BP Demands Release of McGladrey’s Audit of Deepwater Horizon Oil Spill Claims

British Petroleum has filed a legal motion against the administrator of the claims settlement program set up to deal with victims of the 2010 oil spill in the Gulf of Mexico from its Deepwater Horizon oil-drilling rig to force him to release the results of an audit by McGladrey LLP that is costing BP more than $14 million.

The motion was filed Friday in the U.S. District Court for the Eastern District of Louisiana, according to a source close to BP.

"After more than a year’s work and BP’s payment of more than $14 million for an independent audit of the claims program, it is unacceptable that the Claims Administrator has not disclosed any information about the audit’s findings," said a statement from BP. "Rather than shedding light on this public claims program’s operations, the audit, which was commissioned last October because of concerns raised by BP about the program’s high costs and the Claims Administrator’s failure to properly manage expenses, has turned into another example of the program’s out-of-control spending. The accounting firm responsible for the audit has billed more than eight times its initial estimate, an astronomical bill that BP has footed along with the rest of the claims program’s administrative costs. The Claims Administrator’s refusal to provide the audit report flies in the face of his supposed commitment to transparency particularly given the evidence of fraud, mismanagement, and rampant inefficiencies that has come to light over the past year. The Court should order the Claims Administrator to immediately produce the materials from the audit."

In a letter sent earlier this month to Patrick Juneau, the administrator of the Court Supervised Settlement Program, the CFO of BP’s Gulf Coast Restoration Organization, Randy Latta, wrote, “This month marks the one year anniversary since McGladrey LLP was engaged by the Deepwater Horizon Economic Claims Center to conduct an internal audit of the Court Supervised Settlement Program. Since then, over $14 million has been paid by BP to perform this audit. As no additional funds have been earmarked to pay McGladrey beyond August of this year, it appears that McGladrey’s audit is complete. Yet to date, BP has not received any audit report(s) or work papers. The results of the McGladrey operational audit, including all reports and working papers that you have been or will be provided with, must be produced because transparency is a bedrock principle of the American judicial system.”

Latta complained about both the duration and fees charged by McGladrey for the audit, noting that the firm’s fees far exceeded the original budget estimates. The fees for the first quarter of 2014 were originally budgeted at $1.6 million, but the actual fees were $6.9 million, a difference of $5.3 million. The fees for the second quarter of 2014 exceeded the initial budget by $2.5 million. The estimated costs for the fourth quarter of 2014 were $1.2 million to $1.6 million, but the costs alone came to approximately $2.2 million.

McGladrey declined to comment on the letter. “As a matter of policy, we do not comment on client matters,” said spokesperson Terri Andrews.

BP sued last month to have Juneau removed as claims administrator, contending that his previous work with the state of Louisiana presented a conflict of interest. ”Mr. Juneau, who is paid more than $3.4 million a year to run the claims program, has presided over a shockingly inefficient process,” said the company.  “Over the past two years, operational costs have totaled $1 billion—that’s $10,000 in costs for each claim that has received an eligibility notice, while hundreds of thousands more claims still remain to be examined.”

However, oil spill claimants asked a federal judge to block the energy giant’s request last week, according to the New Orleans Times-Picayune, pointing out that BP had vetted Juneau before he was approved as claims administrator in 2012.

McGladrey’s audit is the second to examine the claims program. An earlier audit that Juneau had ordered found it was running properly, according to the Times-Picayune, but BP asked for a second audit by another auditor.

The Deepwater Horizon oil rig, which was operated by Transocean on behalf of BP, exploded on April 20, 2010, killing 11 workers and injuring 16 other people. The resulting oil spill from the ruptured oil rig, which leaked until September before it was finally capped, caused extensive environmental damage in the Gulf of Mexico and is considered to be the largest oil spill in history. In April 2012, BP pleaded guilty to 11 counts of manslaughter and a felony count of lying to Congress. The company also agreed to pay a record-shattering $4.525 billion in fines and other payments. Last month, a federal judge ruled that BP was guilty of gross negligence and willful misconduct, leaving the company open to $18 billion in penalties for violations of the Clean Water Act. BP has vowed to appeal, but has already recorded pretax losses of nearly $43 billion related to oil spill cleanup and settlement costs.