Challenges at Chevron Corporation


Accounting Information System 2

Trimester 1, 2014/2015

Oil and Gas company- Texaco (Currently known as Chevron Corporation)

1.Four main problems the companies are facing during their operations.

  1. Texaco was accused for causing environmental devastation and health issues in Ecuador
  • In 1993, an accusation was made by Ecuadarian- American environmentalist lawyer against Texaco on for abandoned of a billion gallon wastewater, crude oil (with heavy metal and toxic), inappropriate cleanup, construction of oil roads exploitation exceeding 2.5 million acres of forest. Their operation had also caused extensive destruction to the Amazon societies. The local population relies on the river, rain water for bathing, drinking, and fishing. Subsequently, the native communities were infected by several diseases such as, headache, malnutrition,
  • However, on the other hand, Texaco has refuted the all allegations made in its official website. Texaco has invited several experts to independently examine the accusations made. After a few of the world’s prominent epidemiologist, scientific and medical professionals made a study on this matter, they came to a conclusion that it is insignificant that there are direct connection of oil related health risk from the areas. Besides that, researchers had also working together with the plaintiff attorney and environmental activist to further study the statistics and claims on Texpet’s previous operation have triggered the occurrence of several diseases. Instead, NGO and a number of international development agencies has conclude that the factors of disease happened are due to poor cleanliness, malnutrition, contaminated water, insufficient medical facilities and health care personnel.
  • Also, Texaco has also stated out some facts that were tried to undercover by the plaintiff’s attorney. For example, the oil sample used by the plaintiffs was not disposed by Texaco Petroleum Company, which also indicates that it was out of the company responsibility. In addition, the plaintiff’s attorney has been trying hard to hinder the civil court of Pichincha (for seven times) for inspecting the main laboratory of plaintiff in order to determine whether it is eligible to perform soil and water analyses. Furthermore, Texaco Petroleum Company’s cleanup was effective as confirmed by the government of Ecuador.
  1. Texaco unfulfilled cleanup responsibility
  • Texaco has been the only operator in Ecuador since 1964 to 1990. That region was deemed to be environmental disaster zone ever since 1980s. Although Texaco had spent $40 million in mid 1990s to remediate the area but it was actually insufficient. During Texaco operation in Ecuador, most of the transmission systems of oil had obsolete but no replacement was made due to the high budget. Thereby, spills and contamination occur. Texaco was actually the only operator of oil concession in Ecuador whom held the decision making authority including disposal of produced water. However, Texaco had made much effort to escape its responsibility by scapegoat Petroecuador. In fact, Petroecuador has inherited the inadequate infrastructure from Texaco. In 1991, Texaco was in progression of leaving Ecuador while Petroecuador has stepped in to take over its former operations.
  1. Involved promotional scam and fraudulent transaction
  • Chevron has bought Texaco in year 2000. At first the merged company was named ChevronTexaco. Later in 2005, the company name changed back to Chevron while Texco is still one of its brands. In 2009, Chevron has received many complaints about individuals counterfeiting the name of Chevron did several fraudulent business transaction. The perpetrator claimed that they were managing promotion provided by Chevron by asking the victim to fill up a simple entry form which can be in exchange with an “insurance payment’. When an insurance payment is requested, the target was required to pay the insurance installment through individual check or money order. In fact, Chevron knew nothing about it and has neither involved in offering such promotion nor hired individual to operate the promotion.
  • Besides that, there were also some others similar promotional scams like fictitious job offer scam, grant and donation scam, lottery winner scam, and procurement scam that made by third parties which have no relation with Chevron at all. All of the scams palm off Chevron name to defraud the public.
  • Such scams had seriously affected the fame of Chevron especially its credibility and integrity.
  1. Texacos operation practices was not in compliance with the rules and regulation
  • Ecuador’s government has required Texaco to adopt modern and efficient machinery in its operation and also prevent the pollution of lands, waters and airs. However, in 1942, Texaco has dumped the toxic “water of formation” which has been breaking the law. Later throughout 1970s to 1980s Texaco illegally made open air toxic waste. In addition, the company had also disposed contaminated waste water.
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2.Various controls that have been/ could have implemented to address those problems.

In today’s society, companies should implement an effective and appropriate internal control to ensure firm’s sustainability. Internal control is defined as the process implemented by the board of director, management to provide reasonable assurance. The objectives of internal control include safeguards assets, maintains records, provide accurate and reliable information, promote and improve operational efficiency, encourage adherence to prescribed managerial policies and comply with applicable laws and regulations. Internal control will also increase the role of corporate governance which provides better relationships among stakeholders.

Since Texaco Company has accused for environmental devastation and health issues, Texaco Company has made effort to remain in full compliance with applicable governmental regulations. It includes Comprehensive Environmental Response, Compensation and Liability Act, the Environmental Protection Agency. According to the annual report for year 1996 of Texaco, it states that the company has identified the potential environment, health and safety (EHS) risks and design its facilities and programs to minimize or eliminate them. It has trained the employees and holds them accountable for sound EHS practices. The progress includes putting safety first, reducing chemical release, cutting emissions and emergency preparedness.

By applying innovative technologies, Texaco has installed low NOx (nitrogen oxide) burners at the Pembroke refinery in Wales which have reduced significantly emissions of both sulphur dioxide and NOx. The company is associated with more than 30 oil spill cooperatives which had helped to reduce the number and volume of leaks and spills and maintain quick response when incident occurs.

According to annual report at year 2013 of Chevron, the company has applied Environmental, Social and Health Impact Assessment (ESHIA) process. The process provides a systematic and risk-based approach to identifying, assessing and managing potentially significant impacts. Texaco has also implemented Operational Excellence Management System (OEMS) which manage the process of safety, personal safety and health, the environment, reliability and efficiency. Texaco Company are engaged to various international, federal, state and local environmental, health and safety laws, regulations and market-based programs. There regulations are intended to address concerns about greenhouse gas-emissions and global climate change.

Then, for the accusation of Texaco not accordance to rules and regulations when practicing operation, Texaco has stated that the company is in action of control and abatement of pollutants into the air and water and to the appropriate recycling or disposal of waters. Included in this internal control system are Corporate Conduct Guidelines which require that all employees maintain the highest level of ethical standards. In the following years, Texaco has also adopted the use of environmental impact reviews, technology and the design of operations to minimize effects.

According to the annual report of Texaco Company, there is no relevant information stated to overcome oil spill clean-up. The company can practice operating in compliance with the rules and regulation. For example, the company should conduct business accordance to Environment Protection Agency (EPA). Its purpose is to protecting human health and the environment by writing and enforcing regulations based on laws passed by Congress. Texaco should also bear the responsibility of clean-up by complying the law, Oil Protection Act (OPA). By the act, it improved the nation's ability to prevent and respond to oil spills. Next, there are various advanced response mechanisms available for controlling oil spills and minimizing their impacts on human health and the environment. Texaco should implement the oil spill techniques such as mechanical containment or recovery. Mechanical containment is used to capture and store the spilled oil until it can be disposed of properly. The company should acquire some recovery equipment such as natural and synthetic sorbent materials.

In order to prevent promotional scam and fraudulent activities, internal control of each system has to ensure a consistent approach across all departments to make the plan is applied uniformly. All Departmental Heads, Managers, Team Leaders or equivalents are to have an understanding of the Fraud Control Plan content and the responsibilities allocated under the plan so that they wouldn’t have contradict the management towards the employees. Besides that, communication of senior management's strong commitment is essential to ensure there is regular communication to all staff promoting compliance with the Fraud Control Plan and adherence to the Fraud Prevention Policy. Moreover, accessibility to the Fraud Control Plan is required to let all staffs available through the Polytechnic's intranet. In addition to that, regular review of the Fraud Control Plan could solve the problem as the Polytechnic is committed to review its Fraud Control Plan every two years to ensure that it remains up-to-date and relevant.

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3. Argue why the problems are still occurring despite the internal controls being implemented.

Internal control basically was known as a process for assuring the achievement of an organization's objectives in operational effectiveness and efficiency compliance with laws, regulations and policies. A broad concept, internal control involves everything that controls risks to an organization. It provides a means by which an organization's resources are directed, monitored, and measured. It plays a major role in detecting and preventing fraud and protecting the organization's resources.

There are in fact a few reasons why the problems are still occurring despite the internal controls being implemented. One of the factors will be failure in the information and communication module of internal control to deliver complete and accurate output because of lacks in timeliness, completeness, or accuracy. The failure to obtain timely and accurate combining information from distant locations that is needed in order to prepare the financial statements. For example, Texaco’s operation practices were in compliance with the rules and regulation. Though they had purchase the machinery to prevent the pollution, the skill and knowledge of operating the machine was not effectively spread among the operation team and causing the workers to have less or incomplete knowledge of using the machine and yet pollution are still occurring after the adoption of the machinery. Besides that, the waste disposal team might have lack of supervision by the upper management and yet they applied their own method of disposing the toxic waste by all means and cause the prohibited open air toxic waste in 1980s.

The other reason why the problem still arises after implementation of internal control is inadequate design of internal control over a significant process. Take Texaco as example, the can be clearly seen as Chevron has received many complaints about individuals counterfeiting the name of Chevron did numerous fraudulent business transactions. The perpetrator claimed that they were managing promotion provided by Chevron by asking the victim to fill up a simple entry form which can be in exchange with an “insurance payment’. Temuco has failed to safeguard its asset from being misused by a third party after merging and causing public to believe Texaco is a scam rather than a good investing company. This happens because the company is not alert that the third party is actually using the information they can obtain from the company to convince the public to invest in it. The design of the internal control is not sufficient as they have to miss out those who are actually stealing company information for own beneficial.

Above all the reason, human are prone to making mistake, no matter how good the internal control are it won’t the flawless solution for all the problem. Each solution are like a two edge sword, every solved problem will create a new problem; as each solution won’t able to satisfied all the people and problem. Beside this, the mind set and culture of an individual will directly affect the solution outcome. Take an example, a short-sighted thinking decision maker will tends to think of a solution that only could temporary solved a problem but as time elapse, that problem will arise and history will repeat itself again. Humans are emotion beings, and incentives are the biggest seduction for us to make mistake and even fraud. Those who obsessed with monetary deluxe lifestyle will have a higher possibility to involve in bribery and other fraud linked to monetary incentive.

As for conclusion, there isn’t no perfect solution or internal control to solve all arise problem, the only solution that is near to perfection is to improvise and adapt to the problem and try to satisfied the majority and put away self interest in solving problem.