The Department of Interior's Minerals Management Service (MMS) is peopled by those who hold the strings on America's natural treasures and is courted by those who, like the Deepwater Horizon drillers, want to exploit those resources.

Yet in the aftermath of the Deepwater Horizon accident, it is becoming apparent that the firewall that should exist between these two groups – the regulators and the regulated – is closer to a revolving door.

The Gulf oil spill has given fresh urgency to calls to reform the MMS, which has long been accused of having too cozy a relationship with Big Oil. But as the process of reform starts, new reports are revealing just how intertwined the MMS and Big Oil are – and how difficult it will be to separate one from the other.

IN PICTURES: Louisiana oil spill

Sen. Jeanne Shaheen (D) of New Hampshire went so far as to suggest in a letter to Interior Secretary Ken Salazar Wednesday that the agency be abolished entirely and rebuilt from scratch.

Her exasperation is a response to findings like those of acting Interior Department Inspector General Mary Kendall, who released a report this week that said relationships between MMS and industry officials often date back to kindergarten. The relationships could create a situation where personal connections undermine the MMS's ability to impartially oversee the oil-drilling industry, she told the House Natural Resources Committee during a hearing Wednesday.

"While there's no single right answer to resolving concerns about the MMS, it's clear to me that you can't just focus on restructuring but … reforming the character and culture," she said.

Experts caution against making MMS too much of a scapegoat for the Gulf oil spill. It has not been directly implicated in the Deepwater Horizon disaster, and none of the people in the IG report had been involved with the Deepwater Horizon rig. Moreover, Secretary Salazar noted that the MMS had approved and inspected more than 30,000 wells since its creation in 1982 without a major incident.

Broader factors play into the wild west attitudes around oil exploration, ranging from the Bush administration's pro-oil policy to new Obama administration incentives for oil companies to hurry up their exploration of leased lots – the so-called "use it or lose it" policy.

Yet the MMS is uniquely situated for vilification and reform. It receives billions of dollars a year in royalties from the industry it is supposed to regulate. Employees of the MMS and Big Oil routinely switch sides. And the MMS relies on industry expertise for environmental impact and assessment data that go into approving drilling permits, according to officials.

In many respects, the industry is seen as calling the shots for the MMS. "Obviously, we're all industry," Larry Williamson, district manager of the Lake Charles MMS office, told investigators.

As a result, "the culture of corruption is endemic," said Rep. Jim Costa (D) of California.

Efforts at reform had begun even before the Deepwater Horizon accident. Alarmed by a 2008 inspector general report that revealed sex and drug use at the MMS's Lakewood, Colo., office, the Obama White House had ended the controversial royalty-in-kind program and sent ethics coaches out to MMS employees.

Since the Deepwater Horizon blowout, Obama has outlined a plan to split the MMS into three distinct agencies to separate its $13 billion-a-year royalty arm from the permitting and inspection arm.

On Wednesday, Sen. Ben Nelson (D) of Nebraska introduced legislation to mandate a two-year waiting period between government and industry jobs in order to reduce industry influence on regulators. The legislation, called the Stop Cozy Relationships with Big Oil Act, would also make gift-acceptance, a key focus of the most recent MMS investigation, a felony with a possible 15-year prison sentence.

The reality, however, is that the MMS needs industry expertise to properly manage America's oil riches, says Inspector General Kendall.

"We can't govern human behavior by regulation or rule, but if you can be very specific in terms of the expectations and be clear about those, I think we'll be in a much better position," she said.

IN PICTURES: Louisiana oil spill

Related: