Hiding the Slip-Up on Oil Lease Accounting

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, Department 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 Inspector 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. Discussion Questions 1. Was the failure to collect the correct lease fees simply a mistake, an oversight? 2. 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 Sources do employees believe that they can conceal information from an auditor or, in this case as well, the public? 3. Should the oil companies pay the amounts that would have been due had the clause been in the lease? Why or why not?

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