Question

Case 9.8 Business Ethics

Hiding the Slip-Up on Oil Lease Accounting: Interior Motives
In 1998, the Department of the Interior began an incentive plan for oil companies that per- mitted the companies to waive the 12.5 percent royalty generally paid to the U.S. government for oil leases on federal land. The idea behind the waiver was that oil companies would then have additional cash for purposes of drilling for more oil. However, the waiver was to stop if oil rose above $34 per barrel. When the leases with the oil companies were signed, Depart- ment of the Interior officials had neglected to put in the $34 per barrel cap. The leases ran for ten to fifteen years. Officials at the department discovered the omission in 1999, but did not reveal their mistake and just let the leases run without the cap. When an Office of the Inspec- tor General audit began looking at the leases, an employee within the department, who was later given a bonus, forged and backdated documents to try and dupe auditors into believing that the lease caps were in place. With oil topping $34 per barrel by 2002, and over 1,100 oil leases, the federal government lost billions in royalty fees by the time the New York Times discovered the misstep in the contracts.

Evaluate the conduct of the government official who developed the idea for forging and backdating documents to cover the oil lease oversight. Would a credo have helped? Why do employees believe that they can conceal information from an auditor or, in this case as well, the public?

Should the oil companies pay the amounts that would have been due had the clause been in the lease? Why or why not?

Answer 1

Forging of the documents by the government official to cover up the mistakes of the department of interior is outright immoral and unethical.This behaviour of the official reflects the culture of the department of interior.It is the department that encourages this sort of employee behavior.The evidence to prove this fact is that the government official was given a bonus after the forging exercise.It is clear that the culture of the deparment itself is in question which encourages such kind of behavior from its employees.

A well defined credo would have definitely helped in shaping the beliefs and principles of the employees of the department which would have prevented such kind of behavior from occuring in the first place.Just having a credo would not help much.However,acting based on the credo would go a long way in shaping the behavior of the employees of an organization.

Employees believe they can conceal information from auditors and the public because they have control and access to the confidential information of the company.Also,they think that it would not cause much harm to the company if they do so.

If the oil companies follows ethical business practices,they should pay the amounts to the federal government irrespective of the whether the clause was added or not in the lease agreement.

If the oil companies are not ethical, then they need not pay the amounts to the federal government as the clause was omitted in the lease agreement .Also,they are not legally bound to pay the amount.