Evaluation of the Impacts of Procurement Fraud and Corruption in Oil and Gas Industry in the Private Sector

Published: 2021-06-22 16:22:47
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Harvey Mudd College
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Research proposal
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Introduction and Background

The risk of bribery and corruption is one of the greatest threats to the oil and gas industry. For the last five decades, the US has been implementing policies and laws to curb corruption and fraud in the energy sector. The anti-bribery legislation regulates the activities of the energy sector. In particular, the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) work collaboratively to ensure transparency and accountability in the energy sector. Since 2009, the DOJ has presented approximately 108 cases involving bribery and corruption while the SEC has submitted 77 cases (Pwc, 2014). Notably, the cases have yielded $2 billion in fines and penalties. In 2010, companies settled charges involving fines and penalties to Foreign Corrupt Practices Act (FCPA) amounting to $1.8 million (EY, 2016). The first major case involving energy prosecution was the Siemens court case in 2008. The case focused on the companys subsidiaries in Bangladesh, Argentina, and Venezuela. The company engaged in a contract concerning electricity distribution and generation through illegal practice. As a result, it paid a penalty of $450 million to US authorities. Additionally, the firm paid $350 for disgorging profits. Moreover, four businesses made a $1.5 billion penalty for participating in bribery to facilitate the construction of a joint venture in Nigeria (EY, 2016). The four entities Technip SA, JGC Corporation, Snamprogetti, and Kellot Root and Brown pleaded guilty of the charges. In a similar fashion, a Swedish firm, ABB Ltd, paid FCPA charges to both SEC and DOJ for receiving kickbacks from Oil-For-Food-Programs in Iraq and Mexican-owned electric utilities. To be specific, SEC demanded $35 million as payment for disgorgement while it completed $19 million as payment to DOJ (Tomlinson, 2017). Procurement fraud is deeply rooted in the history of fraud. The bid process, especially in vendor selection, is the most affected area. In most cases, an employee who has a close relationship with a vendor who intends to win the contract may collude with him/her to influence the bid process.

Problem Statement

Eigen (2006) argues that economic crimes lead to far-reaching financial impacts on the economy. First, they affect the reputation of the company negatively leading to losses. Second, fines and penalties affect the overall operations of the company. EY (2016) reports that fraud and corruption predisposes workers to increased exploitation because of the eroded integrity of the top managers. Furthermore, the oil and gas sector may suffer losses due to the exploitation of the existing weaknesses in the internal control structures. According to Eigen (2006), procurement fraud occurs during the invitation of bids, vendor selection, vendor contracting or awarding tender, and during payment. Although private institutions have implemented procurement systems to curb corruption and fraud, there is evidence to suggest that there is a need to install new strategies to curb the growing threat. To a large extent, countries suffer from misappropriation of assets of both consumables and inventory (Mahdavi, 2016). The largest volumes of leakages of gas and oil occur during day-to-day operations. In countries such as Nigeria, corruption in the oil and gas industry has increased the national debt significantly. Despite its high earnings from crude oil, about 150 million individuals in the country live below the poverty line (EY, 2016). In light of the information above, this study aims at evaluating the impacts of procurement fraud and corruption in the private sector. The results of this study may create a platform for future policy makers to implement strategies to prevent the rampant cases of bribery and corruption. Moreover, the federal government may use the research findings to strengthen anti-graft laws.

Significance of the Research

The study aims at exploring the impacts of fraud and corruption in the oil and gas industry in the private sector. The study may enlighten researchers with new information concerning the factors that increase corruption and bribery levels in the energy sector. The data obtained in this study may help in uncovering important information to help anti-graft authorities deal with economic crimes in the country. Additionally, there is a need to develop corporate anti-corruption policy that focuses on accurate reporting of financial information and records. Apart from that, anti-corruption policies and financial controls can minimize the rampant cases of procurement fraud (Zakaria, Zakaria, Nawawi, Nawawi, Salin & Salin, 2016).

Theoretical Framework

The theoretical framework of the proposed study is hinged on the resource based theory and resource curse theory. As opposed to the resource curse theory, the resource based theory indicates that nations can attain modern levels of economic growth if they use the available resources appropriately (Lund University, 2015). However, countries that boast of diverse resources are likely to outperform their counterparts in the global markets. Conversely, the resource curse theory illustrates that nations with available non-renewable natural factors tend to attain slow rates of development. A resource curse, which is also known as the paradox of plenty, occurs due to mismanagement of resources and corrupt practices (Donwa, Mgbame & Julius, 2015). Therefore, the two theories are effective in this proposed study, as they may help in assessing progress or decline in growth of the US oil and gas industry in the private sector. Moreover, the research may add more insights on the two theories, especially because the study is specific in nature because it focuses on the private industry as opposed to a comparison of two or more countries.

Research Questions

With the aim of exploring the impacts of procurement fraud and corruption in the oil and gas industry in the private sector, two qualitative research questions will be posed.

RN1: Based on the available evidence and statistics concerning the oil and gas industry, what are the impacts of procurement fraud and corruption?

RN2: How can institutions eliminate procurement fraud and corruption?


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(2016). Internal controls and fraudempirical evidence from oil and gas company. Journal of Financial Crime, 23(4), 1154-1168.


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