Federal officials who oversaw drilling in the Gulf of Mexico accepted gifts from oil companies, viewed pornography at work and even considered themselves part of industry, the Interior Department inspector general says in a new report (pdf).

Those revelations, sure to intensify criticism of federal oversight of offshore drilling as the massive Gulf leak continues, will take a starring role at a congressional hearing tomorrow.

The investigation uncovered violations of federal regulations and ethics rules by employees of the Lake Charles, La., office of the Minerals Management Service, the federal agency that oversees offshore drilling.

Interior Acting Inspector General Mary Kendall said her greatest concern is "the environment in which these inspectors operate -- particularly the ease with which they move between industry and government."

She added: "We discovered that the individuals involved in the fraternizing and gift exchange -- both government and industry -- have often known one another since childhood."

MMS Lake Charles District Manager Larry Williamson told IG investigators that many of the MMS inspectors had worked for the oil and gas industry and continued to be friends with industry representatives.

"Obviously, we're all oil industry," he said. "Almost all of our inspectors have worked for oil companies out on these same platforms. They grew up in the same towns. Some of these people, they've been friends with all their life. They've been with these people since they were kids. They've hunted together. They fish together. They skeet shoot together. ... They do this all the time."

A source told IG investigators that oil and gas officials on the platforms had filled out inspection forms, which would then be completed or signed by an MMS inspector.

The IG also "found a culture where the acceptance of gifts from oil and gas companies were widespread throughout that office," although that has improved in recent years, the report says.

Two employees at the Lake Charles office also admitted to using illegal drugs during their employment at MMS. The IG found that many of the inspectors had e-mails that contained inappropriate humor and pornography on their government computers. And between June and July 2008, one MMS inspector conducted four inspections of offshore platforms while in the process of negotiating and later accepting employment with that company.

While the report was not due to be released yet, Kendall said in light of the Gulf disaster, she felt compelled to release it now. The investigation was sparked by an anonymous letter in October 2008 to the U.S. attorney's office in New Orleans alleging that a number of MMS employees had accepted gifts from companies.

The IG presented the findings to the U.S. Attorney's Office for the Western District of Louisiana, which declined prosecution, the report says.

The report is a follow-up to a blockbuster IG report released in 2008 that detailed a sex, drugs and illegal gifts scandal at MMS (E&ENews PM, Sept. 10, 2008).

Details

A former MMS inspector sent an e-mail with pictures of the company plane on which he, an oil company official and others flew to Atlanta for the 2005 Peach Bowl game.

"E-mails for MMS inspectors from the Lake Charles office revealed that in 2005, 2006, and 2007, various offshore companies invited MMS personnel to events such as skeet-shooting contests, hunting and fishing trips, golf tournaments, crawfish boils, and Christmas parties," the report says.

One former MMS official wrote an e-mail saying he had "good friends" in the industry that he "wouldn't write up."

The gift culture declined after Don Howard, the former regional supervisor at the MMS office in New Orleans, was fired in 2007 for accepting a gift, the report says.

"Prior to our investigation of Howard, receiving gifts such as hunting trips, fishing trips, and meals from oil companies appears to have been a generally accepted practice by MMS inspectors and supervisors in the Gulf of Mexico region," it says.

The IG found numerous instances of pornography and other inappropriate material on the e-mail accounts of 13 employees, six of whom have resigned. There were 314 instances in which the seven remaining employees received or forwarded pornographic images and links from their government e-mail.

An MMS clerical employee told investigators that she began using cocaine and methamphetamine with an inspector when she started working at the agency about two years ago. The MMS inspector admitted that while he did not use the drug at work, he might have been under the influence of crystal methamphetamine at work after using it the night before.

A source told IG inspectors that company personnel completed inspection forms using pencils, and MMS inspectors would write on top of the pencil in ink and turn in the completed form. While IG inspectors reviewed a total of 556 files to look for any alteration of pencil and ink markings, notations or signatures and found a small number with pencil and ink variations, they could not discern if any fraudulent alterations were present on these forms.

Interior response

Kendall will testify tomorrow before the House Natural Resources Committee at an oversight hearing on the oil spill, the panel announced today. Interior Secretary Ken Salazar had already been scheduled to appear before the committee.

"The Inspector General report describes reprehensible activities of employees of MMS between 2000 and 2008," Salazar said in a statement. "This deeply disturbing report is further evidence of the cozy relationship between some elements of MMS and the oil and gas industry."

"I appreciate and fully support the Inspector General's strong work to root out the bad apples in MMS, and we will follow through on her recommendations, including taking any and all appropriate personnel actions," he added. "In addition, I have asked the Inspector General to expand her investigation to determine whether any of this reprehensible behavior persisted after the new ethics rules I implemented in 2009."

Salazar noted that within 10 days of becoming Interior secretary, he asked the Justice Department to reopen criminal investigations of employees involved in the 2008 report and promised to update departmental ethics policies and overhaul MMS's royalty collection system (E&ENews PM, Jan. 29, 2009).

Several of the employees mentioned in the new report have resigned, been fired or been referred for prosecution, Interior said. Those who are still working at MMS will be placed on administrative leave pending the outcome of a personnel review, the department added.

Salazar also has asked the inspector general to investigate whether there was a failure of MMS personnel to adequately enforce standards or inspect the Deepwater Horizon offshore facility and whether there are deficiencies in MMS policies or practices that need to be addressed to ensure offshore operations are conducted in a safe and environmentally sensitive manner, Interior said.

Salazar has signed a secretarial order splitting MMS into three agencies to separate its energy development, enforcement and revenue collecting functions. The three jobs currently performed by MMS, which collects $13 billion in revenue every year, "are conflicting missions and must be separated," he said last week (E&ENews PM, May 19).

Reaction

The report drew swift rebukes from lawmakers.

"As if catching MMS employees literally in bed with industry officials wasn't enough, MMS safety inspectors were flying high in private jets taking bribes while allowing oil and gas companies to fill out their own safety inspection forms," said House Natural Resources Committee Chairman Nick Rahall (D-W.Va.). "It's past time for MMS to stop acting as a farm team for the industry -- the Deepwater Horizon oil rig explosion is proof that this isn't just a game."

Senate Interior Appropriations Subcommittee Chairwoman Dianne Feinstein said her panel will hold a hearing on the administration's proposed restructuring of MMS on June 16.

"This new Inspector General report is yet another black eye for the Minerals Management Service," Feinstein said. "Once again, MMS employees have been found culpable of performing shoddy oversight of offshore drilling. The report reveals an overly cozy culture between MMS regulators and the oil industry. ... The agency clearly falls short of providing effective oversight of the safety of deepwater drilling or the ethical collection of drilling royalties."

Darrell Issa (R-Calif.), ranking member of the House Oversight and Government Reform Committee, said there have been 10 IG reports and nine Government Accountability Office reports on MMS, but it took a "massive catastrophe to get anyone to read these reports and agree on the need for a massive bureaucratic overhaul."

"In typical Washington fashion, it takes something going horribly wrong, yet entirely avoidable before anyone pays attention to the long-standing need for reform," Issa added in a statement. "The report released today echoes the same problems that have been exhaustively reported on for years. From Toyota to Tylenol to BP, we are seeing the consequences of what can happen when the Congress and the Administration abdicate their obligations to scrutinize the bureaucracy and conduct ongoing and vigilant oversight."

Click here (pdf) to read the IG report.

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