03/27/2000 03:25 PM Senate RES

                      SB  38-OIL & GAS AUDITS                                                                               
                                                                                                                                
CHAIRMAN HALFORD announced SB 38 to be up for consideration.                                                                    
                                                                                                                                
MR. KEVIN  BANKS,  Division of  Oil and Gas,  DNR, said  SB 38  is a                                                            
housekeeping  bill that  transfers  the authority  to audit  royalty                                                            
revenue  that comes  to DNR via  lease contracts  and other  methods                                                            
from the Department  of Revenue (DOR) to DNR.  It  also provides DNR                                                            
with  tools to  conduct  the audits  effectively.     DNR's  current                                                            
statute (AS  38) has a confidentiality  requirement but it  contains                                                            
no criminal  penalties  for misconduct.   Under  SB 38, DNR's  audit                                                            
requirements  would be  tighter and  would reflect  those in  AS 43,                                                            
which governs the audits done by DOR.                                                                                           
                                                                                                                                
SB  38 also  gives subpoena  authority  to  DNR when  conducting  an                                                            
audit,  which  DOR now  has.  The fiscal  note  reflects  a cost  of                                                            
$233,000 to pay for the transfer of staff from DOR to DNR.                                                                      
                                                                                                                                
CHAIRMAN HALFORD  asked why the money  in the fiscal note  is listed                                                            
as permanent fund corporate receipts.                                                                                           
                                                                                                                                
MR.  BANKS replied  that's  because  last  year DOR  identified  the                                                            
positions as  funded with permanent  fund revenue. Those  same funds                                                            
will be coming DNR's way.                                                                                                       
                                                                                                                                
CHAIRMAN HALFORD said he  would want to know that the permanent fund                                                            
is the potential beneficiary  to determine whether that is the right                                                            
funding source.                                                                                                                 
                                                                                                                                
MR.  BANKS  explained  that  DNR  has  some  staff  who  "check  the                                                            
checkers" on current  audits.  They are also doing  contract reviews                                                            
for royalty settlements  and looking at various royalty and kinds of                                                            
audits that are  not now covered by AS 43.  With the  combination of                                                            
staff, including  those from DOR,  it would approximately  equal the                                                            
portion  of the  revenue stream  that goes  to the  permanent  fund,                                                            
about 27 percent  of their royalty revenue.  After  transfer of this                                                            
authority,  they would  have seven  or eight people  on staff  doing                                                            
audits.  Three of them would be funded by this $233,000.                                                                        
                                                                                                                                
CHAIRMAN HALFORD  asked if three-eighths  of the activity  is to the                                                            
benefit of the permanent fund.                                                                                                  
                                                                                                                                
MR. BANKS agreed  that is about right  but it is possible  that more                                                            
is coming  out of the permanent  fund than  it receives in  terms of                                                            
benefits.  He said it is a hard number to arrive at.                                                                            
                                                                                                                                
SENATOR  GREEN asked if  SB 38 will  allow DNR  and DOR to  exchange                                                            
information and  thereby increase the exposure of  very confidential                                                            
information to  more eyes or whether that is not a  consideration in                                                            
this bill.                                                                                                                      
                                                                                                                                
MR. BANKS replied  that under current  law, DNR has access  to audit                                                            
reports and summaries.   In addition, according to Department of Law                                                            
opinions  written in  the  1980's, for  the purposes  of  conducting                                                            
DNR's royalty  function, DNR should  have access to any information                                                             
it deems necessary.   His staff would have to meet  the requirements                                                            
for maintaining  confidentiality  of information  received from  DOR                                                            
and be subject to AS 43 criminal penalties.                                                                                     
                                                                                                                                
CHAIRMAN HALFORD said it  looks like, in either case, the penalty is                                                            
a felony  for disclosing  the information.   He said he didn't  have                                                            
any  trouble  with   this  legislation  but  would   hold  it  until                                                            
Wednesday.