GAO-07-659R Interior Management Challenges 

United States Government Accountability Office

Washington, DC 20548 

March 28, 2007 

The Honorable Nick J. Rahall II 

Chairman, Committee on Natural Resources 

House of Representatives 

Subject: Posthearing Questions: Major Management Challenges at the Department 

of the Interior

Dear Mr. Chairman: 

On February 16, 2007, I testified at the Committee’s oversight hearing on “Reports, 

Audits, and Investigations by the Government Accountability Office and the Office 

of Inspector General Regarding the Department of the Interior.” 1

 This letter 

responds to your February 26, 2007 request, in which members of the Committee 

asked additional questions about GAO’s past reports. To answer these questions, we 

relied primarily on a number of GAO reports, as well as our body of knowledge in 

these areas. We prepared this letter during March 2007 in accordance with generally 

accepted government auditing standards. Because this letter was primarily based on 

previously issued reports, we did not seek agency comments on a draft of this letter. 

Our responses to the questions follow. 

1. Based on GAO’s reports and audits, what are the fiscal costs resulting from 

mismanagement of programs and the revenue losses associated with the failure to 

collect fair market value for the use and development of resources under the 

jurisdiction of the Department of the Interior? What priorities should Congress 

pursue to address these problems?

Past GAO reports have identified a number of areas in which the Department of the 

Interior (Interior) has not collected all revenue authorized. The most significant 

source of forgone revenue owing to mismanagement is the department’s 

implementation of the Outer Continental Shelf Deep Water Royalty Relief Act enacted 

in 1995—amounting to at least $1 billion—because of the failure to include price 

thresholds in leases issued in 1998 and 1999. All other sources of potential lost 

revenue from Interior programs that we have reported on pale in comparison with 

this amount. We have also identified revenue that the department could collect 

should the Congress choose to give it additional authority in certain programs. 

 

1

GAO, Department of the Interior: Major Management Challenges, GAO-07-502T (Washington, D.C.: 

Feb. 16, 2007). 
Oil and gas revenue. While precise estimates remain elusive at this time, as we 

testified, our work to date shows that royalty relief under the Outer Continental Shelf 

Deep Water Royalty Relief Act will likely cost billions of dollars in forgone royalty 

revenue; at least $1 billion has already been lost.2

 In October 2004, the Minerals 

Management Service (MMS) estimated that forgone royalties on deep water leases 

issued under the act from 1996 through 2000 could be as high as $80 billion in total. 

However, there is much uncertainty in these estimates because of ongoing legal 

challenges and other factors that make it unclear how many leases will ultimately 

receive royalty relief and of the inherent complexity in forecasting future royalties. 

We are currently assessing MMS's estimate in light of changing oil and gas prices, 

revised estimates of future oil and gas production, and other factors. At the 

completion of our work we hope to provide a discussion of some of the alternative 

ways to address the forgone revenue.

Oil and gas permit fees. Should the Congress choose to provide Interior with new 

legislative authority, additional revenues could be collected to process applications 

for oil and gas permits. In June 2005, we recommended that the Bureau of Land 

Management (BLM) use its authority and move forward with its plans to establish a 

fee structure that would recover its costs for processing applications for oil and gas 

permits.3

 In response to our recommendation, BLM issued a proposed regulation in 

July 2005 that included a $1,600 fee for processing oil and gas permits.4

 However, the 

Energy Policy Act of 2005, which was enacted 2 months after our report was issued, 

prohibited Interior from initiating the new fee. In its fiscal year 2008 budget request, 

Interior has proposed that the Energy Policy Act be amended to allow the new fee to 

move forward. Interior estimates that the new fee would generate $21 million in 

additional revenue for fiscal year 2008. 

Air tour revenue. In May 2006, we reported that Interior’s National Park Service was 

not collecting all the required fees from companies conducting air tours over three 

highly visited national park units that are authorized to collect fees.5

 Since it began 

collecting this fee in 1994, the Park Service has collected about $19 million at the 

three park units. However, we identified almost $2 million in fees that had not been 

collected. The Park Service was not collecting all the required fees because of (1) an 

inability to verify the number of air tours conducted over the three park units and, 

therefore, to enforce compliance and (2) confusion resulting from differing 

geographic applicability of two laws governing air tours in or around park units. 

We also reported that the Park Service could collect additional revenues if the 

Congress expanded the authority to charge air tour fees from the current three park 

 2

GAO, Oil and Gas Royalties: Royalty Relief Will Likely Cost the Government Billions, but the Final 

Costs Have Yet to Be Determined, GAO-07-369T (Washington, D.C.: Jan. 18, 2007)

3

GAO, Oil and Gas Development: Increased Permitting Activity Has Lessened BLM’s Ability to Meet

Its Environmental Protection Responsibilities, GAO-05-418 (Washington, D.C.: June 17, 2005).

4

70 Fed. Reg. 41532, 41542 (July 19, 2005).

5

GAO, National Parks Air Tour Fees: Effective Verification and Enforcement Are Needed to Improve 

Compliance, GAO-06-468 (Washington, D.C.: May 11, 2006).

Page 2 GAO-07-659R Interior Management Challenges
units to an additional 83 units with air tours.

6

 While the three park units account for 

about one-half of all the air tour activity, expanding the fee would enable the Park 

Service to collect additional revenue to help develop and monitor air tour 

management plans. Depending on the number of additional park units included in an 

expansion of the air tour fee authority, the Park Service could potentially collect 

approximately an additional $1 million to $4 million annually. 

Grazing revenue. In September 2005, we reported that the grazing fee BLM and the 

U.S. Department of Agriculture’s Forest Service charge, which was $1.43 per animal 

unit month (AUM) in 2004,7

 is established by formula and is generally much lower 

than the fees charged by other federal agencies, states, and private ranchers.8 Other 

federal agencies, states, and private ranchers generally establish fees to obtain the 

fair market value of the forage and, as a result, charged fees ranging from $0.29 to 

$112 per AUM in fiscal year 2004, depending on the location, range condition, and 

accompanying in-kind service. The formula used to calculate the BLM and the Forest 

Service grazing fee incorporates rancher’s ability to pay; therefore, the current 

purpose of the fee is not primarily to capture the fair market value of the forage or to 

recover the agencies’ expenditures. As a result, BLM’s and the Forest Service’s 

grazing receipts fell short of their expenditures on grazing in fiscal year 2004 by 

almost $115 million. We reported that if the purpose of the grazing fees was to 

recover expenditures, the agencies’ grazing fees would have been about $7.64 and 

$12.26 per AUM, respectively. Alternatively, if the purpose of the fees was to gain 

fair market value, the agencies’ fees would vary depending on the market. As I stated 

in my testimony, were BLM to implement approaches other agencies use to set 

grazing fees, it could help close the gap between expenditures and receipts, and more 

closely align its fees with market prices. We recognize, however, that the purpose 

and the amount of BLM’s grazing fee are ultimately for the Congress to decide. 

Royalties from hardrock mining. As we reported in June 2005, the General Mining 

Act of 1872 encouraged development of the West by allowing individuals to stake 

claims and obtain rights to gold, silver, copper, and other valuable hardrock mineral 

deposits on land belonging to the United States.9 The law, however, does not 

authorize the collection of royalties. Since 1872, thousands of claimants and 

operators have extracted billions of dollars of hardrock minerals from federal lands 

without being required to pay royalties on any hardrock minerals extracted. A 

February 2007 Congressional Budget Office report stated that $35 million in revenue 

could be generated over a 5-year period should the Congress authorize an 8-percent 

royalty on the net proceeds from all future production of hardrock minerals from 

 6

GAO-06-468. 

7

An AUM is the amount of forage that a cow and her calf can eat in 1 month. 

8

GAO, Livestock Grazing: Federal Expenditures and Receipts Vary, Depending on the Agency and 

the Purpose of the Fee Charged, GAO-05-869 (Washington, D.C.: Sept. 30, 2005). 

9

GAO, Hardrock Mining: BLM Needs to Better Manage Financial Assurances to Guarantee Coverage 

of Reclamation Costs, GAO-05-377 (Washington, D.C.: June 20, 2005). 

Page 3 GAO-07-659R Interior Management Challenges
federal lands.

10 The report also notes that if the 8-percent royalty was applied to 

gross proceeds, it would generate additional revenue and be less costly to administer. 

2. As you cited in your 2005 report entitled, “Oil and Gas Development: Increased 

Permitting Activity Has Lessened BLM’s Ability to Meet Its Environmental 

Protection Responsiblities,” BLM staff do not have the necessary resources to

perform the required environmental inspections. The Bush Administration’s FY 

2008 budget proposal will increase the number of Applications for Permits to Drill 

(APDs) processed by nearly 55 percent from 7,736 to nearly 12,000 in 2008. While 

it is important that the Bush Administration focus its efforts to meet the Nation’s 

growing demand for energy, it must be mindful of the vast growth and 

environmental effects that this will have on the “Evolving West.” What effect will 

this continued increase in permit approvals have on the surrounding communities 

and environment? Is there a “tipping point?” And, if so, at what point do you 

think the Administration’s emphasis on oil and gas development will become 

excessive?

In June 2005, we reported that the increased permitting activity between 1999 and 

2004 had occurred at the expense of environmental mitigation activities owing to a 

lack of resources available to conduct mitigation activities.11

 The effect of a 

continued increase in permit approvals on surrounding communities and the 

environment will depend on (1) the environmental stipulations in the leases, (2) the 

conditions of approval in the permits, and (3) BLM’s level of monitoring and 

enforcement of the lease stipulations and permit conditions. If BLM is required to 

process even more permits without receiving any additional resources, it is likely that 

the agency’s ability to perform the necessary environmental mitigation activities 

would continue to be eroded. 

Before the Energy Policy Act was enacted in August 2005, BLM had the authority to 

assess and charge fees to cover its expenses for processing oil and gas permits. The 

revenues from such fees would have enabled BLM to supplement its program 

resources. As I noted in my response to Question 1, we had recommended, and BLM 

had begun to establish, a fee structure to recover its costs for processing applications 

for oil and gas permits, but the Energy Policy Act prohibited Interior from initiating 

the new fee. Nevertheless, Interior has continued to express interest in initiating 

such a fee and has proposed that the Energy Policy Act be amended to allow the fee 

to move forward. Authorizing such a fee to cover BLM’s expenses for processing 

permits could presumably free bureau staff up to carry out environmental mitigation 

responsibilities, should the agency choose to use the resources for this purpose. 

The extent to which federal lands should be used for oil and gas exploration and 

development and the environmental effects that will be tolerated are policy decisions 

 10Congressional Budget Office, Budget Options (Washington, D.C.: Feb. 2007). The Congressional 

Budget Office’s estimate assumes that the states in which mining takes place would receive 10 percent 

of the royalty receipts, and that there would be no surge in patenting activity before royalties were

imposed; such a surge could boost immediate patenting receipts and diminish future royalties. 

11GAO-05-418. 

Page 4 GAO-07-659R Interior Management Challenges
that are up to the Congress and the administration to make. Balancing the competing 

demands for the use of these lands is an ongoing challenge for the Congress and the 

agencies that manage them. 

3a. As you will recall, GAO found that the Fish and Wildlife Service (FWS) had 

very poor records characterizing the environmental threat of oil and gas activities 

on refuge lands. To your knowledge, has the Service completed a comprehensive 

assessment of the cumulative environmental impacts of oil and gas development on 

refuges?

FWS has taken some steps to identify a possible approach to developing and 

maintaining data on the effects of oil and gas activities on refuge resources, although 

it has not identified funding to support this effort. It is not clear whether the agency 

will conduct a comprehensive assessment of the cumulative environmental impacts 

of oil and gas development on refuges once it gathers these data. 

3b. GAO also found that the Fish and Wildlife Service did not have any inventory 

of oil and gas infrastructure on refuges and was unable to estimate future

reclamation costs. Has the Service completed this inventory and compiled a list 

and cost estimate for outstanding reclamation needs?

Collecting data on the nature and extent of oil and gas activities on refuge lands is 

part of the effort described in response to Question 3a. Because the data have not yet 

been collected under this effort, FWS cannot comprehensively identify needed 

reclamation or associated costs. 

3c. Has the Fish and Wildlife Service developed consistent system-wide policies 

and permit procedures, including revised fees for oil and gas activities and 

infrastructure on refuges, and revised the agency’s Refuge Manual accordingly? 

And, do we have any estimates of the amount of revenue the United States could be 

collecting, but is not, due to the agency’s failure to act?

FWS has drafted a handbook for the management of oil and gas activities on wildlife 

refuges, although it has not yet been made final or public. Therefore, it is not clear 

what FWS’s policies or procedures will be. We have not examined what revenue is 

available to FWS through fees for oil and gas activities and infrastructure on refuges. 

It is important to note that FWS only has the authority to retain money paid for 

damages to refuge lands in Louisiana and Texas. The money is to be used to make 

damage assessments, mitigate or restore damages, and monitor and study recovery of 

the resources. As of the August 2003 issuance of our report, fees had only been 

collected in Louisiana.12 To address this inconsistency, FWS officials told us they are 

drafting guidance to clarify how these regions should apply their authority to collect 

and retain fees. Furthermore, Congress would need to provide FWS with the 

authority to retain money paid for damages for refuge lands beyond Louisiana and 

Texas. 

 12GAO, National Wildlife Refuges: Opportunities to Improve the Management and Oversight of Oil 

and Gas Activities on Federal Lands, GAO-03-517 (Washington, D.C.: Aug. 28, 2003). 

Page 5 GAO-07-659R Interior Management Challenges
3d. GAO reported that the Service has adequate authority to regulate outstanding 

mineral rights on refuges and recommended that the Service work with the 

Solicitor’s office to determine the Service’s existing authority to issue permits and 

set reasonable conditions. Did the Service ever follow through on this 

recommendation?

According to FWS officials, the agency has consulted with Interior’s Office of the 

Solicitor, which has concurred with the discussion of FWS’s authority in the draft oil 

and gas handbook mentioned in the response to Question 3c. However, it is not clear 

what the official FWS position is concerning the agency’s authority because the 

handbook is not yet public. 

4a. As 2006 drew to a close approximately 100 lawsuits were filed by Indian 

tribes against the United States for an accounting of their tribal trust funds 

because the 109th Congress adjourned without extending the statute of limitations 

for such claims as it has since 2001. In the past the GAO has encouraged the 

United States to explore the settlement of these claims before they erupted into

litigation. Does the GAO still support the settlement concept? Does the GAO have 

any opinion whether Congress should re-extend the statute of limitations to avoid 

litigation? 

While we have long recommended consideration of a legislated process for 

settlement of claims before litigation is filed, we do not have a position on legislated 

settlement of the existing lawsuits or extension of the statute of limitations for tribal 

trust fund claims. From 1992 through 1997, we monitored and reported on various 

aspects of Interior’s planning, execution, and reporting of results for its tribal trust 

fund account reconciliation project, which was statutorily required beginning in 1987. 

Between 1992 and 1996, we reported that, although Interior had made a massive 

attempt to reconcile tribal accounts during its reconciliation project, missing records 

and systems limitations made full reconciliation impossible. Accordingly, as early as 

1992, we recommended to Interior that it consider alternatives to account 

reconciliation including, if other options were unsuccessful, seeking a legislated

settlement process. Since 1997, many tribes have initiated lawsuits with claims 

related to account balances.

4b. The GAO's recent (December 2006) report on the Office of the Special Trustee 

(OST) indicates that the OST uses contractors extensively, but reports from Indian 

Country indicate that the OST has not made much of an effort to make contracting 

opportunities available to Indian tribes. In light of the overall federal policy of 

tribal self-determination, do you agree that there should be some effort to use 

Native American businesses to the greatest extent possible? 

We are not in a position to offer an opinion on this issue because our December 2006 

report did not examine OST’s efforts to make contracting opportunities available to 

Indian tribes.13 However, we found that OST’s largest contractor in fiscal years 2004 

 13GAO, Indian Issues: The Office of the Special Trustee Has Implemented Several Key Trust Reforms 

Required by the 1994 Act, but Important Decisions about Its Future Remain, GAO-07-104

(Washington, D.C.: Dec. 8, 2006).

Page 6 GAO-07-659R Interior Management Challenges
and 2005 was Chickasaw Nation Industries, an Indian-owned 8(a) small business. 

OST used an indefinite delivery, indefinite quantity contract with Chickasaw Nation 

Industries that allowed OST to award contract task orders quickly because there is no 

requirement for competition. OST’s second largest contractor in fiscal years 2004 and 

2005 was SEI Investments—which is not an Indian-owned 8(a) small business—for 

the operation and maintenance of OST’s trust fund accounting system, a modified offthe-shelf version of SEI’s commercial trust accounting system. More than 150 large 

financial and investment institutions use SEI’s trust management systems.

4c. No one thought that the Office of the Special Trustee would exist in 2007. It 

was supposed to be a temporary position. Should Congress set a specific date for 

the termination of that office as a number of Indian tribes have requested?

We believe the requirements in the American Indian Trust Fund Management Reform 

Act of 1994 are sufficient for establishing a termination date for OST.14 The act 

directed OST to develop a comprehensive strategic plan with a timetable for 

implementing identified trust fund management reforms and a date when OST will be 

terminated. However, we found that OST had not established a timetable or a date 

for OST’s termination, and we recommended that the Secretary of the Interior direct 

the Special Trustee to provide the Congress with a timetable for completing trust 

fund management reforms. In response, Interior stated that it expects to have a 

timetable by late June 2007 for implementing the remaining trust reforms including a 

date for the proposed termination or eventual disposition of OST. 

The Congress, in its review of Interior’s timetable, may disagree with the duration of 

the trust reforms and choose an alternative completion and termination date. OST 

plans to complete almost all of its key trust fund management reforms by November 

2007. OST told us that after November 2007 it will still need to verify the data in the 

Bureau of Indian Affair’s trust asset and accountability management system for (1) 

Indian lands with recurring income for which the land and leasing records in the 

management system matched with the information in the legacy realty system and (2) 

Indian lands without recurring income. 

4d. Over the last few years the Office of the Special Trustee has taken authorities 

and programs away from the Bureau of Indian Affairs as well as millions of 

valuable resources. This was never intended by Congress when OST was 

established. Did your studies show what the Department of the Interior plans to do

with all these activities when they finally shut down the Office of the Special 

Trustee? Did you receive any assurances that the administration will continue 

these programs or can this build-up of OST be a precursor to terminating these 

responsibilities?

Regarding the first part of the question, neither the Secretary of the Interior nor the 

Special Trustee has stated what will be done when the trust reforms are completed. 

Accordingly, we recommended that the Secretary provide the Congress with a plan 

for future trust operations, including, if the decision is made to terminate OST, a 

 14GAO-07-104. 

Page 7 GAO-07-659R Interior Management Challenges
determination of where these operations will reside.15 The American Indian Trust 

Fund Management Reform Act of 1994 states that the Special Trustee, in providing 

the Congress with a 30-day notice of completion, may recommend the continuation, 

or permanent establishment, of OST if the Special Trustee concludes that 

continuation or permanent establishment is necessary to efficiently discharge the 

Secretary’s trust responsibilities. 

Regarding the second part of your question, the Special Trustee for American Indians 

shares your concern that OST’s trust fund management responsibilities must 

continue into the future whether or not OST itself is terminated. OST has made a 

significant investment in developing an integrated trust management system to better 

ensure that ownership of lease and other income is accurately identified and paid into 

appropriate trust accounts. Taxpayer funds would be wasted if these programs were 

terminated without another capable organization identified to fulfill the Secretary’s 

trust fund responsibilities. 

5. I understand that most of the properties listed in your report regarding 

financial assurances for hardrock mining were in bankruptcy. In some instances, 

the discrepancy in the bond amount and the actual amount of money required for 

reclamation were due to the fact that reclamation conditions were exacerbated as a 

result of the bankruptcy (insufficient funds to run water pumps, etc.). In other 

words, the bond would have been adequate had the company remained solvent. 

Would legislation such as the Good Samaritan legislation introduced in the 109th

Congress by Congressman Duncan, H.R. 5404, which provides limited liability to 

private parties willing to assume reclamation (and contribute money or in kind 

services), help the federal government in reclaiming these properties?

Having adequate financial assurances to pay reclamation costs for BLM land 

disturbed by hardrock operations is critical to ensuring that the land is reclaimed if 

operators fail to complete reclamation as required. Financial assurances must be 

based on sound reclamation plans and current cost estimates so that BLM can be 

confident that financial assurances will fully cover reclamation costs. However, in 

our June 2005 report, we found that BLM did not have a process for ensuring that 

adequate assurances were in place.16 As a result, we reported that 48 hardrock 

operations in seven states had ceased and had not been reclaimed by operators, as 

required, leaving BLM with about $56.4 million in unfunded reclamation costs. 

Reclamation costs were not paid by the operators in these cases because some of the 

operators had outdated reclamation plans or cost estimates, while other operators 

had no financial assurances at all. 

Our work on hardrock mining was completed nearly a year before the Good 

Samaritan legislation was introduced. Consequently, we did not evaluate the 

legislation’s applicability to the problems that we found with financial assurances for 

hardrock mining operations. However, the recommendations in our report are 

intended to help BLM avoid being left with unfunded reclamation costs in the future. 

Specifically, we recommended that BLM state office directors establish an action 

 15GAO-07-104. 

16GAO-05-377. 

Page 8 GAO-07-659R Interior Management Challenges
plan for ensuring that operators of hardrock operations have required financial 

assurances and that the financial assurances are based on sound reclamation plans 

and current cost estimates, so that they are adequate to pay all of the estimated costs 

of required reclamation if operators fail to complete the reclamation. If properly 

implemented, this should help BLM reduce or eliminate instances where financial 

assurances are underestimated or based on unsound reclamation plans. While the 

agency has taken steps to implement these recommendations, we have not fully 

evaluated the impact of its actions.

- - - - - 

We are sending copies of this report to the Chairman and Ranking Minority Members 

with jurisdiction over the Department of the Interior and the Honorable Dirk 

Kempthorne, Secretary of the Interior. We will make copies available to others upon 

request, and the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. If you have any questions, please contact me on (202) 512-3841 

or at nazzaror@gao.gov. Contact points for our offices of Congressional Relations 

and Public Affairs may be found on the last page of this report. 

Sincerely yours, 

Robin M. Nazzaro 

Director, Natural Resources 

 and Environment

(360821) 

Page 9 GAO-07-659R Interior Management Challenges
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