does not 
have a drug testing policy.
    I will tell you that drug testing policies are for those 
who have security clearances that are in the law enforcement 
agencies within the Department, where an accident has occurred 
with government property and, therefore, a drug test would be 
administered.
    Mr. Scalise. And so have you put a new policy in place, or 
are you developing----
    Secretary Kempthorne. It is one that is being evaluated. 
Yes.
    Mr. Scalise. OK. It is under development as we speak?
    Secretary Kempthorne. Yes.
    Mr. Scalise. I look forward to seeing that as we go 
forward.
    Clearly, I think corruption at any level cannot be 
tolerated. I would encourage continued pursuit of all of the 
legal avenues that are available, as well as looking to see if 
we can do some things to increase those, if they warrant.
    Secretary Kempthorne. I would just add, Mr. Congressman, 
that I am subject to random drug tests, and I have no objection 
to that.
    Mr. Scalise. Thank you for that.
    I would hope to see our Committee move more toward not only 
these types of investigations, but also more hearings on how we 
can improve our energy policy, create a real strong national 
energy policy that reduces our dependence on Middle Eastern 
oil. I think your Department will continue to play an important 
role in that discussion, as it has already.
    Hopefully, we get more aggressive in what we do to put a 
strong national energy policy in place so that we can actually 
open up more of our natural resources in this country, in an 
environmentally safe way, that we can do those things which 
would, of course, create more royalties not only for us here 
but, hopefully, for the states as well that would participate 
in the solution.
    With that, I would yield the balance of my time to Mr. 
Pearce.
    Secretary Kempthorne. Mr. Chairman, may I just add to the 
comments made by the Congressman?
    As you know, we have begun the implementation of a new 
five-year plan for oil and gas development which will allow the 
next Administration to have a two-year head start on putting in 
place a new five-year plan on oil and gas development.
    We are also moving aggressively on the alternative and 
renewable energies, moving aggressively on that, so I 
appreciate what you are saying.
    Mr. Scalise. Thank you.
    The Chairman. The gentleman's time has expired.
    The gentleman from Maryland, Mr. Sarbanes, is recognized.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    Just to step back a minute, the lands and territories where 
the drilling is occurring from which these royalties come are 
lands that belong to the American people and the royalties that 
they yield belong to the American people, so the reason this 
hearing is so important is because there is a lot of pressure 
coming from the American people to take advantage of the 
resources that we have in this country, but they need to be 
assured that their ownership rights in those resources are 
going to be protected.
    I have a couple of questions. They don't necessarily all 
relate to one another. I don't understand. I mean, this RIK 
Program, Royalty-In-Kind Program, is a pretty important program 
within Mineral Management Service, right?
    Secretary Kempthorne. It is very important.
    Mr. Sarbanes. And the person who headed it up has exited 
the scene, right, of their behavior?
    Secretary Kempthorne. I am sorry? I didn't hear the----
    Mr. Sarbanes. The person who headed that up is gone----
    Secretary Kempthorne. Yes.
    Mr. Sarbanes.--from the scene because of their behavior.
    Secretary Kempthorne. They have chosen to retire.
    Mr. Sarbanes. Chosen to retire. I mean, there is a 
suggestion that this was sort of a rogue person, right? But I 
don't understand how people at higher levels would not have 
been aware of this.
    I was just wondering if you could take me through the chain 
of command, not naming names of individuals----
    Secretary Kempthorne. Right.
    Mr. Sarbanes.--but just who was the immediate supervisor of 
the RIK person in title?
    Secretary Kempthorne. Yes. Mr. Chairman, if you don't have 
an objection I would like to ask Randall Luthi, who is the 
Director of MMS----
    Mr. Sarbanes. Certainly.
    Secretary Kempthorne.--if he could respond to some of these 
questions.
    Mr. Luthi. Thank you. Thank you, Mr. Chairman, for your 
indulgence. My name is Randall Luthi, Director of the Minerals 
Management Service.
    Congressman, in terms of the hierarchy----
    The Chairman. Excuse me. Excuse me. I think we need a 
spelling of that for the recorder, please.
    Mr. Luthi. L-U-T as in Tom, H-I.
    The Chairman. Thank you.
    Mr. Luthi. And thank you, Mr. Congressman. This is just 
amazingly magically so. I now have a microphone in front of me.
    In terms of the period in question again between 2002 and 
2006, the RIK Program was headed in our Denver office, and it 
was reporting directly to the Associate Director of Minerals 
Management in D.C.
    That was one of the points that the Inspector General 
pointed out that we have a Deputy Associate Director in Denver, 
and there was questions of why it was reporting directly to 
D.C. as opposed to through a chain of command.
    Upon reading the Inspector General's report--in fact, even 
before that--we have changed that. It has been effective now--
well, it is effective now--that that regular chain of command 
is back in place.
    Mr. Sarbanes. Mr. Devaney, that is strange, right, that it 
would have bypassed the normal chain? I mean, wouldn't that 
have raised some questions?
    Within an organization that is being managed well, wouldn't 
that raise questions before you got there with your 
investigation? I mean, what is your opinion of that?
    Mr. Devaney. Well, my opinion is it is outside of the norm 
and so, when I saw it and heard about it, I was curious as to 
what was going on.
    I think it is important to note that the Associate Director 
in Washington is the third party in the case where the two pled 
guilty. Mr. Smith was running the RIK Program. He decided to 
retire. That is who he reported to around the Deputy that is 
here today and we have identified----
    Mr. Sarbanes. Right.
    Mr. Devaney.--that maintained her integrity throughout the 
investigation, so going around the one person in the hierarchy 
of the organization that has integrity was----
    Mr. Sarbanes. Well, I am glad you were curious. I don't 
understand why the organization wasn't curious.
    If I am being reported to out of the chain of command, the 
implication is I have to know something is not right with that, 
and yet there didn't seem to have been the internal due 
diligence before you arrived on the scene.
    Let me change directions real quick here because I am going 
to run out of time if I am not careful. We have used the term 
arm's length, Mr. Secretary, to describe what we would have 
liked to have seen in terms of the dealings between some of the 
employees in the Department and representatives of the oil 
industry, and so forth.
    Congressman Miller earlier was talking about what the oil 
companies should be doing in terms of a hearing on ethical 
standards. I come out with a slightly different perspective.
    I am never going to start from the premise that they will 
be a shining example of ethical standard in this kind of 
exchange, so I look at it in terms of how do we protect the 
personnel inside the Department from the impulse on the other 
side of the table to influence them?
    From what I understand, they were having a meal-sharing 
cafeteria, all this other kind of thing, which is symptomatic 
of them not being protected from the industry that they are 
trying to monitor, so what I want to know is, how are you 
protecting these auditors, monitors, other kinds of personnel, 
from the influence that can be exerted by the industry that 
they are trying to police, basically, or ``oversee?'' Oversee 
is a better word.
    Secretary Kempthorne. Congressman, one of the things that 
we are really putting great emphasis on, and that is for the 
employees to know exactly, what are the requirements? What are 
the rules? What are the standards and the thresholds that they 
can and cannot exceed?
    We have the ethics officers. We have truly increased the 
visibility of that. We are now going to put an attorney ethics 
advisor that will be out there in that particular office.
    One of the things that I stress with all employees, and we 
have held a series of all-employee meetings, which I don't 
believe there has been a number of those held in the past, but 
with this refrain. If in doubt, don't. If you have any question 
about activities, if you have any question about the 
proprietary of something, please ask the question. That is what 
the ethics officer is for.
    Mr. Sarbanes. Right. And I appreciate that. I would just 
suggest that you have to structurally put in place some things 
that maintain distance so that you are not completely relying 
upon an individual judgment of these personnel because often 
times they are going to be put in very difficult situations. 
You have to create a structure.
    The other thing--and my time is out--I would just note, I 
think one way to protect them further is to simplify the 
formulas by which these royalties are calculated because the 
more complicated those formulas are, I think, the more 
potential opportunity there is for deception and manipulation 
which, even if it is not illegal, may result in something that 
disserves the American people.
    So, we have to create space both in terms of simplifying 
the process by which these royalties are calculated--and I 
think that is why we have questions about the RIK Program--and 
structurally keeping some distance between the people in your 
Department and these industries that they are supposed to be 
monitoring.
    Thank you.
    Secretary Kempthorne. Congressman, I might just add I met 
with all of the Assistant Secretaries and Bureau Directors of 
the Department this week. We discussed these investigations.
    These reports are on our website, and what I have 
encouraged our Assistant Secretaries and Bureau Directors to do 
is to encourage our employees--73,000 people--go look at them 
because when you read this and you read the nature of this, 
this was an absolute absence of adherence to ethics by 
different individuals.
    Mr. Sarbanes. With all due respect, I am encouraged to read 
things every day by my staff that I don't get to, so I hope 
that is not the extent of the message that you are trying to 
send because people won't, on their own time, decide to do 
that, so again the structural things are very important.
    Secretary Kempthorne. And we have been addressing them.
    That is why I believe, and I will not speak for the 
Interior, but there has been tremendous progress that has been 
made structurally with regard to an ethical structure and I 
would term it a new culture of conscience within the Department 
to be aware of this, to be aware of the atmosphere of ethics 
and the adherence because there is a public trust and we need 
to hold that sacred.
    The Chairman. The gentleman from Utah, Mr. Bishop?
    Mr. Bishop. Thank you, Mr. Chairman. It is amazing to see 
all these cameras here. I don't think I have seen this many 
Members or cameras before. You would think we were talking 
about sex and drugs here, or something.
    The Chairman. While we were sleeping.
    Mr. Bishop. Yes. Mr. Secretary, I don't want to sound 
flippant on this issue because this is extremely--you know, 
when the twenty-first dollar passed, when the first 
inappropriate behavior took place, this became serious.
    I recognize that both Director Luthi and you, and Secretary 
Allred, came in after this had all started, but I am going to 
try as best as I can to stay within the allotted time, and I 
will give you short questions if you can give me short answers.
    Male Voice. It depends on the question.
    Mr. Bishop. Secretary Kempthorne, I don't need a name, but 
who first brought the behavioral problem to the attention of 
the Department and the Inspector?
    Secretary Kempthorne. I was first made aware of this by the 
former Director of MMS.
    Mr. Bishop. Was it another employee, a whistleblower type 
of thing, that brought these misbehaviors to the attention of 
the Department?
    Secretary Kempthorne. That is my understanding.
    Mr. Bishop. What steps did the Department take, prior to 
turning this over to the Inspector General?
    Secretary Kempthorne. I believe, and the IG can confirm 
this, but I believe that the Inspector General had received 
calls or notification from an employee also.
    Mr. Bishop. OK. So, basically, I am taking, Mr. Inspector, 
that the inspection started at the same time the Department 
administrators were aware of the situation?
    Mr. Devaney. Yes.
    Mr. Bishop. Secretary Kempthorne, it took two years, 
actually, to finish this report. Did that in any way hamper the 
office's or the Department's efforts to make some kind of 
remediation action?
    Secretary Kempthorne. Within the program? Yes. Both the 
Inspector General and I were frustrated by the length of time 
it was taking as, Congressman Bishop, it has been pointed out.
    Mr. Bishop. Was the inability to take action because these 
are merit employees?
    Secretary Kempthorne. We could not interfere with the 
investigation.
    Mr. Bishop. All right.
    Secretary Kempthorne. We didn't know where it would 
ultimately go.
    Mr. Bishop. So, you needed to wait until the investigation 
was over?
    Secretary Kempthorne. Correct.
    Mr. Bishop. As I understand it, in the three reports, in 
the first two you have, DOJ has gone after two people who, 
basically, violated revolving door standards.
    Secretary Kempthorne. Yes.
    Mr. Bishop. Then in the next one there are nine employees 
that had all sorts of behavioral problems. Am I right that none 
of those were administrative, policy-making positions in those 
nine?
    [No response.]
    Mr. Bishop. And then in the final report there is one 
individual who is named. That was a policy, administrative kind 
of position?
    Secretary Kempthorne. That individual headed up the RIK 
Program.
    Mr. Bishop. Was that individual removed from that position 
prior to the disposition of the investigation?
    [No response.]
    Mr. Bishop. In hindsight now, looking from either the 
Inspector or the Department's, do you think that was probably 
appropriate behavior when an inspection starts to remove that 
person temporarily until the disposition of the inspection or 
the investigation is over is probably an appropriate behavior 
or appropriate response, especially if it is an administrative 
position?
    Secretary Kempthorne. Under the conditions, Congressman, 
yes. I am finding myself a little hamstrung because we are 
talking about a personnel matter.
    Mr. Bishop. Yes.
    Secretary Kempthorne. I believe I can say that a 
determination was made that that individual should not remain 
in that position until this investigation was complete. The 
individual chose to retire.
    Mr. Bishop. It would seem to me appropriate that once 
somebody who has some kind of administrative role or policy-
making role, administrative role, that until an investigation 
is completed no longer staying in that particular position 
makes sense in some particular way.
    Inspector, I understand this so far has cost $5 million 
roughly to do the investigation.
    Mr. Devaney. The entire series of cases and audits--some 
seven, and four others where allegations were unfounded--so we 
have about 11 cases that were actually opened. Over a period of 
time, it cost that much money.
    Mr. Bishop. And I understand that the gifts that were 
illegally taken, procured in some way, run between $5,000 and 
$10,000?
    Mr. Devaney. Yes, in some cases. Less in others.
    Mr. Bishop. It would have been cheaper for the taxpayer 
just to take the gifts than actually do the investigation, 
wouldn't it?
    Mr. Devaney. Well, the argument----
    Mr. Bishop. That was not a legitimate question.
    Mr. Devaney. OK. All right.
    Mr. Bishop. You did say at one time--and I am going to try 
to hit this before the red light comes on--Mr. Inspector, you 
did say at one time you thought 99.9 percent of the Department 
was ethical. This is really something that should never happen. 
It should be stopped as soon as you find it, but is atypical of 
the majority of the people that are there.
    May I make the assumption that you are probably saying the 
same thing about the industry that was part of this, too? The 
majority of those are probably going to be ethical people. This 
is atypical behavior?
    Mr. Devaney. I hesitate to venture any guess. I am assuming 
that most people that work in the industry are, yes. I don't 
know about 99.9, but yes.
    Mr. Bishop. I think it is an assumption that might be made.
    I am somewhat perturbed, and I think everyone else is, that 
results of this investigation have come to us by way of the 
media. They still are. Results of expansive investigations come 
to us by way of the media, first.
    Is it the effort of both the Department, as well as the 
Inspector, to try and make sure that this Committee, or at 
least Congress, is kept abreast of the results before they get 
the chance to read about them in some other method?
    Mr. Devaney. Well, it was certainly my intent, and I 
believe in actuality, we delivered--both to the Department and 
to the chairs of the committees that had written and requested 
it--the reports at the very same moment. The media reports came 
later.
    You know, we always say in our cover letter on those 
reports that there is personal privacy information in these 
reports and it must be guarded. It has been my experience that 
often times it gets out, but it was not leaked by my office and 
I don't believe by the Department either.
    Mr. Bishop. And I won't even go into where that leads us 
from that point on, here.
    I do have more questions. I realize you have a drop dead 
time when you have to leave. The red light is on, and I 
apologize for going over it even slightly.
    The Chairman. Well, of course, the record will remain open 
for all Members to submit questions in writing, and we would 
certainly ask the Secretary and the Inspector General be open 
for those questions and respond.
    Mr. Devaney. We would be happy to.
    The Chairman. We recognize your timeframes, and we do have 
a vote on the Floor of the House.
    I am going to recognize Mr. DeFazio, but I understand this 
may be the last round. I am willing to come back, but I 
understand you two both have planes to catch. Is that correct?
    Mr. Devaney. Yes. Thank you, Mr. Chairman.
    Secretary Kempthorne. I am sorry, sir. Not planes. I am not 
going to tell you I am leaving town. I will be in town, but I 
do have a commitment.
    The Chairman. OK.
    Secretary Kempthorne. Thank you.
    The Chairman. Mr. DeFazio?
    Mr. DeFazio. Thank you, Mr. Chairman.
    Inspector General Devaney, I just want to pursue. I was 
puzzled early on in your presentation. You talked about working 
with the Public Integrity Division of the Department of 
Justice, and you recommended prosecution of the two highest 
ranking individuals involved. Is that correct?
    Mr. Devaney. Yes.
    Mr. DeFazio. And what was their response to you?
    Mr. Devaney. Well, I think after two years of looking at 
the issue, they declined to prosecute.
    Mr. DeFazio. Right. But did they give you a particular 
reason why they wouldn't prosecute?
    Mr. Devaney. No.
    Mr. DeFazio. They didn't? OK. Did you pursue that in any 
way?
    Mr. Devaney. They understood what my position was, very 
clearly, on this matter. Yes.
    Mr. DeFazio. Did you ask the Secretary to perhaps talk to 
the Attorney General about the issue?
    Mr. Devaney. No.
    Mr. DeFazio. No? OK. So, we have two people that you feel 
should have been prosecuted.
    Now, this goes to the Chevron and the stonewalling issue. 
You subpoenaed records from them. You got records, but then you 
wanted to interview individuals and they refused. Did the 
Department of Justice participate in your request for the 
interviews?
    Mr. Devaney. Yes.
    Mr. DeFazio. OK. And did they threaten subpoenas from the 
Department of Justice?
    Mr. Devaney. It wouldn't have been a subpoena. I mean, 
there are a number of options that the Department of Justice 
can do.
    Mr. DeFazio. To compel. Did they use all their options to 
compel?
    Mr. Devaney. No.
    Mr. DeFazio. OK. They did not. So, the Public Integrity 
Division perhaps was a little less than, shall we say, vigorous 
in the pursuit of this matter. Would that be a fair 
characterization?
    Mr. Devaney. As I said earlier, Congressman, I have been at 
this a long time, and sometimes that is a mystery to me.
    Mr. DeFazio. OK. All right. Mr. Secretary, do you have the 
authority to suspend Chevron from bidding because of their 
stonewalling in this investigation?
    Secretary Kempthorne. I do not have an answer to that.
    Mr. DeFazio. OK. Well, we would like an answer. Let me put 
it this way. If you don't have that authority, would you like 
Congress to make it available? Don't you think it would be a 
useful tool?
    I mean, when you said here that the way the corporations 
would react would be not to offer beyond the $20 because it 
would put the Federal employees in a tough situation, I just 
think that is--I mean, having a club might be a little more 
effective than, ``Gee, we will be worried that the people we 
are partying with here are going to be put in a tough situation 
if they accept these drugs, sex or money from us.''
    Secretary Kempthorne. Congressman, if there is a clear 
violation of law, then I believe that we do have.
    Mr. DeFazio. Right. But in this case, they were 
stonewalling the investigation, and it seems to me, at that 
point, a little bit of a club might have been helpful if you 
have one and say, ``Gee, if you guys aren't going to cooperate, 
we don't know how big or what the extent of this was, or how 
the taxpayers might have been hurt. We are going to suspend you 
until you find the way in your heart to cooperate with the 
investigation.'' I mean, if they want to be good corporate 
citizens.
    Secretary Kempthorne. It is part of our evaluation that we 
are now conducting.
    I will tell you, and again the Inspector General could 
confirm this, but I was not aware through the investigation 
process that particular corporations were not responding.
    Mr. DeFazio. OK. All right. Now I want to go to a different 
issue. Like Mr. Pearce, I would like to get an answer.
    There were two years. First Republicans created a deep 
water incentive. I didn't think the industry needed deep water 
incentives. I opposed the bill, but the bill passed. The 
Republican bill passed and became law during the Clinton 
Administration. There were two years in which leases were let 
that didn't have price thresholds on these deep water leases. I 
would like to know why that happened.
    But beyond that I would also like to know why, and this 
again predates you, Mr. Secretary, for five and a half years 
the Bush Administration was aware that we weren't collecting 
those tens of billions of dollars, and they failed to inform 
this Committee or the Congress, and ultimately it only came out 
because of a ``whoa'' story leaked to a newspaper in the New 
York Times.
    So, like Mr. Pearce, I would like to understand that whole, 
what happened both during the Clinton years and during the 
five-and-a-half years in the Bush Administration. Who knew? Who 
didn't know? What sorts of discussions went on?
    I don't know how we could pursue that, Mr. Chairman, but I 
certainly would because there the taxpayers have lost tens of 
billions of dollars.
    I would further note that I gave the Congress an 
opportunity to rectify that with a bill on the Floor of the 
House in July, and the gentleman from New Mexico voted ``No,'' 
as did virtually every Republican, I think, with an exception 
of eight. So, I would like to make the taxpayers whole on that 
matter, and I would also like to know what went on.
    Thank you, Mr. Chairman.
    Secretary Kempthorne. Congressman, may I please just make 
the point that----
    Mr. DeFazio. Yes.
    Secretary Kempthorne.--with regard to current, we now 
require that a solicitor will go page-by-page over those 
agreements so that there is not an omission.
    Mr. DeFazio. If it was an omission?
    Secretary Kempthorne. If it was omission.
    Mr. DeFazio. Yes.
    Secretary Kempthorne. Correct. Thank you.
    Mr. DeFazio. Thank you.
    The Chairman. The gentleman from New Mexico?
    Mr. Pearce. Thank you, Mr. Chairman.
    Since a vote of mine was questioned I would----
    Mr. DeFazio. I didn't question it. I just stated the way 
you voted.
    Mr. Pearce. And I did, and it is because there is evidence 
that those were not mistakes; that it was intentional. The 
Courts have said we are wrong even to go back and ask for them 
to pay for these royalties when it was intentionally left out 
of the contract.
    Thank you, Mr. Chairman.
    Mr. DeFazio. Mr. Chairman, if I could further respond?
    The Chairman. The gentleman?
    Mr. DeFazio. The Courts have not limited our ability to 
assess a different fee to recapture that money in any way, and 
that is what my bill would have done.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman from Wisconsin, Mr. Kind?
    Mr. Kind. Thank you, Mr. Chairman. I will be brief. We have 
a vote on, but I did want to thank the witnesses for your 
testimony today.
    Mr. Devaney, the work that you and your office did at the 
IG is very valuable to the Committee's work here, but you can 
certainly appreciate--and I had a chance to review the reports 
and see the media coverage of all this--why the American public 
holds their government in such distaste and distrust and 
disgust today.
    When you have a complete breach of public trust as we have 
seen now with the MMS office, it is very easy to see where that 
cynicism is stemming from, but I also think it is very 
appropriate, Mr. Secretary, to remind ourselves and the 
American people that the vast majority of people working in our 
Federal agencies, and in your Department, are the models of 
public service and doing a good and decent job.
    What I am concerned about, and this is my question for both 
of you, really, is just how confident can we be here today that 
more of this isn't taking place in other field offices with 
different responsibilities?
    The reason I say that is, in reviewing these reports, and 
this is getting back to what Mr. Sarbanes was alluding to, is 
they all seem to have been triggered by some confidential 
source or confidential informant. We know the power of peer 
pressure and how difficult it is for one ethical person to 
stand up and make that phone call and say, ``Hey, something is 
not right here and we have to do something about it.''
    Whether it was the Lakewood investigation confidential 
source, whether it was the Smith investigation, whether it was 
the Business Solutions contract that the IG looked into, it was 
all triggered by that confidential informant stepping forward.
    It is my understanding, listening to your testimony here 
today, Mr. Devaney, that the IG is not delving into other field 
offices through MMS to check and see if there might be similar 
patterns of conduct being done there because you have no basis 
for it, because nothing has triggered such an investigation.
    This does get back to clear, bright line rules, and it is 
important for those to be in place, but there is only so much 
we can do to legislate or for the Department to do to put rules 
in place that is going to instill the proper ethical conduct 
that we expect of our public employees.
    We recognize that we had a problem here in the Congress, 
and that is why the new Congress last year, one of the first 
things we did was pass the toughest ethics reform package in 
the history of Congress. It took a few bad actors, our 
colleagues going off to prison, to make us realize we have to 
tighten up our own rules, but there is only so much you can do 
in that regard.
    Again, can you assure us with the steps that you have taken 
based on the investigations that you have done that this 
conduct isn't more permissive in other field offices out there?
    We all know how it starts, innocently enough with the oil 
representatives coming into the office to talk about contract 
or policy. Rapport is established. A comfort level happens. 
Friendships are developed, and then that slippery slope occurs. 
Then we get IG reports like we have before us today. Can either 
one of you respond?
    Mr. Devaney. I think this is an aberration, and I think the 
nature of the work that the RIK Program was doing contributed 
to that problem. It requires government workers to be in daily, 
if not hourly, contact with what the government considers to be 
prohibitive sources--that being somebody that is doing business 
or wants to do business before the government.
    In that circumstance the rules are you can't take over $20 
on each occasion. You can't take $50 cumulative in a year. 
Every government employee hears that at least yearly, signs off 
on a document. All these people signed documents saying that 
they understood that those were the rules.
    This particular group, because of the nature of their work, 
felt like they had to party and have drinks and socialize with 
the industry, to collect market intelligence. Obviously our 
investigators didn't buy that, and ultimately I think this 
attitude led to a permissiveness within that program.
    I don't think that kind of thinking exists in the rest of 
the Department of the Interior. If it comes to our attention we 
will aggressively pursue it, but I have no reason to believe 
that this isn't an aberration.
    Mr. Kind. Mr. Secretary?
    Secretary Kempthorne. Mr. Congressman, if I may add to 
that?
    I appreciate what the Inspector General just said, and I 
appreciate what you said also, sir, the fact that the very vast 
majority of the public servants are good public servants, but I 
don't think anybody can sit and assure the Members of Congress 
that things won't happen.
    I think the key is that there are consequences when they 
do, that we pursue them to the fullest extent, and that is why 
again this particular inexcusable activity, I can tell you, as 
I have, that we are looking at the full range that does include 
termination.
    But, the vast majority of the people, it is disheartening 
to me and it is a sad situation because it hurts their morale 
when they are working so hard.
    Mr. Kind. I would agree. Mr. Secretary, I would just 
encourage you and your Department, and everyone working for 
you, that if you feel there is some additional authority that 
we can provide in order to tighten up the rules and try to 
guard against this type of conduct, that you come to us and ask 
us what you need.
    Secretary Kempthorne. Absolutely.
    Mr. Kind. I am sure you would get the cooperation of this 
Committee.
    The Chairman. The gentleman's time has expired.
    The gentleman from New Mexico?
    Mr. Pearce. Thank you, Mr. Chairman. I request unanimous 
consent to insert the report to the Royalty Policy Committee as 
part of the record.
    The Chairman. Without objection, so ordered.
    [NOTE: The ``Report to the Royalty Policy Committee: 
Mineral Revenue Collection from Federal and Indian Lands and 
the Outer Continental Shelf'' has been retained in the 
Committee's official files.]
    The Chairman. Mr. Inspector General, Mr. Secretary, thank 
you so much for your time this morning.
    Secretary Kempthorne. Mr. Chairman, thank you very much.
    The Chairman. We appreciate it.
    Secretary Kempthorne. Thank you.
    Mr. Devaney. Thank you, Mr. Chairman.
    The Chairman. The Committee stands adjourned.
    [Whereupon, at 12:10 p.m., the Committee was adjourned.]

    [A statement submitted for the record by Mr. Grijalva 
follows:]

   Statement of The Honorable Raul M. Grijalva, a Representative in 
                   Congress from the State of Arizona

    Thank you, Mr. Chairman, for holding this hearing today to examine 
the ethical lapses at the Minerals Management Service at Interior.
    After reading the testimony submitted for this hearing and the 
report issued by the Interior Inspector General, I firmly believe it is 
time to get rid of the scandal-ridden royalty-in-kind program 
altogether and return to a simple system where oil and gas companies 
pay royalties in cash for extraction of natural resources on public 
lands.
    This convoluted and nonsensical system of accepting royalties ``in 
kind'' was the brain child of the oil and gas industry and seems 
designed to benefit private industry over taxpayers. It creates a 
system where federal officials are put into a position of selling oil 
and gas back onto the market and therefore have to ``play the game'' 
within the industry to make friends and influence people.
    When the royalty-in-kind program was first created, it was supposed 
to simplify the collection of royalties but instead it has made it more 
difficult for auditors to track the payments and it also has allowed 
oil and gas companies to game the system by charging more for 
transportation and other costs. In the end, the taxpayer comes up 
short.
    It is still not known how much of a loss to taxpayers this program 
has resulted in. The very way this program was set up makes it 
difficult to track the full extent of the cost of administration or 
marketing and transporting the oil and gas the program takes in instead 
of cash.
    While Interior says it will put safeguards in place to prevent 
ethical lapses as we've seen here, I'm not convinced, especially given 
the Bush administration's propensity to favor the oil and gas industry 
over everyone else. Some oil companies have refused to cooperate with 
the investigation, slowing down the ability of the Inspector General 
and Congress to find out what's gone wrong here. As far as we know, the 
same people who may have provoked some of the ethical lapses, such as 
providing free ski trips to federal officials, have not been removed 
and are still tasked to liaison with federal officials.
    There is nothing to be done at this point but to defund this 
program of Interior and shift those employees who have done no wrong 
into other departments. I personally would like to see more staff 
devoted to auditing the payment of royalties to ensure that U.S. 
taxpayers receive exactly what they're entitled to from their public 
lands. We need more policemen on the beat at the Minerals Management 
Service.
    I hope you and other members of the Committee will join me in 
calling for an end to this ill-conceived program that has never 
accomplished what it set out to do and has only resulted in still-
unknown financial losses to taxpayers.
    Thank you, Mr. Chairman.

                                 
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