WASHINGTON — As Congress prepares to debate expansion of drilling in taxpayer-owned coastal waters, the Interior Department agency that collects oil and gas royalties has been caught up in a wide-ranging ethics scandal — including allegations of financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct.
In three reports delivered to Congress on Wednesday, the department’s inspector general, Earl E. Devaney, found wrongdoing by a dozen current and former employees of the Minerals Management Service, which collects about $10 billion in royalties annually and is one of the government’s largest sources of revenue other than taxes.
“A culture of ethical failure” besets the agency, Mr. Devaney wrote in a cover memo.
The reports portray a dysfunctional organization that has been riddled with conflicts of interest, unprofessional behavior and a free-for-all atmosphere for much of the Bush administration’s watch.
The highest-ranking official criticized in the reports was Lucy Q. Denett, the former associate director of minerals revenue management, who retired earlier this year as the inquiry was progressing.
The investigations are the latest installment in a series of scathing probes of the troubled program’s management and competence in recent years. While previous reports have focused on problems the agency has had in collecting millions of dollars owed to the Treasury, the new set of reports raises questions about the integrity and behavior of the agency’s officials.
In one of the new reports, investigators conclude that a key supervisor at the agency’s minerals revenue management office worked together with two aides to steer a lucrative consulting contract to one of the aides after he retired, violating competitive procurement rules.
Two other reports focus on “a culture of substance abuse and promiscuity” and unethical behavior in the service’s royalty-in-kind program. That part of the agency collects about $4 billion a year in the form of oil and gas rather than cash royalties.
Modeled on a private-sector energy company, the decade-old royalty-in-kind program transports, processes and resells the oil and gas on the open market. But while its officials interact with energy company executives, they are subject to government ethics rules, such as restrictions on taking gifts from sources with whom they conduct official business.
One of the reports says that the officials viewed themselves as exempt from those limits, indulging themselves in the expense-account-fueled world of oil and gas executives.
In addition, the report alleges that eight royalty-program officials accepted gifts from energy companies whose value exceeded limits set by ethics rules — including golf, ski and paintball outings; meals and drinks; and tickets to a Toby Keith concert, a Houston Texans football game and a Colorado Rockies baseball game.
The investigation also concluded that several of the officials “frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives.”
The investigation separately found that the program’s manager mixed official and personal business, and took money from a technical services firm in exchange for urging oil companies to hire the firm. In sometimes lurid detail, the report accuses him of having intimate relations with two subordinates, one of whom regularly sold him cocaine.
The culture of the organization “appeared to be devoid of both the ethical standards and internal controls sufficient to protect the integrity of this vital revenue-producing program,” one report said.
A spokeswoman for the Interior Department secretary, Dirk Kempthorne, referred inquiries to the Minerals Management Service. The service’s director, Randall Luthi, released a preliminary statement on Wednesday morning saying he had not yet seen the reports but had scheduled a mid-afternoon conference call with reporters.
“I will tell you that we requested this investigation in 2006 after an employee raised allegations of ethical lapses,” Mr. Luthi’s early statement said. “I look forward to having the opportunity to review the Inspector General’s findings so we can take the appropriate actions.”
A spokesman for Mr. Devaney declined to comment.
