FOR YEARS, critics have accused the Bush administration of being in bed with the oil industry. They thought they were speaking figuratively, but they weren't.

According to a scathing new report by the inspector general of the Interior Department, employees of the department who handle royalty payments from the oil and gas industry for drilling on federal land have accepted gifts from industry executives - and had sexual relations with them as well. With admirable understatement, Inspector General Earl Devaney declared, "Sexual relationships with prohibited sources cannot, by definition, be arms-length."

His office's investigations, he said, revealed "a culture of ethical failure" and an agency rife with conflicts of interest.

The report justifies the skepticism of many in Congress over the industry's recent push to use high oil prices to win permission to drill in the Outer Continental Shelf. A department that is as cozy with industry as the report spells out cannot be counted on to protect the public's financial, safety, or environmental interests - especially if the oil industry starts drilling in crucial fishing areas like New England's Georges Bank.

Devaney's report zeroed in on officials in the department's Minerals Management Service who handled contracts with oil companies that paid their royalties in barrels of petroleum, which the government then sold. But the report also puts a new light on revelations in recent years that the service has looked the other way and allowed the industry to escape royalties altogether for offshore drilling in the Gulf of Mexico. According to government auditors, the failure of service employees to collect payments aggressively could cost taxpayers $10.5 billion over 25 years.

The Clinton administration shares blame for this loss of revenue. In the 1990s, the administration persuaded oil companies to drill in deep-water areas with the promise they would not have to pay royalties on oil they discovered. Interior officials failed to include a standard provision that royalties would be due if the barrel price of oil exceeded $34, which it long since has. This omission was brought to the attention of Bush administration officials no later than 2004, but they never made any effort to renegotiate the contracts.

Members of Congress are already planning hearings in response to the new report. They should expand its scope to ask broadly whether the Interior Department has sufficient independence from the oil industry to oversee the drilling that is already going on - not to mention any new drilling in environmentally sensitive areas.