Three reports released by the Office of the Inspector General at the Interior Department describe "a culture of ethical failure" at the agency charged with collecting billions of dollars in federal and Indian royalties.

Top officials and employees at the Minerals Management Service used drugs, engaged in sexual activity and accepted gifts from oil companies doing business with the government, the reports said. Two former officials -- Lucy Querques Denett and Gregory W. Smith -- were singled out for their misdeeds but the Department of Justice declined to prosecute.

"The single-most serious problem our investigations revealed is a pervasive culture of exclusivity, exempt from the rules that govern all other employees of the federal government," Inspector General Earl E. Devaney said in a letter to Interior Secretary Dirk Kempthorne, who promised to clean up the department when he took over in May 2006.

When interviewed, Denett and Smith failed to see any wrongdoing in their actions, according to investigators. Denett, who retired as associate director of the minerals revenue management program at MMS in February, manipulated government contracts to benefit a company created by a former MMS employee, one report said.

Smith, who retired in May 2007 as head of the royalty-in-kind (RIK) program at MMS, acknowledged using cocaine and marijuana and engaging in sexual acts with a subordinate. While he worked for the government, he obtained a job with an consulting company that did business with MMS, one report said.

Nearly one-third of RIK employees socialized with and received gifts from oil companies representatives, investigators said. Drug and alcohol use was pervasive, leading to sexual encounters between government employees and energy employees, according to one report.

Get the Story:
Report Says Oil Agency Ran Amok (The Washington Post 9/11)
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Sex, drugs alleged in oil deals (The Denver Post 9/11)
Sex, Drug Use and Graft Cited in Interior Department (The New York Times 9/11)
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OIG Reports:
Gregory W. Smith | MMS Oil Marketing Group - Lakewood | Federal Business Solutions Contracts

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