Tue | Dec 11, 2018

Collin Greenland: Bad gas – tip of the corruption iceberg in the oil and gas industry

Published:Saturday | January 16, 2016 | 12:00 AM

The research done by highly recognised international organisations, support assertions made by president of the Jamaica Gasolene Retailers Association (JGRA), Leonard Green, that investigations into the current 'bad gas' scenario plaguing the island, could reveal that there is major corruption in the trade. It may be that the results of this probe expose other corruption-related concerns that are interrelated to, or even exceed the effects of the contaminated fuel that are now dominating media attention.

Transparency International, for example, in their most recent Bribe Payer's Index, revealed that of the sectors reviewed, the oil and gas sector was perceived to be more likely to bribe than those in other sectors; it was in the bottom 25 per cent of the 19 sectors identified.

It is also important to note that in its 2014 report, The Association of Certified Fraud Examiners (ACFE) pointed out that, except for the mining and real-estate industries, the oil and gas industry suffered the largest median losses of US$450,000 when they surveyed the effects of occupational fraud worldwide.

Ernst & Young Global Limited (EY) also surveyed this industry and asserts that, "The global nature and scale of the oil and gas sector, and the complexity of the working and contractual relationships with governments, venture partners, suppliers and other contractors, make compliance with all the various anti-bribery and anti-corruption regulations something that requires significant management focus."


Like all other industries, the oil and gas sector is susceptible to the three main categories of fraud classified by the ACFE, Corruption, Asset Misappropriation and Fraudulent Statements. The sector also manifests the causal factors of fraud that are best described in the 'Fraud Triangle' first introduced by Donald R. Cressey:

1. Motive (or pressure) - the need to commit fraud because of the need for money.

2. Rationalisation - the mindset of the fraudsters that justifies them to commit fraud.

3. Opportunity - the situation that enables fraud to occur, such as when internal controls are weak or non-existent.

However, the industry has manifested certain proclivities for risks associated with the frequent dealings with government officials; the heavy reliance on third parties; procurement challenges; efficiency of customs; regulations and joint ventures. For example, many organisations involved in the oil and gas sector are either wholly or partially state owned, and have to navigate bureaucratic scenarios, which results in many touch points with government where bribes can be demanded.

Typically, government officials have relatively low salaries compared with those in the private sector, raising the temptation for them to take bribes to supplement their incomes. Accordingly, EY points out that the high number of interactions with government across all levels of the oil and gas business increases the risk of corrupt practices influencing policy and officials using their positions of power to solicit bribes.

There is a heavy reliance on third parties also by oil and gas companies who often hire third parties to manage their on-the-ground transactions. As a result, various types of opportunities for field frauds abound, mainly vendor fraud and kickback schemes. Vendor fraud examples are many and may include phoney invoicing for unperformed or under-delivered goods and services; billing for undelivered rental equipment; billing ghost hours or even fabricating ghost employees; billing more than the going rate; etc.

Most of the frauds that involve kickback schemes can be even more expensive because they involve collusion from employees at the oil company and can occur in different ways, and may not be in the form of cash.

Against this background, it is understandable why, on commenting on the report done by the Bureau of Standards, Mark Wignall, in his column last Sunday, perceptively pointed out that, "Jamaica is a small country and it would not surprise me if the final report reveals certain incestuous relationships which ought to be questioned, at least, and broken up, at best."


Procurement in the trade, in particular, provide a key bribery and corruption risk area because of the high levels of expenditure involved in oil and gas projects. Locally sourced supplies and contracts awarded to local providers are often lucrative and highly sought after by local companies, creating the circumstances where there is a higher risk of fraud, bribery, corruption and other abuses.

While regulations stipulate competitive tendering, EY points out that there can be a propensity within the oil and gas sector to source contracts with a sole supplier. There are often valid reasons for doing so, such as a limited selection of technically skilled providers, providers already mobilised within a region or a need for expedited procurement.

While a relationship may appear above board on the surface, this type of contracting can disguise undisclosed conflicts of interest and kickback schemes. Additionally, where the process has been improperly conducted, financial losses can be incurred that can compromise the quality of goods and services provided.

Splitting of orders within the procurement process is also possible, in order to lower the level of approval required or to avoid tendering for a supplier. EY also acknowledges that while this conduct can conceal fraudulent activities, it is not always undertaken with corrupt intent, since they have observed staff viewing it as necessary to bypass 'bureaucratic' internal controls or to meet business demands.

Whereas the usual deterrence and preventative measures are essential in the industry, the ACFE and EY statistics reveal that the need for effective fraud risk assessment (FRA) is far more crucial than in many other sectors. FRAs are designed to identify potential fraud threats and weaknesses in controls that create opportunities for fraud, focusing specifically on control measures aimed at deterring, preventing or detecting fraud.

This methodology is by no means a panacea, but, if effectively employed, will assist oil and gas companies/stakeholders to proactively identify, assess, deter and protect against the gamut of fraud risks, of which the industry may be vulnerable, with 'bad gas' being just the tip of this oil and gas iceberg.

- Collin Greenland is a forensic accountant. Email feedback to columns@

gleanerjm.com and cgreeny.collin@gmail.com.